“In the Long Run, People Will Assess You Based on Policy Preferences”
I’m not even going to bother digging up links (here’s a Mario Rizzo discussion, you can follow him to Krugman et al.), but in the blogosphere recently there was a discussion about what idiots/liars people were, who used John Maynard Keynes’ famous line, “In the long run, we’re all dead,” to suggest that Keynes’ policy conclusions were myopic. I have two quick points:
(1) Yes, I agree that if you read the quote in context, it’s not as bad as it first sounds. Here’s the full quote:
But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.
(2) Having said that, look again at that quote. What other purpose does the glib “In the long run we are all dead” serve, except to pooh-pooh the focus on the long run as being silly? Here, watch this:
But this long run is a misleading guide to current affairs. In the long run we will reap the full consequences of our actions, and that’s why we must never forget to include the long run in our analysis. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.
Does the above make any sense at all?
So when today’s Keynesians ask with incredulity, “How could anyone possibly think Keynes was telling us to ignore the long run with that line?!” the answer is, because Keynes was telling us to ignore the long run with that line. That was the function it served rhetorically in his argument, at that moment.
For an analogy, if a progressive complains about George W. Bush’s line, “You’re either with us or against us,” you can’t then point to his administration’s diplomatic actions with neutral countries on the War on Terror. That line is crystal clear in its rhetorical purpose.
This argument probably made more sense in your head or I am missing something… could you maybe say it differently?
So Keynes was writing about short run issues in that chapter. He was saying they were important. They are. But you seem to be thinking that there’s some kind of implicit dismissal of long run concerns (you write “Keynes was telling us to ignore the long run with that line”). I’m still not sure where that is in Keynes.
“What other purpose does the glib “In the long run we are all dead” serve, except to pooh-pooh the focus on the long run as being silly?”
Easy: the whole point is that “action in the short run facilitates the road towards the fully adjusted equilibrium in the long run.”
This comes from A Tract on Monetary Reform (1923). Keynes was not even a “Keynesian” when he wrote this, but a quantity theorist and quasi-monetarist. He accepted the idea of a long run tendency to equilibrium and the truth of the quantity theory in the long run. But he thought at that time that short term changes in demand for money and debt deflation dynamics cause short term chaos and thwart equilibrating forces.
His whole point is that long run adjustment will be better and easier with short run monetary intervention:
“The error often made by careless adherents of the Quantity Theory, which may partly explain why it is not universally accepted, is as follows. Every one admits that the habits of the public in the use of money and of banking facilities and the practices of the banks in respect of their reserves change from time to time as the result of obvious developments. These habits and practices are a reflection of changes in economic and social organisation. But the theory has often been expounded on the further assumption that a mere change in the quantity of the currency cannot affect k, r, and k′, — that is to say, in mathematical parlance that n is an independent variable in relation to these quantities. It would follow from this that an arbitrary doubling of n, since this in itself is assumed not to affect k, r, and k′, must have the effect of raising p to double what it would have been otherwise. The Quantity Theory is often stated in this, or a similar, form.
Now ‘in the long’ this is probably true. If, after the American Civil War, the American dollar had been stabilized and defined by law at 10 per cent below its present value, it would be safe to assume that n and p would now be just 10 per cent greater than they actually are and that the present values of k, r, and k′ would be entirely unaffected. But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.”
A Tract on Monetary Reform, Keynes 1923: 79–80.
re: “Keynes was not even a “Keynesian” when he wrote this,”
I don’t like statements like this. There are all sorts of antecedents in the Tract. Could he have written the General Theory in 1923? No. But I think it’s an overstatement when people act like there was a large transformation.
“Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become “profiteers,” who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceedvand the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.
“Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic
law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” – JM Keynes, Economic Consequences of the Peace, pgs 235-236.
I’d say it’s an understatement to claim that there wasn’t a large transformation in Keynes’ thinking.
To “debauch the currency” means hyperinflation.
But no doubt for crude minds the difference between low/mild inflation and hyperinflation is difficult to grasp.
“To “debauch the currency” means hyperinflation.”
No it doesn’t. It means, as Keynes noted, a continuous inflation, rather than inflation occasionally used to bail out bankrupt banks or governments.
Keynes also wrote (in the same section of the same text):
“If prices are continually rising, every trader who has purchased for stock or owns property and plant inevitably makes profits. By directing hatred against this class, therefore, the European Governments are carrying a step further the fatal process which the subtle mind of Lenin had consciously conceived. The profiteers are a consequence and not a cause of rising prices. By combining a popular hatred of the class of entrepreneurs with the blow already given to social security by the violent and arbitrary disturbance of contract and of the established equilibrium of wealth which is the inevitable result of inflation, these Governments are fast rendering impossible a continuance of the social and economic order of the nineteenth century. But they have no plan for replacing
it.” – pg 237.
Following Lenin, Keynes was speaking of the psychological factors within the working class population that results from the effect of continuously rising prices, i.e. “debauching the currency”. These factors, Keynes agreed, are capable of generating a revolutionary (gradual or rapid) overthrow of capitalist society by making it appear as though capitalists, and not the state, are the cause for the rising prices and redistribution of wealth away from the working class.
Keynes writes further:
“We are thus faced in Europe with the spectacle of an extraordary weakness on the part of the great capitalist class, which has emerged from the industrial triumphs of the nineteenth century, and seemed a very few years ago our all-powerful master. The terror and personal timidity of the individuals of this class is now so great, their confidence in their place in society and in their necessity to the social organism so diminished, that they are the easy victims of intimidation. This was not so in England twenty-five years ago, any more than it is now in the United States. Then the capitalists believed in themselves, in their value to society, in the propriety of their continued existence in the full enjoyment of their riches and the unlimlted exercise of their power. Now they tremble before every insult ;–call them pro-Germans, international financiers, or profiteers,
and they will give you any ransom you choose to ask not to speak of them so harshly. They allow themselves to be ruined and altogether undone by their own instruments, governments of their own making, and a press of which they are the proprietors.” – ibid, pgs 237-238
Interesting how one of Keynes’ later cult members, who fashions his namesake after Keynes himself, would be the subject of Keynes’ criticism, and not only that, but was prescient in anticipating the political fallout throughout Europe from the inflation (communism, fascism).
“As the inflation proceedvand the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.”
That passage establishes beyond any shadow of a doubt Keynes is talking about hyperinflation here.
But again crude or just mendacious minds can distort its meaning.
“That passage establishes beyond any shadow of a doubt Keynes is talking about hyperinflation here.”
No it doesn’t. The real value of a currency can and does fluctuate wildly month to month without rejection of the currency.
Also, if you only read just a few short paragraphs later it is perfectly clear Keynes is thinking of post WWI severe inflation and hyperinflation:
“The inflationism of the currency systems of Europe has proceeded to extraordinary lengths. The various belligerent Governments, unable, or too timid or too short-sighted to secure from loans or taxes the resources they required, have printed notes for the balance. In Russia and Austria-Hungary this process has reached a point where for the purposes of foreign trade the currency is practically valueless. The Polish mark can be bought for about three cents and the Austrian crown for less than two cents, but they cannot be sold at all.
“The real value of a currency can and does fluctuate wildly month to month without rejection of the currency.”
Yeah, no doubt you will now redefine “wildly” to have any meaning you want! — just as you redefined “immediately “:
“immediately”, … can be taken to mean any time at all, since the standard for “short” and “long” periods of time is not objective but subjective,
http://socialdemocracy21stcentury.blogspot.com/2011/12/say-repudiated-says-law.html?showComment=1322756770135#c6195980368215469925
“The inflationism of the currency systems of Europe has proceeded to extraordinary lengths.”
Right, notice how he distinguishes between inflationism, and “extraordinary length” inflationism.
His arguments about debauching the currency concern continuous inflation, and rising prices, not rejection of the currency.
Keynes agreed with Lenin that continuous inflation and rising prices foments anti-capitalism by the unjust creation of arbitrary gains and losses, which not only makes hatred of capitalists rise, but also makes capitalists feel guilty and accepting of such hatred.
“Yeah, no doubt you will now redefine “wildly” to have any meaning you want!”
Remind me again when you defined “wildly”.
To a Keynesian, “immediately” tends to mean less than the time that using the free market process can achieve.
E.g.
“Since the market cannot immediately raise employment, violence is justified.”
“Since prices don’t immediately adjust, unemployment can result, and thus violence is justified.”
“Prices don’t immediately adjust as per the claim of the austerians, hence violence is justified.”
It’s also expected to see that the point is going over LK’s head.
Printing money that causes prices to rise by 50% per year brings about the same problems as does printing money that causes prices to rise by 3% per year, only the problems are, obviously, less pronounced.
Going from 50% price inflation to 3% price inflation doesn’t mean the undermining of capitalism no longer takes place.
Oh! Now one needs to define every word one uses before one argues with you MF, because you might have difficulty understanding English.
Poor guy. I guess reading isn’t your strong suit.
Definition of WILDLY
1 : in a wild manner
2 : extremely 2
http://www.merriam-webster.com/dictionary/wildly
Anyone not saddled with basic ignorance of English can see Keynes is using “wildly” in sense 2:
“As the inflation proceedvand the real value of the currency fluctuates wildly [= extremely] from month to month, “
But what maybe you need a definition of extremely?
Or maybe “extremely” can
can be taken to mean anything you want?
lol
You’re getting it now.
“Extreme” real fluctuations of a currency can and do occur without a rejection of the currency as well.
Perhaps your tolerance for inflation goosed fluctuations is higher than mine, but then again, a thug’s tolerance for violence is higher than a peace advocate’s, so….
“Easy: the whole point is that “action in the short run facilitates the road towards the fully adjusted equilibrium in the long run.”
This is just a garbled way of saying means facilitate ends.
Yet given the Tract, it seems the only “end” Keynes could think of is death, when “equilibrium”, i.e. absence of empirical data diverging from equilibrium models, comes to be.
Rizzo has a good point:
“When economists talk about “the long run” they do not mean calendar time. Yes, that’s right. They do not mean long in the sense of many years or perhaps even many decades. […] Then what do they mean? It is actually a technical term that has meaning only in the context of a specific model. I believe that Keynes knew this but used the everyday meaning of the term to sow confusion about the ideas of his predecessors and to use that to his advantage. […] The long run happens when all of the variable elements in a model are fully adjusted. It is an intellectual experiment.”
Given that all models are by their nature self-contained, static, and hence equilibrium models, and given that equilibrium is never actually attained in human life, it follows that Keynes’ glib “In the long run we’re all dead” is even worse than it at first seems, for the argument he is making is that because all economic equilibrium models (and not just the classical’s models) cannot actually be attained in human life (and not just in the long run), Keynes believed that state intervention is necessary and justified.
Mises was so right when he said:
“The worst enemy of clear thinking is the propensity to hypostatize, i.e., to ascribe substance or real existence to mental constructs or concepts.”
Equilibrium is one such construct.
The classicals thought it could actually be attained.
Keynes thought that because it can’t be attained until only the long run, state intervention in the short run is justified.
Neither were correct.
Correction:
Now ‘in the long run’ this is probably true.
All easy to understand for anyone who has read the relevant chapter in full:
http://socialdemocracy21stcentury.blogspot.com/2013/05/in-long-run-we-are-all-dead-what-did.html
My guess is that Krugman is attacking these “misrepresentations” because he doesn’t want the actual meaning of the passage to be scrutinized or made clear, because it’s embarrassing to have to deal with.
The irony is that Krugman has stated repeatedly that the government must not worry about costs over the long run (debt, deficits, taxes, etc), because there are people unemployed now and so the government has to deal with that now.
Of course, it should go without saying that when a Republican is President, then we should from zero worry about the long run to some positive worry about the long run.
When did Krugman ever say that govt should not worry about the long run? He has made clear many times that the long run is an appropriate time for deficit reduction. Maybe you are confusing Krugman for Cheney who said “Reagan taught us deficits do not matter.” Krugman clearly thinks deficits matter.
Here is a quote from May 4, 2013, 1:24 pm:
“The point, then, is not to ignore the long run; it is to recognize that the boom, not the slump, is the time for austerity, and spending cuts right now are disastrous policy.”
Here is a quote from April 26, 2013, 5:59 pm
“This means that any decisions about short-term spending have to be taken along with an asterisk: “*to be offset by longer-run adjustments to be determined later.” “
Show me a quote of Krugman calling for spending cuts to be made at the time of that quote.
Something like “Spending should be cut right now, because we’re in a boom.”
or
“Spending should be cut right now, because we have to make dues for the past stimulus.”
or something historical like
“Spending should have been cut at that time, because they were in a boom.”
or
“Spending should have been cut at that time, because they had to make dues for a past stimulus they enacted.”
And, the quote also has to be related to a time when a Democrat was President.
Do that, and I’ll consider your quotes above to be something other than “convenient” appeals to theory while in practise only promoting one side (the “don’t reduce spending now” side).
I think he has provided one above. Oh, wait, here it is:
May 4, 2013:
“The point, then, is not to ignore the long run; it is to recognize that the boom, not the slump, is the time for austerity, and spending cuts right now are disastrous policy.”
That sounds oddly like saying that during a boom not a slump is the time for cuts.
That isn’t a quote I asked for. Krugman is not calling for immediate spending cuts in that quote.
I hope Brad Delong reads Bob’s blog. Maybe Daniel can draw his attention to it!
Seems like Keynes was saying you shouldn’t focus *exclusively* on the long run, not that you should disregard it entirely.
Seems like Keynes was saying you shouldn’t focus *exclusively* on the long run, not that you should disregard it entirely.
Because everyone would immediately think, “Ah, life insurance!” ? What are you guys talking about? The rhetorical function of saying, “In the long run we’re all dead” is to say it’s pretty stupid to consider the long run.
Yes, the rest of the quote shows that Keynes is saying we need to consider the short run as well. But the function of the famous saying is to make one look like a fool for including the long run in his considerations since, well, we’re all dead at that point.
Yes, the rest of the quote shows that Keynes is saying we need to consider the short run as well.
Hence the objection that people take the “in the long run…” quote out of context.
Yes, that is pretty obvious, Blackadder! Well, at least obvious to fair-minded people…
Again, it’s fine for people to disagree with me, perhaps I’m wrong. But I don’t see a single critic acknowledging the whole point of this post: The phrase “in the long run we’re all dead” by itself suggests that you should ignore long-run considerations.
I am *not* claiming that the point of the General Theory was to ignore the long run. What I’m saying is that the rhetorical function of that line, is to ridicule people for looking at the long run. He didn’t say, “In the long run we won’t experience things that completely trump the outcome in the short run,” he said, “In the long run we are all dead.”
But go ahead, just keep pretending I’m not even making an argument, and then on top of that tell me what an ideologue or how unfair I’m being.
I agree. The passage contains 2 thoughts. 1) Focusing on the long-run is not a good idea because it fails to address the pressing problems of the present and 2) we’re all dead in the long run anyway.
Hayek accused Keynes of short-term thinking. Now I read it again he was perfectly justified in using the “long run” passage to back up those claims.
Bob,
People object to misuse of Keynes’ quote on the grounds that they are taking it out of context.
In response, you seem to be saying “sure, if you look at the full quote, it’s clear Keynes wasn’t saying you should just ignore the long run, but if you just look at those seven words in isolation then it’s hard to see what else he could’ve meant.” In other words, you are doing precisely what the critics are complaining about.
OK fair enough Blackadder. I thought I had seen people explicitly saying “Why would anyone think those words mean ‘ignore the long run'” but I can’t find a smoking gun now.
Let me try it this way, guys. Suppose Gene says to me, “I’m thinking of buying this house, but I wonder what the resale value will be in 2090?”
I say in response, “But at that point you’ll be dead.”
Now if I understand Blackadder, Lord Keynes, Daniel, and Gene, my statement here should be interpreted as equivalent to, “Yes, great question Gene, I wonder that myself.”
You guys are crazy.
Lol
Looking at the whole quote, especially the last sentence, what I think he wants to say is not that the long run doesn’t matter, but that we shouldn’t have to wait for the long run (because by then we’ll all be dead) for things to improve.
“Looking at the whole quote, especially the last sentence”
>> martin, I think the last sentence reinforces Bob’s point. How does one define looking at the long run as a “useless task,” while at the same time, suggesting it matters in any useful way?
Keynes doesn’t define looking at the long run as a useless task, he defines “only tell us that when the storm is long past the ocean is flat again” as “too useless a task”.
“too useless a task” doesn’t mean it’s useless, it means it’s not good enough. What Keynes is saying with that last sentence is that economists telling us that things will get better in time (in the long run) is not good enough.
The phrase “In the long run we’re all dead” in this context means that things getting better in the future is not going to help us now.
Suppose you’re out of a job and an economist tells you not to worry because by the year 2100 there will be no more unemployment. You reply with: “by that time I’ll be dead”. Are you then saying that the state of the world in the year 2100 doesn’t matter?
Keynes was telling us to ignore the long run with that line
Keynes was telling us not to ignore the short run, as his next sentence shows.
Bob, I don’t think that line means “ignore the long run, because we’re all dead in it.” He’s saying “A lot of the statements that economists make when talking about the long run are as useless as the statement ‘in the long run we’re all dead””. That’s why he similarly points to the statement “when the storm is long past the ocean is flat again”.
That’s why your example of Gene and the house doesn’t work. He’s not criticizing concern about the long-run, he’s criticizing economists who don’t say useful things, because they use the long run as a dodge.
Yes. Exactly.
Bob asks “What other purpose does the glib “In the long run we are all dead” serve, except to pooh-pooh the focus on the long run as being silly?” It serves the purpose of being an easy true prediction that ignores the important stuff in between. Which is Keynes’s point: you can’t just ignore the stuff in between.
Tarrasch, one of the greatest chess players of his time, made an observation in defence about his favorite opening, which the created a possible weakness that could be exploited in the endgame. “Between the opening and the endgame the gods have placed the middle game.”