The common refrain from any true believer in Communism (and even communism) is that it has never truly been tried. Forget the Soviet Union and those stuck behind the Iron Curtain, they were instead a corruptive manifestation of Stalinism that betrayed the ideals of Lenin, Marx and the “true” revolution. Maoist China doesn’t apply either for these people because it was a culturally impure strain (thus the “cultural revolution” that murdered millions and millions, but still wasn’t enough to distill communist purity).
We are amidst witness of the same kind of projection upon economics. More and more the sense of failure is palpable, and not just from common folk that live beyond the Establishment Survey and highly managed GDP reports. You know it is getting truly bad and desperate when even the orthodoxy begins to beg for reform.
However, their calls mimic that of the modern Communists. The current hero of the day, now that we have seemingly moved on from Thomas Piketty and his brand of statism “that hasn’t yet been tried”, is once more John Maynard Keynes.
Is there a doctor in the house? The global economy is failing to thrive, and its caretakers are fumbling. Greece took its medicine as instructed and was rewarded with an unemployment rate of 26 percent. Portugal obeyed the budget rules; its citizens are looking for jobs in Angola and Mozambique because there are so few at home. Germans are feeling anemic despite their massive trade surplus. In the U.S., the income of a median household adjusted for inflation is 3 percent lower than at the worst point of the 2007-09 recession, according to Sentier Research. Whatever medicine is being doled out isn’t working.
That seems to be a critique of all fiscal and monetary “stimulus” undertaken in the past seven years, and it is. But that setup is as my setup, mainly that the good doctor needed now, according to Peter Coy at Bloomberg, is Keynes. That would come as a major shock to almost everyone outside of the ideology as they might rightly ask whose theories have policymakers and authorities been following all this time?
Coy’s response is that it may be Keynes to some degree but not pure enough to be potent. Potency is really the problem, given that we see the “purer” doses of modern Keynesian to be poisonous, and thus their full measure might just well be fatal. As I have said far too many times to count, every single DSGE model used by central banks right now, including BoJ’s destructive influence, is Keynesian. The policies that are derived from those models may not be exact translations from The General Theory of Employment, Interest and Money but they are perfectly consistent with how Keynes saw the economy and really the world.
We have been living in the age of Keynesianism reborn from crisis (which his theory contributed mightily toward), but now we are being told that though it may have been some Keynes it was not enough Keynes. Apparently, like QQE purchases of Japanese government bonds, there is a magic and sadly secret formula which in the exact right formulation delivers enchanted economic properties. For some reason, like every monetary point, central banks and governments keep falling short in their mixtures as the answer to all our problems is always more and more of it.
“There are still many people in America who regard depressions as acts of God. I think Keynes proved that the responsibility for these occurrences does not rest with Providence,” Bertrand Russell, the philosopher, wrote in his autobiography in 1969.
If so many Keynesian gods would stop trying to manage and start trying see their own god-like tasking as menacing there would be less depression and such widespread failure. An asset bubble is no more an act of God as an act of perfectly captured humanism branded as “experts” on playing God. These are the same people that thought it not only possible but a duty to “fill in troughs without shaving off peaks” sitting around now trying to develop new theories as to why, suddenly, God shaved off the peaks.
The purest distillation of Keynesianism currently on earth is right now in Japan, right now destroying that economy from the inside out. The answers are not “how much” Keynes shall there be in any mechanical response, but rather “what else” beyond Keynes might there be. The central battle of our age, that upon which all this economic failure and rolling bubbles and crises rest, is allocation of resources via diktat or decentralization. The continued restive response toward more Keynes is the institutional distrust, nay despising, of common people and their ability to make decisions about themselves and their own situations.
An essential and enduring insight of Keynes is that what works for a single family in hard times will not work for the global economy. One family whose breadwinner loses a job can and should cut back on spending to make ends meet. But everyone can’t do it at once when there’s generalized weakness because one person’s spending is another’s income. The more people cut back spending to increase their savings, the more the people they used to pay are forced to cut back their own spending, and so on in a downward spiral known as the Paradox of Thrift.
In Keynes’ view, regardless of proportion, people must be actively repressed to do what is contrary to their own best interest. Can anybody seriously assert that hasn’t been the exact case in every instance of ZIRP and now further into negative nominal interest rates? This all gets back to rational expectations theory in that recessions are pessimism rather than anything tangible. Common folk, as these elitists view, simply are too captured by irrational emotion and thus too predisposed to undue pessimism.
Again, that is totally backward as Keynes has the Great Depression totally backward. People in 1929 (more like 1930 for broad “pessimism”) were right to be seriously dour as they had the good sense to see just how debased and imbalanced the “experts” had allowed, through direct intervention and management, everything to become. They correctly diagnosed that there was no way to sit idle and not be run over by the coming storm; it was coming with or without raw emotion.
The real nail in the Keynesian coffin, though, is the panic of 2008. We don’t even need to debate the cause of that panic to refute everything this new tide of Keynes wants to accomplish, instead to simply notice that the common folk were almost totally absent in involvement. The modern financial system was built by PhD’s, fashioned together by the best and brightest financial minds, courted and nurtured by elite policymakers using the tools provided by Keynes best “insight” and when the time came for top-down managerial expertise to take over and “save the day” it all failed spectacularly.
The panic of 2008 was a panic of banks running on banks, and the very people who should have known not just about that but what to do in opposition and alleviation were the very people who were clueless and cowardly. In other words, the centralized function rejected its own craft in the exact same fashion as common people in 1929 saw the imbalances for the disaster they would make. The downside of depression is not a projection of problematic pessimism, but the inevitable eventuality of having “experts” trying to manage the upside.
To those that use Keynesian models this is far too lively and real to be acceptable to their delicate sensibilities, and thus the mantra that “it wasn’t enough Keynes.” In fact, there is almost an axiomatic response, proofed recently as even the centralized experts panicked because the math is too clear and thus ubiquitous across all time and ages – bubbles burst.
Call it secular stagnation if you want, but the latent problems now are traced to forty years of combining Keynes with monetarism and injecting them as imbalances as if imbalances with intent are any different than imbalances as acts of God. Peering behind the veil of modern economic “science” shows that the historical record was actually never free of human interference and that bubbles are as old as “markets”, with the fingerprints of “experts” all over all of them.
The global economy has been managed and repressed and beaten to submission by monetary and fiscal Keynesianism, so the quantity of it is not in any way the relevant factor at all. Like those still pining to remake the Soviet Union in its “perfect” vision, those looking for the “perfect” Keynes (not too far apart from each other) are going to be desperately disappointed as there is no such thing as either. The flaw isn’t in the execution, it is the basic theory. The Great Recession should be rebranded the Great Keynes Recession, with the lack of recovery neatly and appropriately falling under that same moniker.