The Keynesian disease

It would be horribly churlish of me to disagree with this marvelous essay by James Hamilton. But there’s one sentence in it – one word really – that jars. He says:

I fear that in the future of the left there are no Keynes, only Kleins.

He’s certainly right to lament that an airhead like Klein is considered a leftist intellectual. And he’s spot-on to fear the left will produce “florid protests and policy impotence, best-selling books and films but no solutions or ideas.”

What I object to, though, is the presumption that Keynes was a valuable leftist figure. He wasn’t. His ideas had a massively malevolent impact upon the left’s intellectual development.

Before Keynes, there was a fascinating economic theory of socialism – the market socialism of Enrico Barone and Oskar Lange. Whether this was viable is a hotly disputed question. Hayek thought not; his arguments against it are in this book, and the debate is summarized here. However, it’s very possible that the market socialism of Lange and Barone would have mutated into workable models, as John Roemer has shown in these books.

Keynesian economics, however, ensured that this road was not taken. He replaced market socialism with the notion that some socialist goals – full employment and some income equality – could be achieved by tacking onto capitalism a few macroeconomic policies: demand management and progressive taxation (the latter was thought to boost demand because Keynes thought that the rich tended to save their money more than the poor did).

The impact of this was disastrous in four ways.

1. It left capitalist power hierarchies unchallenged. The tyrannical megalomania of the boss class was tempered by unions, but its legitimacy was accepted by Keynesian economics in a way that it wasn’t by the market socialists.

2. Keynesian economics rested upon the presumption that a central agency – the state – was expert enough to control the economy. This naturally meant that the potential for mass class action – the wisdom of the crowd – was denigrated. It was a Keynesian, Douglas Jay (father of the ridiculous Peter), who said: “the man in Whitehall knows best.” It was a pre-Keynesian leftist, Woody Guthrie, who believed that “if everybody stood up and said what they thought, the best effort of everybody’s contribution would work itself out into a better country for everybody.” (Arlo Guthrie’s words).

3. Keynesianism gave the right some great ammunition. It meant they could attack the “left” at its weak point – its belief in centralist managerialism – rather than its strong point, the belief in equality.

4. When Keynesian economics collapsed in the 1970s, the left had no economic ideas to fall back upon. The legacy of that demoralization is still with us.

But it needn’t be. There are good leftist economic ideas around. And here’s what worries me. Had James written: “I fear that in the future of the left there are no Roemers, only Kleins”, he would have nailed it perfectly. Which raises the question: why is the popular left so ignorant of the good ideas they could adopt? Could it be that they have been seduced by the celebrity-driven mass media that produces Kleins and Moores, and are ignorant of the richness of the intellectual resources available to us?

Comments

[Backword Dave]

Mebbe I'm wrong, but I think I detect a contradiction here. I don't much support central planning, but more because I think central planners are no good on what people want (and wants are very hard to articulate) than because I think that they can't grasp the state of the nation.

I have problems with:

It was a Keynesian, Douglas Jay (father of the ridiculous Peter), who said: “the man in Whitehall knows best.”

Partly because I don't see the relevance of his progeny (and I can't at the moment recall who Peter Jay is -- is he related by marriage to Callaghan?) and because I do believe that “the man in Whitehall knows best” when we're talking about the likelihood of hurricanes or grain supply next year. Some people are better informed and therefore know better. As a reader and admirer of Daniel Kahneman you must know that having access to some statistics is not enough. For Woody Guthrie's formula to work, we'd need a much better media. (This isn't a recent media problem -- Citizen Kane is about media distortion.)

Indeed, having praised the "wisdom of crowds" you then ask (I paraphrase) "why is the [crowd] so ignorant of the good ideas they could adopt?"

Access to good ideas and the right kind of information is all-important. And I don't see the internet improving matters.

[Paddy Carter]

Experience has shown the failings of Keynesian economics, and should they ever be put in the practise I suspect experience would show the failings of your good leftist economic ideas too. I don't see how you can hold the latter above the former, when the latter is still only on the drawing board.

Not so long ago you put up a post asking whether the left had any decent ideas, and while some commentators came up with some decent ideas, I don't recall any of them being especially "leftish". James Hamilton's essay is marvelous, but a concern with housing, health etc. - generally speaking, a concern with the everyday welfare of the less well off - might be laudible, and who knows perhaps it is at the end of the day what defines the left, but it is not an economic or social philosophy, set of policies, or whatnot - it's a end, not a means. It says nothing about how to maximise the welfare of those with whom the left is concerned - the answer to that question may well be so-called right-wing social & economic theories (I'm not saying it is). Surely what the left so desperately needs is some means - it's got plenty of ends.

It's not an orgininal observation that the old left and right battle lines are useless, but I'm buggered if I know what being left means any more, and I fear it's nothing more than Klien&Co.

[Bloggers4Labour]

If you fancy contributing to the same essay series as James, give me a shout or leave a comment on the site. You don't have to be a Labour supporter, just well-intentioned. More info here:

http://www.bloggers4labour.org/2005/08/essays-update.jsp
http://www.bloggers4labour.org/2005/08/where-do-we-go-from-here.jsp

[PrestoPundit]

If you aren't sure whether Hayek was right about the impossibility of central planning, you need to read Don Lavoie's _Rivalry and Central Planning_. After reading that book, you'll understand it's "case closed" on this matter.

(Case closed, that is, unless socialism is your personal religion, immune to reason, evidence or argument -- which is sadly so often the case.)

[Robert Schwartz]

Equality? The left is interested in equality? I don't think you understand. The left was never interested in equality. Orwell sussed it out. Some pigs are more equal than other pigs.

Equality was only a tactic, a critique of the bourgeoisie who claimed to have abolished hereditary nobility, but who disdained distributional justice as a meaningless errand into the wilderness, because they knew that redistribution would doom their quest to accumulate capital and create the new industrial world.

What the left really wanted was communism, and they knew, just as Plato did, that the only way that a communist society would ever come into being or survive would be if it had Platonic Guardians a/k/a Philosopher Kings or the Vanguard of the Proletariat.

Of course in the real world, the Guardians become the Nomenklatura, and unlike the bourgeoisie, who have no title to their position other than money, they become a closed order more sealed to the outside than any feudal hierarchy ever was.

And this is why they have no ideas. Their one real idea, that they born with whips and spurs so that they should ride the rest of us who were born with saddles and halters, has proved as vain as the divine right of kings. All the left has left is the gall-bitter knowledge of defeat and a purblind hatred of the Jews and the United States.

So now they sit around and plot to turn the world over to the islamo-nazi enemies of all bourgeois and western values. They say to themselves: "If I cannot have it, let them rot in Hell under our worst nightmare."

[Remittance Man]

The unfortunate fact is that the standard of intellectual debate on the left has declined appallingly.

Whether this is because Keynes's ideas came to dominate leftist thinking I do not know. But the truth is that the great philosophical debate of the late 19th and early 20th centuries has been replaced by something little better than psuedo-intellectual posturing today.

Sadly this lack of thought is common on the right as well, but at least conservatism doesn't claim to have been founded from the principles of a particular philosophy in the way socialism does.

RM