13 Feb 2014

Keynesian Policies: Not Dumb, But Foolish

Matt Yglesias, Money, Shameless Self-Promotion 13 Comments

My sympathetic analysis of Matt Yglesias’ awkward situation vis-a-vis Argentina. The money quote:

So there you have it, folks: Countries that historically have been ill-governed should follow Argentina’s lead by defaulting on their debts and debasing their currencies, but they should stop right before the bad consequences of these actions come home to roost. Simple as pie. Sort of like giving a bottle of Jack Daniels to some frat guys and sending them to the library to study–what could possibly go wrong?

Not surprisingly, people who agree with Yglesias’s monetary views think he is wise.

13 Responses to “Keynesian Policies: Not Dumb, But Foolish”

  1. Daniel Kuehn says:

    Between Don Boudreaux saying Keynesianism is simple-minded man on the street stuff and you saying that you have to dedicate years to book learnin’ to think like that I’m not sure what to think.

    And I’m not sure what the IS-LM model is guilty of here.

    And I’m not sure why Keynesianism is getting heat and not Yglesias. Is it a standard Keynesian line that countries should default on their debt????

    I think Yglesias’s mistake here is in always thinking there’s a solution. It’s very easy to see why a country with debt denominated in Euros would like to not be in that situation and pursue its monetary policy. That is indeed a rough place to be in. I don’t think you need Keynesianism to know that, but if you’d like to go along for the ride with Keynesianism it can certainly take you to that conclusion. That doesn’t suggest at all that life will be great when you default. Maybe they’re just screwed.

    The same goes for fiscal policy. Everything I know about economics suggests to me that while ARRA was small and short, we are better for it. I also think we could stand for some more stimulus – that it would also help.

    I have no idea if that will fully get us out of the crisis. It’s possible we may just be screwed.

    • Brian says:

      I actually think Bob and Don are both right. TWO kinds of people believe it: 1) People who go to school for years until they know enough formulas so as to defy the laws of logic/econ. 2) “Man-on-street simpletons” (especially news reporters) who merely parrot what the folks in category #1 have said.

      • Daniel Kuehn says:

        Could you share these formulas that defy the laws of logic and economics?

        My personal opinion is it’s a stupid comment. But prove me wrong.

        I mean be serious Brian. This is straight up mudslinging on both Bob and Don’s part. Let’s not beat around the bush. There may be good reasons to disagree with Keynesianism, but this is just smearing. I swear to God you guys have a conniption and see this clear as day when someone makes the exact same statement about (say) the Austrians but then you parrot it right back and don’t even recognize it.

        • Brian says:

          1. My point wasn’t to PROVE that either thing was true, but to point out – contra your comment – that the two statements were in no way contradictory or mutually exclusive.
          2. Aren’t you having a conniption because someone said it about Keynesianism (in a blog)? Have I missed the moments where you had a similar conniption when Austrians were smeared by people with much larger audiences?
          3. Do you really doubt that there are legions of “type 2” Keynesians (even if you say that there are proportionally the same ratio – or more – of “type 2” Austrians)? Maybe it’s hard to recognize if you are inside the mainstream Keynesian paradigm, but if you’re outside it, it’s clear that the average reporter has absolutely no clue what they are even saying (tip-off phrase: “Economists believe…”)

          • Daniel Kuehn says:

            Well, no you weren’t just pointing out that they weren’t mutually exclusive. You said they were right. I’ll grant your point that they aren’t mutually exclusive, but I had just said that I don’t know what to think.

            I don’t think I’m having a conniption and I also have a pretty long-standing record of saying that Austrian economics should be taken and discussed seriously. Haven’t I?

            I don’t speak for reporters. They’re a mess. I’m not sure what you expect me to say about that. Sometimes they say Keynesian things. Very often they do not – generally from repeating what policymakers say I think.

    • Ken B says:

      Picasso said it took him years of study to learn to paint like a child.

  2. Innocent says:

    So my first thought is the following… If a country is in melt down does that not by default mean it was ‘ill managed’? So claiming that this is the only reason for the issues at hand for Argentina is simply as you say, foolish.

    Look I know why it is SO tempting to grease the economic wheels with a printing press. I get it. I understand why Krugman and others LOVE the printing press. It is the ultimate power, it is conjuring wealth out of thin air. It is a heady and positive driving experience to feel like you can effect real economic change with simply the wave of a wand.

    But there is no magic, all things have consequence, to all things there is a price.

    I wish what Keynesian said was true. In some ways it is. But there is so much more to the story than they allow to be said. If I was to inject a trillion dollars today into the economy. Send EVERY HOUSEHOLD a check for $10,000 what would happen?

    It feels like Keynesian Economics is the promise of having it all. No pain, no effort, just an economy that when there is excess labor it can be put to ‘use’ immediately. But this is not the case. You must build an economy not simply wave the magic printing press wand and have all be well.

    • Cosmo Kramer says:

      ” If I was to inject a trillion dollars today into the economy. Send EVERY HOUSEHOLD a check for $10,000 what would happen?”

      No, No, No!!!!

      We need legislators to spend this money. We need investment into clean energy, infrastructure and job creating unemployment benefits. The purchasing power the legislators have is of no consequence to us. If they don’t use this purchasing power, our standard of living will be less, ceteris paribus.

      To the coal mines!

      • Andrew_FL says:

        Much more interesting thought experiment. Imagine, if you will, an economy where all the money is digital-we do this for the sake of realism, so we don’t have to invoke magic-and someone creates a program that multiplies the amount of money units in every account by 2. What would happen when everyone wakes up the next morning with twice as much money?

        Let’s stipulate, by the way, that this is a surprise-no one announced it before hand. For bonus points, people can feel free to give their answer to the case where this is announced ahead of time, and in a sufficient manner that no one could be unaware it was going to happen, and when it was going to happen.

        It will be kind of entertaining to see different answers from different people.

  3. Major_Freedom says:

    OMG! Yglesias the tinpot central planning minded pundit assumes that overlords with guns can know, without any knowledge derived from profit and loss or market forces, exactly how much of a medium of exchange to print, and when to print it? Who Is this imposter?

  4. William Anderson says:

    If you ask me, I think that Krugman and Yglesias have given up economics altogether and become historicists. You see, when a “liquidity trap” supposedly exists, then the usual “rules” (i.e., opportunity cost and all of those other boring laws of economics) no longer exist. Understand that these people are telling us that when the economy crashes, as it did in 2008, then we just pretend to be Really Really Rich and spend more than ever.

    If we do that long enough, then the economy, in Krugman’s words, gains “traction” and moves by itself. You can see that it is all very simple. Likewise, Bob’s frat guys may get stinkin’ drunk on Jack Daniels, but they still will manage to study the right things and ace the exam the next morning.

  5. William Anderson says:

    I forgot to add that once the magical “traction” takes hold, then opportunity cost is back in the picture. It all makes so much sense once one is willing to suspend a few economic laws.

  6. Cody S says:

    I am going to take a shot at justifying what Matt is saying here, and other Keynesians have said here and elsewhere, before:

    “Listen, out-of-control inflation isn’t a result of currency debasement, it’s a Political Problem!”

    Read: In order for any country to achieve (what Scott Sumner might finally be willing to call) easy, or loose, money, that country has to operate under a system of monetary controls so insanely corrupt and removed from anything resembling rationality, that any Keynesian worth his salt will be able to shake his head at the Austerians and say:

    “That’s not a currency debasement thing, it’s a Political Problem!”

    Consider: your friend down a pint of vodka, then calls for her keys. You tell her not to drive, as she might get in an accident. She responds:

    “Car crashes aren’t a drunk-driving thing, they’re a result of bad decision-making!”

    Totally fair analogy.

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