Previous postings (Part One; Part Two; Part Three; and Part Four) discussed aspects of Paul Krugman’s essay Who Was Milton Friedman? in the New York Review of Books.
In that essay, Professor Krugman, the New York Times’s propagandist for socialistic economics, contrasts the conceptual approaches of Nobel-Prize-winning economist Milton Friedman and John Maynard Keynes, who remains one of Professor Krugman’s heroes.
Keynes, a British economist, propounded a rationale for massive Federal deficit spending and continuous inflation, along with tight regulation of private economic decisions. His 1936 General Theory of Employment, Interest, and Money was regarded by liberal-Progressive-socialists in the Roosevelt New Deal as the ultimate revelation of economic wisdom.
Professor Krugman, who is grouped among the neo-Keynesian economists, writes:
Keynes didn’t make an all-out assault on Economic Man, but he often resorted to plausible psychological theorizing rather than careful analysis of what a rational decision-maker would do. Business decisions were driven by “animal spirits,” consumer decisions by a psychological tendency to spend some but not all of any increase in income.....
The key words in the foregoing are “plausible psychological theorizing rather than careful analysis.”
Nothing in the history of economic theorizing is less carefully analyzed than Keynes’s exposition of his theories. As Henry Hazlitt points out in The Failure of the “New Economics," Keynes in his General Theory, gives no statistical or other evidence to back his conclusions. He merely asserts them, usually in sneering condescension of anyone who might cling to traditional economic analysis.
As an illustration of Keynes’s fairy-land unreality, Mr. Hazlitt quotes Keynes with regard to the 1930s Depression and its unprecedented high unemployment:
The only radical cure for the crises of confidence...would be to allow the individual no choice between consuming his income and ordering the production of [a] specific capital-asset...Most, probably, of our decisions to do something positive...can only be taken as a result of animal spirits - of a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities. Enterprise only pretends to itself to be mainly actuated by the statements in its own prospectus.
May we assume that celebrated investment guru Warren Buffet, himself a socialist lover of high taxes and Big Government spending, would agree that his investment decisions, and those of the management of companies in which he invests, are driven only by “animal spirits,” without reference to rational economic analysis?
Continuing with Mr. Hazlitt’s quotation from Keynes’s General Theory, we come to the real point of Keynesian economics, both in the 1930s New Deal and in today’s liberal-Progressive-socialist counsels, from the New York Times to academia and Democratic Party politicians:
For my own part. Keynes wrote, I am now somewhat skeptical of the success of a merely monetary policy directed towards influencing the rate of interest, I expect to see the State, which is in a position to calculate the marginal efficiency of capital-goods on long views and on the basis of the general social advantage, taking an ever greater responsibility for directly organizing investments.
Hence Professor Krugman’s conclusion in the essay on Milton Friedman:
When Friedman was beginning his career as a public intellectual, the times were ripe for a counterreformation against Keynesianism and all that went with it. But what the world needs now, I’d argue, is a counter-counterreformation.
Private individuals and businessmen are just too dumb to make good decisions. The Federal government is the only entity with the intelligence to spend our money and to decide what goods and services we ought to have.
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