Sunday, May 1, 2011

Why Keynes is popular

I'm really too busy to post here (and have bad computer access), but I've come to realize writing about some things I've been thinking about lately may be the only way to stop thinking about them and get back to thinking about the things I should think about - exams, for example.

Anyway, so the subject is: Why do so many economists love Keynes? For uninformed readers, Keynes was the guy who invented this whole "stimulus" spending thing, in the 1930's. He thought the government should steer the market, and "save capitalism from the capitalists".

In practice, while in the original idea you're supposed to run budget surpluses during the booms so you can run budget deficits during the recessions, what happens is politicians spend during recessions but refuse to save during booms. That's understandable, because voters tend not to vote for politicans who would rather save for a rainy day than spend money on largely useless social programs. We get the politicians we deserve, remember.

You could say economists don't understand politics, and therefore they don't take such political problems into account when they recommend a course of actions.

I, however, have come to the conclusion that economists love Keynes because he strokes their egos. In Keyne's worldview, the economists are Gods. They are the ones responsible for steering the economy, as you recall. They decide when stimulus is needed, how much and where it should be invested. Keynes assume that economists are more or less allknowing and should therefore be almighty.

As a future economist, I find this view very flattering, and I really wish it was true.

Compare this to the view of, for example, FA Hayek. His view was that economists were mostly standing in the way of prosperity, that those fancy models we use are worthless, that econometrics is a toy in the hands of economists trying to play God and that if we just would stand on the sidelines and let the economy work by itself, things would be so much better.

As an economist, that kind of view makes you so depressed you'll almost become suicidal if you believe in it. Hayek is essentially saying that you're useless and will always be, because the economy is too unpredictable and we don't need government to "push us in the right direction" (which is essentially what Keynesianism is all about: when consumers don't spend, government takes their money and does it for them). That's an economist's favourite task, so losing it isn't fun. Not fun at all.

Here is a great video on the matter of Hayek vs Keynes:

See you,
/John G

1 comment:

Anonymous said...

Great video.

These econ guys are very talented.