Cafe Hayek
where orders emerge
Running the risk of over-simplifying only a teeny bit, I propose that the key difference between the Keynesian/man-in-the-street view of the economic problem and a non-Keynesian view of the economic problem is the following: Keynesians/men-(and-women)-in-the-street sense that the dominant economic problem is super-abundance (and its attendant problem, excess capacity), while non-Keynesians understand that the dominant economic problem is, and will always be, the ubiquity of scarcity.
How else to explain the prevalence – as predictable as beer at a frat party – of claims that this tsunami or that hurricane or those terrorist attacks, for all of the human agony that these calamities cause, will strengthen the economy? Or looking at matters from the reverse, how else to explain the widespread fear that increasing trade with foreigners will cause permanent, or at least long-lasting, “loss of jobs” in the domestic economy?
If your sense of the chief economic problem is something close to mine, you sense that that problem overwhelmingly involves figuring out how to satisfy more human desires than currently are being satisfied. You sense also that the ‘failure’ to satisfy more human desires is a result of the scarcity of resources, along with limitations on the technologies, and on the legal and cultural institutions, that determine how scarce resources are transformed into valuable goods and services. The chief problem, in short, is one of scarcity.
If, on the other hand, your sense of the chief economic problem is something close to what J.M. Keynes, God rest his soul, believed it to be, you sense that that problem is one of super-abundance "“ a problem rooted in the curse of oceans of resources kept idle by lack of consumer demand. There’s just too much stuff, and too much capacity and labor available to make stuff, to ensure that all resources available for employment are actually employed. Labor being a productive resource "“ and one whose employment we (rightly) care about especially deeply "“ is among those resources which are generally, or at least very often, super-abundant.
Keynesianism, as I (and others) have said many times, is man-in-the-street “economics” "“ that is, it’s the economics that people (even smart people) stumble into before they are tutored in analytical economics and learn some economic history. (This is not to say that everyone who is tutored in analytical economics and exposed to economic history turns into a non-Keynesian. Far from it, alas.)
Every semester in my Principles of Microeconomics course when I explain that Adam Smith celebrated an increasing division of labor in part because it promotes mechanization, invariably a number of students shake their heads and wonder why Smith celebrated increased mechanization: “It destroys jobs,” these 18-year-olds, with only a few minutes of economics as yet under their belts, lament.
Untrained in economics, these young men and women simply assume that the increased volume of valuable outputs possible now to produce in industries X, Y, and Z by workers released by mechanization from industries A, B, and C will never be produced. A lack of imagination combines with an as-yet undeveloped ability to think like an economist – and a yet-to-be encountered exposure to economic history "“ to cause these students to see only idle workers. The problem isn’t scarcity, as these students see matters; it’s insufficient demand. Workers who can produce stuff but who are in a situation in which no one wants whatever it is these workers can produce.
The naïve concern is that consumers, for whatever reason, just don’t want enough stuff, or entrepreneurs are insufficiently bold and imaginative to figure out new stuff to produce that will spark consumers’ interests.
This primal, widespread, pedestrian concern was, of course, elevated by J.M. Keynes and his followers into an “economic” theory. Keynes, Alvin Hansen, John Hicks, Paul Samuelson and others did indeed construct internally consistent theories (even “models” offering magnitudes measurable in principle) in which superabundance of stuff is an “equilibrium” "“ not a rare and fleeting situation, but a frequent and potentially long-lasting situation. A situation so likely (and so likely to last long) that active, ever-vigilant government policy is required to counteract it.
Super-abundance of productive resources (especially labor) became the dominant threat perceived by Keynesian economists in the same way that super-abundance of productive resources (especially labor) has long been the dominant threat perceived by cab drivers, poetry professors, hydraulic engineers, 18-year-old college freshmen, and nearly everyone else unexposed to economics.
But this poetry-professor-&-hydraulic-engineer view of the economic problem is so very much at odds with the fact that people the world over – even the wealthiest of people in the wealthiest of countries "“ still grasp for more stuff. Still want more toys and more experiences and more entertainment and more creature comforts and more of much other stuff and sensations. And it’s at odds, too, with the fact that entrepreneurs (greedy bastards that they are) seek to get rich by supplying all this more stuff and sensations.
It’s at odds, in short, with foundational economics.
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{ 151 comments… read them below or add one }
1 Bill K. March 16, 2011 at 1:19 pm(This is not to say that everyone who is tutored in analytical economics and exposed to economic history turns into a non-Keynesian. Far from it, alas.) Therefore, what Don is saying is that education may not change one’s worldview? So much for the hopes of academia to set the world right!
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2 Mao_Dung March 16, 2011 at 1:32 pmYour lifelong attempts to wrest from your juvenile students their innate humanity will fail except in the case of the most gullible ones. You job is to elucidate and educate, not to indoctrinate. Boudreaux is an affable, yet devious, high priest of the well-funded, right-wing GMU Madrasah. As the youngsters themselves would say, “Epic fail!”
http://en.wikipedia.org/wiki/Madrasah
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3 Daniel Kuehn March 16, 2011 at 1:39 pmI heard Obama went to one of them.
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4 John V March 16, 2011 at 1:45 pmWhat?? Daniel?
You aren’t going to go after mao-dung’s silly rant??
I thought you were here to rightfully interject where things aren’t 100% accurate.
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5 Methinks1776 March 16, 2011 at 2:04 pm126.7% accurate, thank you very much.
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6 John V March 16, 2011 at 2:10 pmYes.
After all, shouldn’t a contrarian at least have the integrity to find fault in every post and not only ones of libertarian persuasion?
So, Daniel isn’t a true passionless contrarian after all. Maybe Daniel is really just a Center-Left Keynesian Kontrarian. That’s what I thought when I first started reading his posts. First instinct is usually the right one.
7 Daniel Kuehn March 16, 2011 at 2:41 pmThis crush you two have on me is starting to get weird
8 Ike March 16, 2011 at 2:51 pmDaniel, blame their crush on Animal Spirits.
9 Methinks1776 March 16, 2011 at 3:11 pm*sigh*
Yes, tiresome child. You’re all we think about.
It’s not like you pop in here seeking validation for your heroic mental contortions or anything.
10 Daniel Kuehn March 16, 2011 at 3:17 pmThe crush is weird and the lack of a sense of humor is grating
11 Methinks1776 March 16, 2011 at 3:34 pmDanny, that’s because you stopped being amusing a long time ago.
12 John V March 16, 2011 at 4:14 pmDK,
Poor diversion.
13 Daniel Kuehn March 16, 2011 at 2:50 pmI figured you’d like my mocking of his hysteria!
Perhaps because “you sound like the Tea Party, Mao_dung” doesn’t sound like mocking when you read it… I’ll be more explicit next time, I promise.
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14 Sam Grove March 16, 2011 at 2:23 pmThat’s a really ugly habit you have there.
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15 Ken March 16, 2011 at 3:13 pmYou think that 18 year olds have innate humanity? Have ever been an 18 year old? Oh… You’re still only 13 aren’t you?
18 year olds, like most young people are so thoroughly selfish that they think feeling good is being good. Having happy thoughts of hope and change to them is the same as actually doing something to change the world for the better thereby instilling hope in themselves and others.
18 year olds, as do most of the college age crowd, think that having a concert, getting high, and dancing around like fools will alleviate world hunger, free Tibet, and generally inspire good will towards all men.
As Thomas Sowell so eloquently put it: Each new generation born is in effect an invasion of civilization by little barbarians, who must be civilized before it is too late.
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16 Economic Freedom March 16, 2011 at 11:29 pmAs Thomas Sowell so eloquently put it: Each new generation born is in effect an invasion of civilization by little barbarians, who must be civilized before it is too late.
Awesome. God bless Thomas Sowell!
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17 JohnK March 16, 2011 at 1:36 pm“The first rule of economics is scarcity: there is never enough of anything to supply everyone. And the first rule of politics, is to ignore the first rule of economics. ” –Thomas Sowell
Keynesianism is a perversion of economics for the benefit of politicians.
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18 Scott G March 16, 2011 at 1:57 pmWell said.
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19 Bret March 16, 2011 at 1:38 pmI’m a roboticist and it’s clear to me that one day in the future, whether decades or centuries from now, everything a human can do, a robot will be able to do better. At that point, the Keynesian state of affairs, at least with respect to a super-abundance of (robot) labor, will be realized. There will simply be no reason to employ a human to do anything. No employment, no paychecks.
On the other hand, a few thousand years ago, there was no automation of any kind and everything depended on human labor so there was no doubt a scarcity of (human) labor.
We are in a transition between the two states of (human) labor scarcity and (robot) labor super-abundance.
The Keynesians will eventually be right and it may be that they are currently starting to be right.
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20 John V March 16, 2011 at 1:47 pmI doubt it. Ther will always be something people can do/sell that others want to pay for. Your thought experiment holds all other innovation constant against the robot. Wrong.
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21 Bret March 16, 2011 at 2:56 pmNo. It holds human evolution constant relative to robot evolution which is accelerating hugely.
