Thursday, September 24, 2009

As Shocking As If Glenn Beck Had Joined ACORN

Richard Posner, Chicago/Vienna school economist, Conservative jurist, and student of Milton Friedman, got around to reading Keynes' The General Theory of Employment, Interest, and Money, and discovered his inner Keynes!

No. Really!
I have concluded that, despite its antiquity, it is the best guide we have to the crisis. And I am not alone in this judgment. Robert Skidelsky, the author of a superb three-volume biography of Keynes, is coming out with a book titled Keynes: The Return of the Master, in which he explains how Keynes differed from his predecessors, the "classical economists," and his successors, the "new classical economists" and the "new Keynesians"--and points out that the new Keynesians jettisoned the most important parts of Keynes's theory because they do not lend themselves to the mathematization beloved of modern economists. Skidelsky's summary of what is distinctive in Keynes's theory is excellent.
I shall leave it to the interested reader to pursue further the implicatiuons of that assessment. I'll let the ever-thoughtfulPublius, on Obsidian Wings, conclude:
The logic of Posner's essay also strikes at the very heart of trickle-down economics. I know that economists don't take trickle-down to be a rigorous theory or anything. But I think the basic idea has a lingering hold on the minds of elected officials. At the least, it helps justify in people's minds why concentrations of wealth (estate tax) and income (tax cuts for rich) are good policy rather than things that should trigger pitchforked mobs.

Posner's essay, by contrast, spells out the basic Keynesian idea that "trickle-up" is a much sounder policy. And, as it turns out, this type of trickle-up, multiplier-seeking policy approach is exactly what the stimulus adopts. The essay also illustrates (by describing Keynes in plain English) why the various federal banking interventions were important -- namely, to produce the stability needed to stop people from hoarding.
All the real Keynseyans were adamant all along that the stimulus needed to be MUCH larger. Too bad Obama was wrapped in the supply-siders of his own Party: Summers, Geithner, and Bernanke.

1 comment:

Dusty said...

I am not a financial wizard so I depend on several progressive honcho's to explain this crap to me.

Posner isn't one of them.