Like just about everyone, I hugely enjoyed the Keynes-Hayek rap, round 2.
The writing is as clever as ever. (“Hayek as in ‘high explosives’” says Freddy to a stunned congressional security guard.) The production values: even better.
I enjoyed it too because the Hayek quoted in this second video is the great critic of central planning, the prophet of spontaneous order, the debunker of the pretense of knowledge. This is the Hayek of The Counter-Revolution of Science and the Constitution of Liberty – the Hayek who most inspired and instructed me, and whose teachings are still one of the bedrocks of my thinking about politics and society. It’s very much because of Hayek that I still say (unlike him!) that I am a conservative, despite Donald Trump and Rush Limbaugh.
On the other hand – it’s precisely because we hear so much in this second rap from the Hayek who criticized central planning, that the rap so seriously fails as a guide to contemporary debates.
Because, and now hear this: John Maynard Keynes was not an advocate of a planned economy.
On the contrary! John Maynard Keynes conjured into being the whole concept of the “macroeconomy” (not his word) precisely in order to show liberal democratic societies how they could counter-act deflation and depression without a central plan.
Yes, Hayek and Mises were this century’s most incisive intellectual critics of the planned economy. But it was John Maynard Keynes who produced the most powerful practical alternative to central planning, at precisely the moment when that practical alternative was most desperately needed: at the high water mark of socialism’s moral and intellectual prestige. Keynes expressed his attitude to Marxian socialism in a famous letter to George Bernard Shaw:
My feelings about Das Kapital are the same as my feeling about the Koran. I know that it is historically important and I know that many people, not all of whom are idiots, find it a sort of Rock of Ages … it is inexplicable that it can have this effect. Its dreary, out-of-date, academic controversialising seems so extraordinarily unsuited as material for that purpose…. How could either of these books carry fire and sword round half the world?
The economic question we have faced since 2008 is not: “Shall the government of the United States dictate prices and production throughout the US economy?” Who advocates that? Not Larry Summers. Not Tim Geithner. Not Ben Bernanke. And if there’s any tiny remaining sliver of Barack Obama’s being that wishes for central planning, it to this day remains profoundly hidden beneath all his contrary appointments, policies, and pronouncements.
The conservative insistence on pretending that central planning is the issue has rendered conservatism mute and useless (when not actively counter-productive) on the actual burning question of the day: How do we recover most rapidly from the worst economic calamity to hit the US since World War II?
To this, the modern Keynesians have an answer. To this, the modern self-described Hayekians don’t. And one of the fascinating sub-themes of the two Keynes-Hayek raps is the way they obscure the modern self-described Hayekians’ lack of an answer to Keynes’ urgent question.
Thus for example, from Round 2:
so what would you do to help those unemployed?
this is the question you seem to avoid
when we’re in a mess, would you just have us wait?
Doing nothing until markets equil-i-brate?
I don’t want to do nothing, there’s plenty to do
The question I ponder is who plans for who?
Do I plan for myself or leave it to you?
I want plans by the many and not by the few.
Look what’s happened here: Keynes ask Hayek what he would do. Hayek says, “there’s plenty to do” – and then immediately switches back to a highly generalized discussion of central planning. And as it turns out, the answer that runs through the Hayek rap is, “yes the unemployed must wait.”
But it’s worse than that. Think back to the preview of Round 2 performed at the Economist’s Buttonwoods Summit.
The Hayek character says, “I feel for the suffering, I’m not some kind of jerk.” The Keynes character answers, “Now my old friend, I’d never reject you as if you were heartless, you know I respect you.”
But the suffering want more than “feeling.” They want a policy response. And it is precisely a policy response that our modern self-described Hayekians preclude. Monetary policy? No can’t do that – it only leads to inflation and more bubbles. Stimulative government spending then? No that’s out, it leads to inflation, bubbles, etc. Tax cuts for the ordinary working person such as the payroll tax holiday? No way – we must balance the budget. So that leaves only supply-side tax cuts aimed at the upper-income brackets. balanced by large immediate budget cuts in Medicaid, food stamps, unemployment insurance. Does anybody believe that such a policy mix will lead to rapid employment growth? The Heritage Foundation claimed so, for approximately 48 hours, but now even they have abandoned that assertion.
To the question: What do you do in a deflation, Keynes offered an answer. He intended his answer as a means to preserve exactly the kind of spontaneous order praised by Hayek. Keynes lived and died a liberal in the old sense of the term. There are many criticisms of the Keynesian answer, mostly having to do with that long term that he so famously shrugged off. But some answer is better than no answer – and much better than the answer offered by the modern self-described Hayekians.
Q: What do you do in a deflation?
A: Insist we’re in an inflation.
Not helpful. And exactly the kind of unhelpfulness that created opportunities in the terrible 20th century for vicious authoritarians and misguided idealists to fasten planned economies on more than half the world.
UPDATE: And for the record, I am not in general a big Keynes fan.