It's Time to Slay the Revenant Keynes Share This:

Naturally, many prominent economists are viewing this development with horror. "People are saving! The economy will collapse! We've got to get them spending! Paradox of thrift!"

The

I think I have finally learned where such silly notions arise. I recently read an article by an Austrian economist (alas, I've forgotten who, so I can't give proper credit) that explained it thus: in the Keynesian view, an economy is driven by consumption, whereas in the Austrian view, an economy is driven by production (and savings).

So to a Keynesian, an economy is healthy as long as people spend, spend, spend...even if they have to borrow, borrow, borrow to do it. And if they stop spending, they must be made to spend more. And if they refuse, then the government has to do the borrowing and spending for them. (Somehow freedom of conscience never seems to be honored in the economic sphere. Can't I be a conscientious objector to Keynesian stimulus?)

This, despite the fact that to the best of my knowledge, the theories of Keynes have never been scientifically proven or even substantiated. No Keynesian intervention has ever been shown to work. So why are they always the first resort? Because whether or not they work, Keynesian prescriptions are convenient for those in power. They give the state a plausible cover, that the citizens will accept, to enlarge its power.

So, it's time to slay the revenant Keynes. Like Karl Marx, his half-baked theories reach from beyond the grave to strangle societies and ruin people's lives. It's Ptolemaic crackpottery which is long overdue for refutation. It enjoys what I call "academic celebrity" -- not "famous because it is famous", but rather "accepted because it's accepted."

Alas, I don't think Keynesianism will be discredited unless the economy suffers a total collapse. And from the rubble, I'm sure we'll hear the whine of the last Keynesian: "It's because we didn't stimulate enough!" Back to category overview Back to news overview Older News Newer News

Printer Friendly Brad - Thursday 05 March 2009 - 13:56:26 - Permalink I saw a few days ago that the U.S. savings rate has increased to 5%. To my mind, this is Good News: people are starting to get responsible about their finances, starting to pay down their debt, and starting to put some cash away for hard times. I figure this is exactly what's needed to get out of the credit swamp and back to a sustainable economy.Naturally, many prominent economists are viewing this development with horror. "People are saving! The economy will collapse! We've got to get them spending! Paradox of thrift!"The "paradox of thrift" holds that what is good for every individual (thrift and saving) is bad for the economy at large....rather as if the economy were one gigantic Prisoner's Dilemma . Mainstream economists love citing this, perhaps because it sprang from the mind of the exalted J. M. Keynes.I think I have finally learned where such silly notions arise. I recently read an article by an Austrian economist (alas, I've forgotten who, so I can't give proper credit) that explained it thus: in the Keynesian view, an economy is driven by consumption, whereas in the Austrian view, an economy is driven by production (and savings).So to a Keynesian, an economy is healthy as long as people spend, spend, spend...even if they have to borrow, borrow, borrow to do it. And if they stop spending, they must be made to spend more. And if they refuse, then the government has to do the borrowing and spending for them. (Somehow freedom of conscience never seems to be honored in the economic sphere. Can't I be a conscientious objector to Keynesian stimulus?)This, despite the fact that to the best of my knowledge, the theories of Keynes have never been scientifically proven or even substantiated. No Keynesian intervention has ever been shown to work. So why are they always the first resort? Because whether or not they work, Keynesian prescriptions are convenient for those in power. They give the state a plausible cover, that the citizens will accept, to enlarge its power.So, it's time to slay the revenant Keynes. Like Karl Marx, his half-baked theories reach from beyond the grave to strangle societies and ruin people's lives. It's Ptolemaic crackpottery which is long overdue for refutation. It enjoys what I call "academic celebrity" -- not "famous because it is famous", but rather "accepted because it's accepted."Alas, I don't think Keynesianism will be discredited unless the economy suffers a total collapse. And from the rubble, I'm sure we'll hear the whine of the last Keynesian: "It's because we didn't stimulate enough!"