Keynesianism, left & right

Nick Cohen raises a point that has long puzzled me. He says:

As a rule you will find that the great questions of an age create divisions within the left and within the right rather than between the left and the right. In every instance, that is, except one.

The exception, he says, lies in attitudes to fiscal austerity; the right are pretty universally for it and the left pretty universally against.

I say this is puzzling because it's not obvious that there should be a strong logical connection between one's political opinions and attitudes to Keynesianism, for four reasons:

- The question of the size of fiscal multipliers is a (hard-to-measure) technical one, not a matter of political opinion. If a multiplier is 1.5 rather than 0.5, it is so whether you're a leftie or rightie.

- It's not obvious that material short-term class interests explain why Tories are opposed to Keynesianism. Fiscal expansion can be good for profits and well as jobs. And insofar as such expansion helps raise real interest rates, it's good for the retirees who form much of the Tories' electoral base.

- You can support Keynesianism without supporting big government. This was Keynes' own position. As Mark Thoma has said, "there is no necessary connection between the size of government and Keynesian stabilization policy."

- For most of the 50s and 60s, the right did subscribe to Keynesianism. It was Milton Friedman, not Richard Nixon, who said "we are all Keynesians now."

Why, then, should attitudes to Keynesianism now be split on left-right lines?

I don't think it's got much to do with attitudes to inflation. Early Keynesians were at least as hostile to inflation as monetarists were in the 70s and 80s. The authors of the 1944 white paper, Employment Policy (pdf), for example, wanted "a firm determination to keep stability in the general level of prices."

Instead, I suspect there are three possibilities. One was suggested by Kalecki - that a pro-capitalist government must reject Keynesianism, despite its short-run benefit to capitalism. in order to ensure that power over the economy remained with capitalists rather than the state over the long-run.

A second possibility lies in public choice; the right fear that Keynesianism does lead to big government, because governments find it easier to raise public spending in good times than cut it in bad.

A third possibility is that the right have become more dogmatic believers in free markets than Keynes was. Keynes thought markets were micro efficient but macro inefficient:

When 9,000,000 men are employed out of 10,000,000 willing and able to work, there is no evidence that the labour of these 9,000,000 men is misdirected. The complaint against the present system is not that these 9,000,000 men ought to be employed on different tasks, but that tasks should be available for the remaining 1,000,000 men. It is in determining the volume, not the direction, of actual employment that the existing system has broken down.

However, today's rightists cannot admit even this one failing of the free market.

I'm not sure which of these explanations, if any, is right. But whatever the explanation is, it'll have to be very powerful to explain why the left-right distinction is so closely connected to the pro- and anti-Keynesian distinction.

Comments

[Owen Tudor]

Chris, two reflections on your excellent question. Firstly, there is something here merely about the political weather. In the 50s and 60s, right wing politicians were Keynesians because the prevailing public mood was pro-Keynesian. The monetarist take-over in the 1980s was associated with a swing to the right, and even social democrats abandoned Keynes (I'm not being determinist about these political shifts, but a comment on a blog is too short for sophistication!) There are always people who don't fit the left-Keynes association (Martin Wolf is not a communist, and what about In the Black Labour?) which suggests it's not a simple identification.

But secondly, isn't a lot of it about debt, and moral philosophy rather than economics? Current Government policy is not one way on shrinking the state. Whilst a traditional Keynesian position would boost the economy by raising state spending or cutting taxes, as you say, the coalition intends to do neither of these (it is actually increasing spending by increased government borrowing of course, but they didn't plan to). Hence Krugman's concern about the confidence fairy.

And third, Republicans and Conservatives have become defined more by cultural than technocratic concerns since Keynes' heyday - the reason there are so few Keynesians in the Conservative Party is because, like the Republicans, but actually far, far worse, its activist base has narrowed: so Cameron is a prisoner of the Euro-sceptic right, whereas Romney beat the Tea Party hands down because some Republicans can still do the math.

[Edward Harkins]

- For most of the 50s and 60s, the right did subscribe to Keynesianism. It was Milton Friedman, not Richard Nixon, who said "we are all Keynesians now."

An aside on this is that the currently near-universal mantra in the UK of 'increased investment in infrastructure as a way out of recession' is a curious paradox. On the centre/ centre left this is a conflation or confusion between classic Keynesian 'stimulus' and expenditure on infrastructure (despite infrastructure not being a proven way out of recession). On the right we have a Conservative Coalition UK Government supposedly bent on austerity and yet joining in the chanting of the mantra 'increased investment in infrastructure as a way out of recession'

[Stigand]

A very good question. Another possible reason the Right has turned against Keynesianism in the UK and the US is that supporter base includes more financiers than it used to and fewer industrialists. The CBI's recent support for Ed Balls' kiteflying on house-building is a reminder that right wing industrialists still like stimulus, even if the hedgies don't.

[Tom Addison]

It's because a lot of people don't understand what Keynesianism is actually about. With regards to people I know, a lot of them have heard of Keynes; this alone is enough to make them feel really clever. Problem is they think Keynesianism is about "tax and spend", and that's it.

Still, not as bad as a lad I knew at Uni who we called Tim Potatoes, who when I told him I was studying economics said, "Ah yeah, it's all about oil, innit".

[Anonymous]

The right's almost religious belief in the moral virtues of "free markets" explains their rejection of Keynes. To them, there is no such thing as market failure - markets always deliver just outcomes. To intervene in markets, as per Keynes, is to subvert the invisible hand of God in allocating resources to those who deserve

[Tim Worstall]

"A second possibility lies in public choice; the right fear that Keynesianism does lead to big government, because governments find it easier to raise public spending in good times than cut it in bad. "

I find that a very difficult one to argue against.....

[BT London]

This post has it completely wrong.

If the economy is weak, the right are always in favour of implementing more government spending on the military, more corporate handouts and tax cuts for the rich - even if it means borrowing more to do it.

'Tax cuts will pay for themselves' is not just a supply side argument.

'Cutting military spending costs jobs' is not just a supply side argument.

'The government should be pro-business, stepping into help our companies when they need it' is not just a supply side argument.

It is just that the *word* 'Keynesian' has become associated with the left. The economic ideas of Keynes are there on both sides of politics.

At the conservative conference, the entire party was desperate for a tax cut to boost demand and economic growth. They were depressed by Osborne sticking to plan A.

[BT London]

Oh, and remember that the 'free market' as promoted by the right is just socialism for the rich.

The right does not want the poor and needy to benefit from socialist policies, but they have always been perfectly happy for the rich and powerful to benefit from government policy.

[Luis Enrique]

There may well public choice type concerns, but are they sufficient to justify austerity that inflicts large welfare losses on people in there here and now? Also possible to increase investment spending whilst keeping lid on recurring costs

[Richard]

"It was Milton Friedman, not Richard Nixon, who said "we are all Keynesians now.""

I believe Friedman was referring to the tools of Keynesian analysis rather than Keynes's theories. The full phrase is: "In one sense, we are all Keynesians now; in another, nobody is any longer a Keynesian."

[Luke]

"A second possibility lies in public choice; the right fear that Keynesianism does lead to big government, because governments find it easier to raise public spending in good times than cut it in bad."

Not sure if I'm misunderstanding the original point or Mr W's comment or both. Yes, I can see a legitimate concern, justified or not, that govts won't cut spending in good times. But "than cut it in bad"? Is the right's ( and Mr Worstall's) fear that govts will get it wrong both in boom and bust? Ie that they'll cut in bad times and spend in good? There's some evidence for that, bit shouldn't that also be a left concern? ( the cutting in bad times that is)

[albrt]

The right has become quite focused on ensuring the working people are not in a position to complain much. 10% plus unemployment (historically known as "favorable labour conditions") does wonders for costs. If it spirals out of control until it cripples the broader economy, well that's just another tragedy of the commons.

And bonus points if you can blame the job losses on the left.

[Frank Little]

When Friedman made the remark, was he still a socialist, or had he already moved towards conservatism?

[PoachedWonk]

Well its a false choice. Everyone is a keynesian still. Every S&P 500 benefits from government funded support.

Romney's villifying of Obama's plan to cut military spending is an effective concession to Keynesian arguments.

[o. nate]

At least in the US, the right usually supports Keynesian policies when they are in the form of deficit-financed tax cuts.

[Szczepan Stachura]

I think an article by Michal Kalecki from 1944 "Political Aspects of Full Employment is very much relevant here.

http://courses.umass.edu/econ797a-rpollin/Kalecki--Political%20Aspects%20of%20Full%20Employment.pdf

[SimonS]

Yes, I think Tim Worstall is correct.

The suspicion that the Right has is that the Left has put full employment on a pedestal, in the sure knowledge that the only way to approach achieving it is via the Big State model. The Right also believes that the Left really doesn't give a monkey's toss about full employment, because they, the Left, know that the only way it can be achieved on a continuing basis is by millions of people being forced to produce goods and services that people don't really want.

So from the Right's point of view, Keynesian demand management is no more than a false flag displayed by the Left, in order to promote the idea that collectivism is the only sensible way to organise society, and that the individual must always be presumed to be subordinate.

Certainly the non-serious Right is only advocating capitalist free-markets because they see that they, personally, will be better off under this system. As with the Left, they too display a false flag with the claims that trickle-down benefit is an automatic part of free-market value creation, and that rent seeking, or the acquisition of the value of others, is a minimal problem which can safely be ignored.

The sensible Right, on the other hand, recognises that private enterprise has many warts which need to be controlled, but at the same time that the creative abilities of millions of free people enables value creation on a scale that is unthinkable if the onus for generation is in the hands of State committees. Individuals have a good in them that just can't be synthesised into committees, and an evil that requires the collective to control. Both the modern Left and the modern Right seem hell-bent on ignoring this.

[Pat]

Evolution, global warming, and Keynesianism. It might be time to acknowledge the political right will disbelieve any topic of new knowledge if they believe it will piss off the liberals they resent. Call it ignorance as a political tenet.

[bobzchemist]

I think (at least in the US) you are leaving out the right's fanatical determination to bring about the (political) demise of Obama, at any expense, even to the utter destruction of the US economy.

If a Republican had held the White House, there would be stimulus dollars running out of our ears, the US military would be swimming in money, the Bush tax cuts would be permanent, and there would be resounding choruses of "the deficit doesn't matter" emanating daily from the US House of Representatives.

Republicans are only in favor of austerity/small government when Democrats run things. In the US, greed and lust for power explains almost everything Republicans do. I am honestly baffled by what's going on in the UK, though.

[Roger Lindsley]

Keynesianism is indelibly associated with Progressives. Ad hoc opposition to Progressives, and a human tendency to double down on a bad decision instead of walking it back gives us- today. Logic is a bit player interrupting the stars of power-lust, campaign finance, and intransigence.

This discussion presents the illusion of a considered debate when not one of the serious actors will stoop to reason. The well off lack an incentive to incur national debt, the not well off are powerless and becoming more so. This isn't rocket science, it is dismal science.

Having these discussions is a waste of time at best. I truly feel that it is presenting an entirely one sided argument as a debatable "choice". It is like debating evolution, nobody wins and time is wasted.

You are subjugated, get on with it.

[Tory Boy]

Who are they going to vilify for dependency and preach to about self discipline and reliance... themselves and core supporters while all on the govvie tick?

They would rather visit a madam for that sort of self revelatory experience..

[SimonS]

Pat : 9.31pm

Ah, but is it new knowledge? Or is it just the latest variation of the old tune of presenting idealist fantasy as though it is reality? Certainly with modern Keynesianism and Climate Change - are they really truth, or is it not more likely that they're fabrications designed to further the cause of a fixed ideology?

Evolution is slightly different. You can't tie the Right exclusively to Creationism. There's a group, of course, who think that accepting Creationism is something that is good for mankind, even if the beliefs are not correct. Many on the Right don't accept this, and they argue moreover that the advocates of Creationism are in fact following the same argumentative path as the advocates of collectivist politics and the AGW fanatics, in so much as they arguing from a fixed belief-structure from the point of view that it has actally been proven to be correct.

[Bala srini]

Put yourself in the shoes of the wealthy.
What do you want?
Wealth protection.
You have so much already it doesn't matter if it doesn't grow provided it doesn't shrink.and contrary to what Romney claims, the last thing in wealthy minds is investment and job creation.if it happens,good,but at best a toss up.
It follows the wealthy worry abt taxes,infln,currency- the risk sources for their wealth.
Not difficult to understand.

[Matias Vernengo]

Not sure I agree. A good chunck of the left (Socialists in Greece and Spain, for example, and most left of center governments in Latin America) remain pretty skeptic about the positive role of fiscal expansions. So does a good part of the Dems in the US, Clinton and Obama for sure.

[Les Spero]

The right denies Keynesiamism because it no longer works. The theory behind Keynes' is that it jumpstarts an economy by spending money created by deficit spending(borrowed money). This works the first few times it is tried because people see money being spent and jump on the bandwagon creating growth in the economy. But as stimulus becomes more frequent, businessmen in particular realize that the stimulus is temporary (because unlimited deficits year after year are impossible), and do not react to the stimulus. Stimulus used to work in the US but since 2008 it has had little to no impact as everyone knows the stimulus will someday have to be taken away. In other words, expectations drive behavior and the current expectation is that stimulus must be temporary. Keynesianism worked in the thirties but it cannot work in an economy with an already high level of debt to GDP.

[gman]

The rhetoric coming out of the hard right in US has rejected both Keynes AND Friedman..strange days. Any sort of of counter cyclical efforts are derided. "Austerity and sound money" seems to be the battle cry...as someone said up thread "it may just be because Obama is in power"..scorched earth!

[student accommodation london]

It's because a lot of people don't understand what Keynesianism is actually about. With regards to people I know, a lot of them have heard of Keynes; this alone is enough to make them feel really clever. Problem is they think Keynesianism is about "tax and spend", and that's it.