16 Jan 2012

These Keynesians Make a Lot of Sense…

Economics, Krugman, Market Monetarism, Politics 56 Comments

Sorry I’ve been so sparse with the blogging, but I was traveling most of last week, and now I have to dig out of a “day job” hole. I am wondering if this is what insanity feels like, because lately I’ve been agreeing with the Keynesian side of internet arguments.

The first one centers on whether John Cochrane made a fool of himself by sorta citing Ricardian Equivalence to argue that stimulus packages even in principle couldn’t raise (nominal) Aggregate Demand. Krugman & Co. have been going nuts, and Scott Sumner has defended Cochrane on grounds that (I think) contradict Sumner’s own view that fiscal policy can indeed raise Aggregate Demand. (I tried to clarify this, but Sumner’s answered doing his best impression of a Sphinx.) I’ll think more about it, but if I had to answer right now, I’d say Krugman wins.

The second one involves Jeffrey Sachs’ recent piece on libertarianism. Steve Horwitz got upset and thought it fed into a stereotype, but I actually had no problem at all with it (besides the fact that Sachs didn’t want to be a “libertarian” so defined). Here’s what Sachs said:

Yet the error of libertarianism lies not in championing liberty, but in championing liberty to the exclusion of all other values. Libertarians hold that individual liberty should never be sacrificed in the pursuit of other values or causes. Compassion, justice, civic responsibility, honesty, decency, humility, respect, and even survival of the poor, weak, and vulnerable — all are to take a back seat.

Yep, that’s it. And just to make sure there’s no misunderstanding, Sachs even spelled it out:

By taking an extreme view — that liberty alone is to be defended among all of society’s values — libertarians reach extreme conclusions. Suppose a rich man has a surfeit of food and a poor man living next door is starving to death. The libertarian says that the government has no moral right or political claim to tax the rich person in order to save the poor person. Perhaps the rich person should be generous and give charity to the neighbor, the libertarian might say (or might not), but there is nothing that the government should do. The moral value of saving the poor person’s life simply does not register when compared with the liberty of the rich person.

Yep. Just like if Sachs or any of his readers took their kids to the playground, it would never in a million years occur to them to say, “Johnny, today we’re going to feed some homeless people, so go take the lunch from that chunky kid over there, even if he doesn’t want to share.” No, that would be stealing, and no parent would ever tell his kid it’s OK to steal, even though by so doing it might allow us to achieve other worthy goals.

I understand why Horwitz is upset, because he thinks too many self-declared libertarians reject even private altruism/concern for the weak/etc. I am concerned by that too. But the solution isn’t to get mad when somebody like Jeff Sachs comes along and gives a perfectly reasonable description of the libertarian position. As Daniel Kuehn said, after reading Horwitz’s objection to Sachs’ description:

If the difference between those in the classical liberal tradition that call themselves “libertarian” and those in the classical liberal tradition that consider themselves non-libertarians is not making other priorities take a back seat to liberty then what the hell is it that defines libertarianism?

No major blogger or politician is going to come out and say, “Other things equal, I hope poor people starve to death.” Also, no pundit in America will say, “Freedom is overrated.” What makes libertarians stand out is that we say, “We really mean it when we say that liberty is the highest political end. You can’t take people’s property against their will, even if you think (falsely, by the way) that in so doing, you will prevent poor people from starving.”

Indeed, some of us are such zealots that we even think it would be wrong to tax people to prevent an asteroid from destroying the Earth. Take that, Sachs!

56 Responses to “These Keynesians Make a Lot of Sense…”

  1. Steve Horwitz says:

    Except your description of libertarianism is not mine Bob. I *would* be willing to take people’s property against their will IF I really believed that it was true that doing so would make the world a better place on net and in the long run. I don’t think it would, hence I think it would be wrong to do. But it’s wrong, in my view, not because it abridges liberty per se, but because that abridgement of liberty hurts the people it’s trying to help. So for me, liberty is NOT the highest political end. It’s one among many ends, and it’s also a means to many of those ends.

    Unlike you it seems, I would be willing to give up liberty if I really thought doing so would produce a world of peace and prosperity for all.

    That’s why the Sachs piece bugged me so much.

    • Daniel Kuehn says:

      So you are the second type of libertarian that Sachs mentions, while Bob is the first. And based on your own excellent post about the Paul newsletters, I’d describe Rothbard as the third type that Sachs mentions. Right?

    • Jon O. says:

      Let’s assume you thought a eugenics program (forced sterilization, not wholesale extermination) made the world a better place on net and in the long run – thereby helping those it was intended for – would that be admissible?

    • Bob Murphy says:

      Steve, OK fair enough.

      • Bob Murphy says:

        Actually Steve, I’m not sure that is “fair enough.” Are you saying libertarian = free market economist who likes poor people?

        • david stinson says:

          Doesn’t this just come down to the distinction between natural rights libertarians and consequentialists (or utilitarians)?

    • Major_Freedom says:

      “I *would* be willing to take people’s property against their will IF I really believed that it was true that doing so would make the world a better place on net and in the long run. I don’t think it would, hence I think it would be wrong to do. But it’s wrong, in my view, not because it abridges liberty per se, but because that abridgement of liberty hurts the people it’s trying to help.”

      This consequentialist version of libertarianism is an impossibility. It simply cannot be defended on these grounds.

      Libertarianism is an ethic, a morality, for how people ought to behave and ought not behave with each other NOW, in the present.

      Like all ethics, libertarianism answers the question “Starting now, at this moment going forward, what ought we do and what ought we not do?”

      The consequentialist has no rational grounds from which to answer to this question. For the grounds he requires in order to say “libertarianism is optimal” is at some indefinite time in the future that hasn’t transpired yet.

      If we suppose I were a “blank slate” ethicist, and I asked “What ought I do and what ought I not do?”, Horowitz would have to say “I have no idea what you ought to do and what you ought not do right now, because my judgment rests on the outcomes of your actions, not on the actions themselves.”

      Suppose I said that killing defenseless babies starting now and ending in 6 months is what think we ought to do.

      The consequentialist would have nothing to say about my actions. The consequentialist must wait until the 6 months are up, study the outcomes, and then (possibly, hopefully) say “Yup, the outcome of your action is that the world is not a better place on net. Therefore, my judgment is that killing defenseless babies for 6 months is immoral. Therefore, I can make the ethical pronouncement that you ought to have refrained from killing those defenseless babies.”

      The dogmatic, “liberty as the highest political order” ethicist on the other hand would have an answer to the blank slate ethicist, with regards to what we ought to do and what we ought not do, now, in the present and going forward.

      The dogmatic libertarian can say “The outcomes of your 6 month plan are not only non-existent at this time, which makes it impossible as a guide to telling us what we ought and ought not do in the present, but it is also absolutely vicious to even contemplate murdering defenseless babies for 6 months on the basis that it MAY have some benevolent outcome. In fact, the consequentialist libertarian could not even stand up against totalitarianism in its ugliest form, because the totalitarian might be a consequentialist himself, and might have a 1000 year plan that humans must wait until completion, so that the outcome can be judged. If you make any complaints of the 1000 year totalitarianism before the outcome is reached, I will distance myself from you since it sounds too religious/mystical/dogmatic.”

    • Stephan Kinsella says:

      “I *would* be willing to take people’s property against their will IF I really believed that it was true that doing so would make the world a better place on net and in the long run. I don’t think it would, hence I think it would be wrong to do.”

      I guess someone could say:

      “I *would* be willing to endorse/commit genocide IF I really believed that it was true that doing so would make the world a better place on net and in the long run. I don’t think it would, hence I think it would be wrong to do.”

      Well good for them!

      • Major_Freedom says:

        Now now Stephan, you have to wait until the outcomes of such genocide are observed, before you can consider yourself informed enough to judge the ethical validity of it.

        What, you’re not embarrassed for advocating an ethical system based on a priori reasoning? Aren’t you worried that you’re going to be called “dogmatic”, or “mystical”?

  2. Jonathan M.F. Catalán says:

    Bob,

    You are probably right that some libertarians don’t like coming off as “zealots,” even if that is the word that best describes them. So, insofar as to some of the “extreme” positions taken up by libertarians — such, as if the choice was between taxation and allowing some to starve, the extreme (anarchist) libertarian position is to let them starve — you are right.

    At the same time, though, one could also argue that liberty does not necessarily entail the exclusion of other “values. There are means of assuaging social problems that do not involve the government — for example, charity. There are “private solutions,” so to speak.

    So yes, libertarians prefer starvation to taxation, but that is a false dichotomy.

  3. MamMoTh says:

    Insanity is thinking the government needs to tax people to prevent an asteroid from destroying the Earth!

    • skylien says:

      Although I absolutely agree with the statement I guess this is because you do not consider taxation what I consider taxation as well… 😉

  4. Desolation Jones says:

    When’s your debate with Sumner? Wasn’t it supposed to be this month?

    • Bob Murphy says:

      Yeah that’s my fault, I had a bunch of “real job” stuff come in and couldn’t prepare for it. I have to talk to Scott about rescheduling it but I’m waiting for my work to settle down first.

  5. Bob Roddis says:

    1. I’m always shocked by the total ineptitude of our opponents. They have nothing, ever.

    2. The main problem facing mankind is genocide, murder, pillage, rape etc. It is not starvation and it is not a lack of “aggregate demand“. Poverty is the result of a lack of private property protections which are the only protections against genocide, murder, pillage, rape etc. It is best and safest to be meticulous and to strictly enforce them.

    3. If a population refused to believe in providing aid to starving people in general, why would they vote over 50% to aid starving people?

    4. With private property protections, the populace will be affluent and the number of people in need miniscule. Why would they starve?

    5. I like the term “bleeding heart libertarian”.

    6. If the laws of the universe were different, I might feel differently about these things.

    7. Is it possible that Jeffrey Sachs, Steve Horwitz and I all grew up in Oak Park, Michigan?

    http://tinyurl.com/7xqmvbj

  6. Tel says:

    I don’t like the way Jeffrey Sachs describes it because it falls into the same trap that Statists always use: if you don’t like government taking over education, then you must be opposed to all education; if you don’t like government taking over health care then you must be opposed to all health care; if you don’t like government taking over charity then you must be against all charity… and so it goes.

    This is bullshit.

    It is perfectly reasonably to have some broader sense of morality but still think that government is a poor choice as keeper of morality. There’s a whole bunch of reasons why individual morality is more effective and more beneficial to everyone than government morality (I’m sure you have heard these before but at least it puts the argument on the right footing):

    [1] The Anabaptist protest still holds as strong as ever… if you take away someone’s free choice to be moral or not to be moral, then you also take away their ability to be moral at all. In other words, liberty is not taking precedence over all other values, it is merely a first step which is required in order for other values to exist.

    [2] Government departments always evolve to the point where their primary purpose is to maintain their own existence. At this point morality becomes nothing more than a cover story.

    [3] Government morality is usually untraceable and no one is ever actually responsible for anything. This turns up in education, healthcare, everywhere. The result is that stuff either works or it doesn’t work but no one knows why. After a while people just shrug and ignore it because they know there’s nothing they can do.

    [4] Governments drift towards rules, rules and more rules… and if that doesn’t work we need to add more rules. This is a head-banging approach. Human intuition is valuable. If you believe in evolution we spent millions of years polishing that down to a fine edge, and if you believe in God then our inner sense of morality is a gift (and a reflection in God’s image), but either way you look at it, government destroys this.

    [5] Government has a perfectly good purpose which is national defence, guarding the borders, and providing the minimum basic framework to allow society to operate. Any expansion of this fundamentally weakens the primary purpose. Modern governments have largely lost focus, and it really shows.

    [6] Government employees are just people like any other and don’t get granted magical powers when they pick up their taxpayer funded salary. They are subject to all the same human weaknesses (bribery, corruption, confusion, laziness, outright stupidity). The difference is that when an individual shows these failings, they are the one who suffers, when government shows these failings everyone suffers.

    This is wrong too:

    Like many extreme ideologies, libertarianism gives a single answer to a complicated world.

    No it does not. Libertarian gives a particular narrow answer to one particular part of the world, and that is the role of government. That doesn’t even pretend to be the “answer to a complicated world”, because government itself is not the “answer to a complicated world”, nor will it ever be. Libertarianism merely takes the first step towards finding an answer, and then throws the problem open to a huge array of individuals (and of course, voluntary associations of individuals).

    Many young people flock to libertarianism out of the thrill of defending such a valiant cause.

    Has Jeffrey Sachs tried talking to any young people? The people I talk to are waaaay to cynical to believe in any “valiant cause”, they are deeply disappointed with the current state of affairs and very much looking for the least worst option. The young people attracted to causes tend to gravitate towards “progressives” and “green” agendas.

    Then there’s a kind of nasty presumption to the example Jeffrey Sachs uses that a rich man might stand by while a poor man was starving. Well, are any of us seriously down to skin and bone and feeling around for our last meal? If you see someone sitting on your doorstep and starving, then offer them a bottle of milk or a sandwich or something. I mean, you don’t need to be a rich man to do that. You don’t need anyone to help you, least of all government.

    • jjoxman says:

      Um… I was gonna say that.

      Seriously, though, excellent comment. Libertarians have many values, but individual freedom from state coercion is #1. That doesn’t mean charity isn’t #2, and as you point out state redistribution hasn’t got a moral aspect and therefore can’t be considered charity.

      Liberty and prosperity are positively correlated. Prosperity and charity are positively correlated. Let’s have more liberty!

  7. Nick says:

    Perhaps the rich person should be generous and give charity to the neighbor, the libertarian might say (or might not), but there is nothing that the government should do.
    ==========

    Except that the Keynsians will demand the charity after taxing to the hilt and wasting the cash.

    Taxation is charity and extortion with threats of violence.

  8. Nick says:

    The moral value of saving the poor person’s life simply does not register when compared with the liberty of the rich person.

    =============

    The basis of libertarianism is do unto others as they would be done unto.

    The left reads that as “do unto others what we would would be done unto”

    Subtle difference.

    The issue is then if you force charititable giving, you have to force things on those receiving charity to.

    For example, social security. If you force people to pay for other people, you have to force those people who might receive money to save.

    Libertarian lite. You will get help if you are destitute, but the deal is you have to save whenever you have a chance. When you need it, you spend your cash first, before going to others.

    However, all of this is willy waving. Governments are bust. You are going to get libertarianism imposed. Government won’t help because it cant’.

  9. Christopher says:

    The right definition of libertarianism and all this doesn’t really matter because nobody is listening to us.

    I just read an article in the Financial Times (sic) Germany about this Antilla guy in India (google his house). This guy’s wealth and his desire to show it off is just enormous while many many people in India are in fact quite close to starvation. The article was full of wrong assumptions and the regular blame-capitalism stuff. So we could have the same discussion here now why India isn’t really a free market and all this. But it doesn’t matter because the author was quite right on one thing. Sooner or later, stuff like this is going to crush our case for freedom and liberty.

    We were standing by with dogmatic discussion when the left managed to associate all these bankers and Atillas with our ideas.

  10. Dan Hewitt says:

    Of course Sachs is going to frame his argument in terms that are favorable to him. Don’t we all do this?

    The most effective response is to reframe the argument in terms that are not favorable to Sachs (the fat kid on the playground for example).

    • Christopher says:

      I am not so sure. When I read that analogy, I actually spend some time thinking whether I would steal food from a fat kid if I could save somebody from starving that way. I am not sure but it seems that I am much more opposed to the government doing it than to doing it myself.

      • Dan Hewitt says:

        Yeah, I know. But I’m certain that you don’t think that the fat kid should get shot over it.

      • Bob Murphy says:

        Christopher wrote:

        When I read that analogy, I actually spend some time thinking whether I would steal food from a fat kid if I could save somebody from starving that way.

        Huh? Are you also assuming that you yourself are homeless? I mean, for Sachs and probably literally every single person who read his blog post, they have enough spare food in the day that they should first give up, before stealing from somebody else.

        In general, it is hilarious when Americans think the government owes them money on redistributionist grounds, when there are people in India or Africa who live way worse.

        • Bob Roddis says:

          Prof. Sachs has come a long way from Oak Park. How many homeless people has Prof. Sachs taken in?

          “At the age of 29, Sachs became a Full Professor of economics with tenure at Harvard.

          Sachs is known for his work as an economic adviser to governments in Latin America, Eastern Europe, and the former Soviet Union. A trained macroeconomist, he advised a number of national governments in the transition from communism to market economies.

          More recently, Sachs has turned to global issues of economic development, poverty alleviation, health and aid policy, and environmental sustainability. He has written extensively on climate change, disease control, and globalization, and is one of the world’s leading experts on sustainable development. [all without understanding a single molecule of Austrian School theory and sustainable investment].

          Sachs lives in New York City with his wife Sonia Ehrlich Sachs, a pediatrician.”

          http://en.wikipedia.org/wiki/Jeffrey_Sachs

        • MamMoTh says:

          You clearly should be saving on food, Bob, according to that cartoon…

        • Christopher says:

          I don’t advocate stealing from fat kids. If anything, I said that stealing yourself is better than having hour government steal for you.
          Let’s put it this way:
          If you were a fat kid and I came to you saying “listen lil’bob, I thought about this very long and based on my moral believes I have decided to take your food and give it to those starving people over there and if you resist I will use force to take it”
          Alternative: “listen Bob we have come up with an institutionalized system employing professional thefts who are going to take your food away from now on on a frequent basis and if you resist we will use force not only to take it but also to punish you for you resistance.”

          Which would you prefer?

          • Joseph Fetz says:

            Until Bob pipes in, I will give you a piece of my mind (if that’s cool).

            I would personally prefer the individual attempting to steal from me rather than an institutionalized power-center (with societal support). I can fend off the individual, whereas I cannot fend off a State or institutionalized power-center.

            To be honest, I am quite interested in Bob’s response, because he is a pacifist. I mean, your distinction does bring up some interesting questions regarding resistance (passive), compliance, defense, etc.

  11. geoih says:

    Quote from Jeffrey Sachs: “The libertarian says that the government has no moral right or political claim to tax the rich person in order to save the poor person.”

    Here is the great illusion of the statist. The government has the moral right to take from “the rich” and give to “the poor”. But what is “the government” but a group of individuals, in this case, forcing their will on to somebody else. Assuming that “the government” has enough power to take from “the rich” to give to “the poor”, why don’t the people in “the government” just give “the poor” some of their wealth, rather than taking it from “the rich”?

    You see, to the statist, “the government” isn’t about the giving, it’s about justifying the taking by the giving. It isn’t important that “the poor” are given something to releave their condition. It is only important that the something given is first taken from somebody by “the government”, then given to “the poor”.

  12. Bob Roddis says:

    Like every opponent of libertarians and Austrians, Sachs is extremely lazy which leads to extreme dishonesty. This is repeatedly shown by the inevitable failure of the statists to meticulously differentiate between “power and market” (to coin a phrase). Thus, statist rent-seeking during the progressive era is deemed laissez faire. Statist monetary actions intended to help Britain’s post WWI gold problem are deemed laissez faire which (naturally) caused the Great Depression. The all encompassing statist Jim Crow laws in the south are deemed the equivalent of private refusals to deal (there would have been no need for the Jim Crow laws if the market had successfully discriminated).

    In the 1960s, a very affluent safe city like Detroit (Sachs’s hometown) was subjected to five statist wars with predictable results:

    1. The war on discrimination (the government tells you who to sell your house to);

    2. The war on illiteracy (everyone who can leaves town ASAP to avoid the schools);

    3. The war on drugs (giving us hordes of lovable ganstas;

    4. The war on guns; and

    5. The war on poverty.

    We can add a sixth, the war on the capital structure thanks to Keynesian monetary policy.

    The resulting devastation is then blamed on capitalism and the auto industry. Lazy and dishonest. Always.

    Why wasn’t Sachs reading Rabushka and Shepsle who explained how democratic socialism invariably leads to ethnic slaughter in multi-ethnic countries (followed Iraq lately?) or Peter Bauer on how foreign aid results in Kleptocracy and poverty?

    Diminish private property protections and you are playing with fire (and slaughter and pillage).

  13. Bob Roddis says:

    Translation of Sachs into reality:

    These crazy libertarians believe that social problems can be solved peacefully and cooperatively. Don’t they understand that social problems MUST be solved with SWAT teams and violence, especially when us Harvard types are so much smarter than everyone else?

  14. Major_Freedom says:

    “The first one centers on whether John Cochrane made a fool of himself by sorta citing Ricardian Equivalence to argue that stimulus packages even in principle couldn’t raise (nominal) Aggregate Demand. Krugman & Co. have been going nuts, and Scott Sumner has defended Cochrane on grounds that (I think) contradict Sumner’s own view that fiscal policy can indeed raise Aggregate Demand. (I tried to clarify this, but Sumner’s answered doing his best impression of a Sphinx.) I’ll think more about it, but if I had to answer right now, I’d say Krugman wins.”

    I think Sumner assumed that fiscal policy expands AD only if the debt financing is being monetized. He does adhere to the quantity theory of money, doesn’t he?

    I think debt financing expands AD only if a portion of the money the government borrows would have otherwise been held in cash balances. That is possible. For many investors want to remain liquid, but not invested in risky assets, and so with government borrowing, they lend the money to the government rather than holding it as cash, at least to earn interest (which I argue backfires because lending to the government reduces economic productivity, and thus nullifies any nominal gains that can be made by interest on government debt). It’s impossible to know for sure how much of a given quantity of government borrowing would have otherwise been held as cash.

    I think tax financed spending cannot possibly raise AD, because taxes are collected on transactions, and what is taxed on those transactions would have otherwise been counted towards AD anyway, so if anything, because there is a time delay between government taxing and spending a given dollar, it means tax financed spending could only ever somewhat reduce AD, in the present, but then increase it back up to what it what it would have been without the taxation in the first place.

    Inflation obviously expands AD.

  15. Ben Kennedy says:

    Libertarianism as a political philosophy can sound harsh, but only when you separate it from the lower foundations of morality and ethics that society is actually built on. I know this is the case because in a setting where Libertarianism is irrelevant, such as the home life of my family, ethical norms such as “don’t steal” and “don’t punch your sibling” are in full effect. Also, there are many kinds of positive obligations. We teach our children to say “please” and “thank you”. We teach our children the importance of having compassion on those less fortunate than us.

    So, Horwitz is right and Sachs is wrong because Sachs acts like Libertarians have no moral foundation – it is basically a smear. He says that compassion is to “take a back set” to liberty. What he doesn’t understand is that this is not how people adopt political philosophies. Someone does not jettison their preexisting moral foundation that says we ought to take care of widows and orphans for an “all liberty all the time” political philosophy that says it is A-OK for people those people starve. That is just nonsense. Rather, the philosophy of Libertarianism is built upon all the values of society: “Compassion, justice, civic responsibility, honesty, decency, humility, respect, and even survival of the poor, weak, and vulnerable” as Sachs puts it.

    So when a Libertarian is asked “should government let people starve”, the response should be “well, does it make any sense that the solution to world hunger should involve guns, razor wire, and barking dogs”

  16. Major_Freedom says:

    [Simon Wren-Smith](http://mainlymacro.blogspot.com/2012/01/savings-equals-investment.html) said:

    “It is called the paradox of thrift. A desire by consumers to increase savings ends up just reducing output, and savings do not increase at all. (Of course they are still saving more of their income: S/Y has gone up, but because Y has fallen, not because S has increased.)”

    I want to challenge the notion that the “paradox of thrift” is in fact a paradox.

    I argue it is not actually a paradox if we accept the proposition that reduced output in the present is in fact a benevolent, desirable outcome (in the case of people choosing to abstain from consumption).

    I think the mainstream debate is all wrong. We’ve been arguing over whether or not saving reduces present output, rather than arguing over whether reduced present output is inherently destructive to people’s welfare.

    This is my thinking:

    If consumers abstained (somewhat) from their present consumption, i.e. they saved, and they did not invest in DK or DS, but simply accumulated cash, then to me that shows people prefer fewer consumer goods consumed and hence fewer consumer goods produced in the present than would otherwise be the case, and, since they are not just throwing their cash holdings away in the trash or burning their money, it also means they want more consumer goods consumed and hence produced in the future than would otherwise be the case.

    Assuming you agree with the above, and by all means you can cut this post into pieces if need be, then why does this have to be reversed by fiscal/monetary policy at all, and why would be wrong to propose the idea that we should accept and welcome the fact that present production and consumption of goods decreases. For if that is what people want, which I will argue is the case for people who choose to abstain from their present consumption, then doesn’t it stand to reason that it would be a waste of scarce resources to advocate that government, through either fiscal or monetary policy, go against what the people want, and go ahead and stimulate present production and consumption, which necessarily means scarce resources are going to use in a time frame that is not in line with consumer preferences? Is it not the task of government to safeguard people’s lives, rather than dictating “there shall be THIS amount of present production and consumption, regardless of the people want”?

    Now, I do not want to come off as not caring about employment and people’s livelihoods, so that brings me to the next and final challenge:

    I challenge the mainstream idea that reducing present consumption, i.e. saving, which may lead to unemployment for the individual involved in the consumer goods industry, is ipso facto something to be reversed by fiscal and/or monetary policy. For I hold that should the individual be “released” from his job in the consumer goods industry, on account of consumers reducing their present consumption, then there is still opportunity for him to be employed. He can work for the same wage but in another consumer goods company that hasn’t experienced a reduction of demand, or he could work in the same company but for a lower wage, or he could work in the capital goods sector at the same or different wage.

    These possibilities cannot be rejected in this thought experiment, because we only assumed a fall in present consumption and accumulation of cash balances that way. That of course means no change in the nominal spending for capital goods.

    Now, of course it is possible, perhaps likely, that the reduction of consumer spending will be accompanied by a reduction in the demand for capital goods (especially capital goods used by consumer goods companies). But whatever happens to these demands, they will not go to zero. Because of this, because there is some spending there, then it can fully accommodate any supply of labor that may have been recently released from the consumer goods sector. Prices (of wages) = Demand (in money) / Supply (of labor). So all that needs to happen is for the price of labor to fall, and the given new demand for labor, even if it is lower, it can accommodate the full labor pool.

    We can of course argue over sticky wages and so forth, but I would rather go one step at a time (At this time I will say that I also have answers, well, attempts at answers at least, to these sorts of widely accepted rejoinders such as sticky wages, but they can be dealt with later, as my main two challenges have to do with why the paradox of thrift should even be considered a paradox).

    As a crude analogy to what I am trying to get across:

    Suppose I earn $100,000 a year, and after receiving each paycheck, I go out and spend it all on consumption. I do this for year after year. Then one year I decide to change my spending patterns. I decide that I would like to consume less in the present, and more in the future, than would otherwise be the case. So I reduce my consumption by $20,000 each year, thus accumulating $20,000 in cash each year. I reduce my consumption down to $80,000 a year.

    Now, given this display of my preferences, I would like to know how in the world could one characterize the reduction in consumption and hence reduction in production of consumer goods in the present, as inherently a bad thing, such that the outcome calls for an authority to print and/or spend money to reverse things, and maintain existing consumption and production of an additional $20,000 per year “in the aggregate” to “replace” myself and my preferences.

    Why SHOULDN’T there be a reduction of output, when there is a person in the economy who wants to reduce their consumption in the present? Sure, the collectivist could dismiss me as irrelevant, but what about if huge swaths of the population do the same? If, say 99% of the population reduces their consumption spending, then surely even the most ardent collectivist would finally relent and concede that OK, yes, fine, production of goods in the present should decline, because that is what 99% of the people want.

    But then why are all the Keynesian economists not only going against this, but arrogating their value of “more production of consumer goods in the present, the better, QED” on everyone else? Why should 99% of the people who want less consumption in the present, be misled and coerced into producing more for the present? Could it be that the Keynesian is unintentionally proposing a value that just so happens to be in line with the values of short sighted politicians who just want to consume as much out of the public trough and then split? They can’t consume more in the present if those in the public are devoting their minds to the future where they want to consume and hence produce less now, and consume and produce more in the future!

    Why am I as an individual, indeed why are civilians in general, not allowed to alter the structure of production according to our preferences, but others in the government are allowed to alter the structure of production according to their preferences?

    Is it strictly an employment issue, and “reduced output” is but a smokescreen? Or, if you’ll excuse me if you’ll pardon me, is it strictly a means for the state to boost present production, for itself, and employment is but a smokescreen? After all, the government obviously has no problems paying people to do nothing. If it is an employment issue, then as I hopefully convincingly showed, there is no reason to expect released labor to not find new opportunities, provided of course that wage rates and prices are free to fall and are not encouraged or stimulated to remain high (which would just beg the question of why stimulus is being carried out in the first place).

    Keynesianism, contrary to what the followers may believe, is not an economics for the people. It is an economics for the state at the expense of the people. How else can we characterize a doctrine that gleefully champions going against what even 99% of the civilian population could want, i.e. reduce present consumption and hence production through abstaining from consumption and accumulating cash?

    Would the Keynesian go so far as to admit that they are willing to go against 99% of the people’s preferences, and reverse their desires to reduce present consumption and production, in favor of more future consumption and production, just to salvage a government aggrandizement model from obscurity?

  17. david stinson says:

    Jeffrey Sachs might find this short article useful:

    http://mises.org/etexts/myths.pdf

    • Bob Roddis says:

      i was going to link to the very same article here:

      http://www.lewrockwell.com/rothbard/rothbard168.html

      Rothbard brilliantly covers most of the straw man attacks.

      I would describe libertarianism as a purely political philosophy that deals primarily with what you may not do to other people.

      You could choose to live your life in a cooperative socialist hippie commune or in a strict Calvinist voluntary community. How one should live their life within the framework of non-aggression is a whole other subject.

  18. Bharat says:

    The use of false dichotomies is the only thing that annoys me. Sachs states “The moral value of saving the poor person’s life simply does not register when compared with the liberty of the rich person.” Now, just as you said, libertarians will agree with this statement, but it is a situation that does not exist. There are many other options on the table. Why do we have to steal from the rich person to save the poor person’s life? There is literally no person willing to give to the poor person? If the majority of people are willing, through government, to force a rich person to give up his wealth, why can’t this majority give a little bit of their own money instead to the poor person? Is the inequality in society that extreme? So while his statement is factually correct, it implies a scenario that doesn’t even exist.

    This also reminds me a bit of the mean-ends argument, whether the ends justify the means or not. According to libertarianism, the answer is no. According to statism (“pragmatism”), the answer is yes. But to leave it at just that would lead to seriously incorrect beliefs about libertarianism. Just because we believe the ends don’t justify the means, doesn’t mean we don’t believe that the ends can still somehow be achieved in a different manner where our means, according to our philosophy, are moral.

    • MamMoTh says:

      Is the inequality in society that extreme?

      It depends on which planet you are from. Here on Earth it is quite extreme.

      • Bob Murphy says:

        MamMoTh wrote:

        It depends on which planet you are from. Here on Earth [inequality] is quite extreme.

        Yes. But I’m betting neither Robert Reich nor Jeffrey Sachs is calling for a scheme that would redistribute wealth from all Americans to people in India until parity is achieved. That’s because just about every person in America would then have to give up his or her lifestyle, not just the 1%.

        • MamMoTh says:

          The inequality between people at the very top and those at the very bottom within the US is already quite extreme. Much larger than necessary to create the right incentives in my opinion.

          Don’t know about Reich but Sachs has proposed that some wealth should be redistributed from the developed to the developing (?) world for instance through debt forgiveness, not until parity of course.

          Anyway something is seriously wrong when we produce enough food for everyone, but the rich world is getting obese even though they throw away as much as a third of the food they buy, whilst people are starving or children malnourished in the poor world.

          • Major_Freedom says:

            “The inequality between people at the very top and those at the very bottom within the US is already quite extreme.”

            I’m for equality!

            Across nations? Egad that means I will lose!

            I’m for equality within the country I am in at this moment in time!

            “Anyway something is seriously wrong when we produce enough food for everyone, but the rich world is getting obese even though they throw away as much as a third of the food they buy, whilst people are starving or children malnourished in the poor world.”

            Yes, the problem is that those poor countries don’t have a high enough labor productivity to be able to do that, on account of the lower extent of free market activity. They’ll be able to throw food away too, if the organized crime families in control of the countries left innocent people alone.

            I say the US government should start giving tax breaks to anyone who promises to send or participate in private militias ousting their tyrannical leaders. Clearly being nice and sending food over for over 50 years hasn’t helped.

        • Dan Hewitt says:

          neither Robert Reich nor Jeffrey Sachs is calling for a scheme that would redistribute wealth from all Americans to people in India until parity is achieved

          Capital wants to flow from America to India, and labor wants to flow the opposite way. So the market does have an answer for inequality. State intervention is required in order to stop these equalizing mechanisms from functioning. Reich and Sachs don’t care – their socialism is confined to the national level.

          • MamMoTh says:

            Good points, but capital flows quite freely, labor doesn’t.

            I don’t think you need both to flow, one should suffice, in which case I prefer capital to labor flows.

            • Major_Freedom says:

              “capital flows quite freely, labor doesn’t.”

              Relative to arbitrary standards, yes.

              Relative to real world standards, a free market standard is the most flexible for individual, and hence labor, mobility.

              Capital is not nearly as hampered as laborers are when it comes to cross country mobility, so that’s why capital flows more freely than labor.

              I think it’s because people talk, but capital doesn’t. Governments don’t mind accepting things that by themselves cannot threaten their control.

              “I don’t think you need both to flow, one should suffice, in which case I prefer capital to labor flows.”

              Yeah, your preference for others is more important than their own preferences for themselves. Listen up everyone, Mammy prefers labor to remain put, so that’s what all you peon laborers should do.

            • RG says:

              Labor requires the use of capital. Labor cannot freely flow if capital cannot.

              Congratulations, this is the first I’ve seen of this particular oxymoron.

              • MamMoTh says:

                Are you another idiot?

              • Bob Murphy says:

                MamMoTh, chill out. It’s not like you insult people half the time, while the rest you bring fruitful discussion.

              • MamMoTh says:

                It’s not! It’s the other way round, Bob.

      • Tel says:

        Here on Earth it is quite extreme.

        Which other planet are you comparing against?

  19. RG says:

    It doesn’t take long before the anti-libertarian logic results is genocide: we must kill X number of Y people so that X’ number of Y’ people may live.

  20. Philippe says:

    I am just amazed at how natural-rights libertarians keep characterizing utilitarian libertarians as incoherent or contradictory. Look, it’s very simple; we have one ethical benchmark: the hapiness of humanity. From there, everything is an empirical question. And the evidence is pretty clear; freedom is the way to go. That’s why utilitarian libertarians are able to enter the public debate; they share the same goal as everybody else and just have a different understanding of how the world works. As for natural-right libertarians, well they are reduced to the following:

    “Indeed, some of us are such zealots that we even think it would be wrong to tax people to prevent an asteroid from destroying the Earth.”

    Couldn’t have said it better. Good luck changing minds with that.

    • Joseph Fetz says:

      Well, just to throw a wrench into things, I must point out that you make many assumptions. First, that we know with certainty that a specific action will produce the desired result. Second, that such result can only be achieved through force. And third, that the finality of such even (no matter the avenue of action taken) will be preferable to its alternative.

      Hypotheticals are fun, but they are just that… hypotheticals. Call me somewhat of a realist, but it is my opinion that if there was an asteroid heading toward Earth, whose contact with Earth would most surely wipe out all of life on the planet, then government and taxation would really be but a mere memory. Basically, if our own human existence is threatened people would cooperate and pull their resources for the continuity of the human species. I think that governments would become pretty much irrelevant at this point. In fact, I think that the markets of ideas, resources, wealth and capital would come together voluntarily and irrespective of political and national boundaries, and that the threat of impending annihilation of existence as we know it would probably bring about the closest thing to a free market that has ever presented itself in all of human history.

      What better incentive to allow human cooperation within the division of labor and the market than the prospect of the end of all of human life? I’m pretty certain that the entire structure of production would be steered toward those ends, and that governments wouldn’t have to pass a single law or regulation to make it happen. The incentive is paramount and the trade off is absolute– let’s get it done!

      • Joseph Fetz says:

        The hard part is convincing people that what would probably take place under dire circumstances also holds true to the increasing of general satisfaction in regular, everyday life. Basically, what would be the hypothetical case of reaching our highest potential in the face of annihilation is also the same mechanism that allows us to reach our highest potential today, without any dire circumstances to fear.

    • Dave says:

      I don’t see why natural rights and utility are viewed as necessarily contradictory. It seems to me like the natural rights position would logically also be the one that benefits the greatest amount of people to the greatest extent.

  21. Kevin Monk says:

    Who cares about the rich neighbour’s morality. Stop observing and give the poor man some food out of your own pocket.

    I WIN.

    If you’re powerful enough to extort money out of a rich man then sell some of your power and buy the poor man some bread.

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