Economics isn’t about economics when political power is involved

(I)f social inequality is the one great evil, how is it that every attempt to erase it, all through human history, from the Spartacus rebellion to modern Cuba and North Korea, ends up with a heap of corpses and a living population of listless peasants in rags?

– John Derbyshire in this weekend’s Derb Radio

Kevin Williamson in Judge, Jury and Economist:

A wicked joke attributed to George Stigler goes: “All great economists are tall — the only exceptions are Milton Friedman and John Kenneth Galbraith.” The diminutive Friedman grows ever larger. The NBA-sized Galbraith is a fading figure…

Galbraith has suffered ignominies, among them being dismissed as a “media personality” and “celebrity economist” by Paul Krugman, a media personality and celebrity economist. I suspect that there is an element of sibling rivalry in Krugman’s viciousness. Galbraith was treated by the best people as the intellectual heir to John Maynard Keynes, and Krugman — Nobel laureate, recipient of the John Bates Clark medal — does hack work for the New York Times while Robert Reich plays an economist on television. The memory of Keynes’s authority must be a wistful thing for 21st-century economists, inasmuch as none of them has as much command over public affairs as do a half dozen leering buffoons on television.

Both Keynes and Galbraith are thought by their admirers to have offered correctives to capitalism. But it is difficult to separate their ideas about capitalism, which were economic ideas, from their ideas about capitalists, which were largely moral and aesthetic. Each was marked in his way by an aristocratic revulsion from the trading classes and the grubby, advantage-seeking business of business. Keynes dreamed of a world in which we transcended scarcity, and Galbraith believed we had arrived there. Each contributed in his own way to the current progressive misreading of our economic troubles, inasmuch as their intellectual heirs see our current straits as being the product not of malinvestment but of sin

But economics isn’t about economics — not when political power is involved. Regardless of whether low regard for the businessman as a kind of mindless pack animal has any warrant in Keynesian economics, it certainly is part of the Keynesian tradition, and was from the beginning. Or even before the beginning: Long before he published the General Theory, he already was making the case for managing the economy along moral-political lines rather than economic ones: “The business man is only tolerable so long as his gains can be held to bear some relation to what, roughly and in some sense, his activities have contributed to society.” Profit beyond propriety Keynes denounces in Biblical language — “the love of money,” which he described as a “disgusting morbidity, one of those semi-criminal, semi-pathological propensities which one hands over with a shudder to the specialists in mental disease.” So much for utility-maximizing economic actors.

The obvious question is which businessmen are to be held intolerable, and by what standard. The implicit answer is: those condemned by John Maynard Keynes — judge, jury, and economist. Keynes’s proposal to judge what businessmen “contribute to society” on non-economic grounds is a constant of our politics now, a tedious staple of progressive rhetoric, e.g. Hillary Rodham Clinton’s misquoting of Oscar Wilde on the market’s knowing “the price of everything and the value of nothing.”…

Between the theory and the policy lies the shadow: History suggests strongly that Keynesian management of aggregate demand is not translated effectively into public policy — if it worked, we would never have a recession — and its loudest contemporary champions, men such as the aforementioned Mr. Reich, have a transparently different set of interests than can be justified by mere economics, chief among them moral concerns about income inequality. Keynes was the butterfly of which Paul Krugman is the larval form: an academic who leverages his academic reputation into political influence only lightly connected to his expertise…

Galbraith could have used a little wisdom from Keynes, who shared in The Economic Consequences of the Peace a great insight: that the economic conditions that led to Europe’s unprecedented prosperity before the Great War were in no small part abnormal, and were not, as comfortable Europeans had concluded, “natural, permanent, and to be depended on.” The position of the United States following World War II produced what looked to Galbraith like “the affluent society,” but much of that affluence — particularly the country’s commanding position in the manufacturing sector — was the temporary result of the war. His intellectual heirs complain that wicked businessmen are “sending our jobs overseas” without understanding how those jobs came to be here in the first place. There are not that many third-generation men in the United States, outside of truly dysfunctional industries such as newspapers, but the totem remains potent.

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One Response to Economics isn’t about economics when political power is involved

  1. Paul Marks says:

    On dealing with distaste that Keynes(and his kind) felt for business people and investors – Hunter Lewis’ book “Where Keynes Went Wrong” is very good.

    Indeed it is a very good book in all respects – accept the title, which I do not like (partly because Keynes was always wrong headed, he did not go wrong having been philosophically wise at some point).

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