Critical View of Keynesian Economics (Peter Boettke – The Austrian Economists Blog)

3 12 2008

Following is an article on “The Legacy of Lord Keynes” by Peter Boettke of George Mason University, one of the authors of  “The Austrian Economists” Blog (here) .  Here is a link to the full article:

http://austrianeconomists.typepad.com/weblog/2008/11/the-legacy-of-lord-keynes.html

 The Austrian Economists (economics.gmu.edu)

In this article, Boettke is critical of the fruits of Keynesian economic policies as practice in various countries since 1940.  His view is consistent with the “Austrian School” of economics which in general is very supportive of free market economic policies with limited government interference.  Correspondingly, this school of economic thougth typically takes a very dim view of the effectiveness government fiscal intervention upon economic growth.  

As you can deduce, Austrian economists are typically NOT in favor of the types of government fiscal intervention being practiced in these days.  For more on this train of economic thought I would encourage you to visit such websites as the Ludwig von Mises Institute (http://mises.org/), the CATO Institute (http://www.cato.org/), The Heritage Foundation (http://www.heritage.org/), The Foundation for Economic Education (http://www.fee.org/) and other free market economics-oriented websites.

My own personal leaning is in this “free market”, limited interventionist direction.  That said, I surely respect such capable economists as Greg Mankiw and Larry Summers.  Lets hope that capable and sound economic advice is provided to the incoming administration in regards to policies that will truly promote long term economic growth in the U.S., with as much limitation as possible in the debt leverage of the U.S. government upon the U.S. economy.

Following are a few pertinent exerpts from Peter Boettke’s article taking a critically constructive view of Keynesian economic practices.

*****

The Legacy of Lord Keynes

By Peter Boettke, George Mason University, pboettke@gmu.edu

….

“The problem with economics since 1940 has been the thorough victory of Keynes throughout the democratic western nations.  We have Keynesian theory, the development of Keynesian inspired data collection, the “testing” of Keynesian theory via Keynesian data with the purpose of providing tools for Keynesian policy.  This exercise survived the Monetarist and New Classical intellectual challenge, and it survived the Supply Side revolution in policy.  All that remained was an oscillation between liberal and conservative Keynesianism, never a serious challenge to the paradigm of Keynesian policy manipulation of the economy.”


“Instead of reading Keynes one more time with feeling, I would suggest an alternative reading experience. (Or at least an additional one)  Start with Henry Hazlitt, ed., The Critics of Keynesian Economics, move on to Hazlitt’s The Failure of the “New Economics”, graduate to W. H. Hutt’s The Keynesian Episode, and then read closely Buchanan and Wagner’s Democracy in Deficit and then Higgs’s Crisis and Leviathan and War, Depression, and Cold War.”


“Sincerely, you want to know what is going on in 2008 — it is the consequence of the bad economic ideas of Lord Keynes that have led to the victory of Keynesian policy (of either the liberal or conservative variety) since 1940.  We are living through the consequences of Keynes’s ideas. The Soviet Union had to confront the legacy of Marxist-Keynesianism in the 1980s, and we are dealing with the consequences of Social Democratic-Keynesianism in the 2000s.”


“Hayek warned us about the “tiger by the tail” problem of inflation and Buchanan warned us about the destruction of the “old-time fiscal religion” due to Keynesianism.  Yes, Marxism and Social Democracy caused serious problems as they reflected a breakdown in restraints on the power of government, but we have to also recognize the fundamental role that Keynesian ideas on economics and economic policy fed into this shift from constitutional democracy to social democracy throughout the 20th century in the West and the policy reality of conspicuous production for “growth accounting” in the Soviet Bloc nations after the Industrialization Debate in the 1920s, the Collectivization of the 1930s, and Five-Year Planning system from Stalin to Brezhnev. Keynesianism represented the pushing open of an already opened door to fiscal and monetary irresponsibility and opportunistic politicians left and right walked right through.  I am sure stating this sentiment this way will qualify me as a “wing-nut” in Brad De Long’s classifications, but instead of admitting my “wing-nutness” I would rather we have a serious discussion of the consequences of Lord Keynes with respect to world-wide fiscal imbalance associated with intergenerational accounting and world-wide inflation as governments attempt to meet those obligations through monetization of debt.  Somehow I doubt that will take place in our current intellectual and policy context.”

 

 

“Keynes isn’t the intellectual solution to our current woes, his ideas are one of the primary reasons we are in this mess in the first place. He was wrong in 1936, he was wrong in 1956 and 1976, and he is certainly wrong in 2008 and will be wrong in 2036.  Bad economic ideas result in bad economic policy which in turn result in bad economic consequences, and that simple linear relationship is true across time and place.  Until we come to grips with the implications of this, we will not understand the consequences of Lord Keynes for our economic future let alone the economic future of our grandchildren.”

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