Keynesianism with a grain of salt

When I studied economics at the University of Minnesota, the department was crawling with Keynesians.  When I identify myself as a "follower" of Keynes, it is the Keynes who died trying to reform Bretton Woods--not the Keynes of the General Theory.  Here's a good essay that partly explains why I decided it was necessary to move beyond Keynes into the world of the Institutionalists when I wrote Elegant Technology.

It’s Not the 1930s!  

Friday, 06/18/2010 - 10:34 am by Joe Costello   

While many are looking back to Keynesian theories, we should be coming up with some that fit our own times. (AMEN!)

Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas. Not, indeed, immediately, but after a certain interval; for in the field of economic and political philosophy there are not many who are influenced by new theories after they are twenty-five or thirty years of age, so that the ideas which civil servants and politicians and even agitators apply to current events are not likely to be the newest. But, soon or late, it is ideas, not vested interests, which are dangerous for good or evil. — John Maynard Keynes

As “old” Europe totters on the brink of insolvency, the dead thinking of our modern economic scholastics pervades the political atmosphere to both a degree and detriment as thick and stifling as the Gulf oil slick. The classical school of our economic scholastics states, “If you’re insolvent, you must cut spending. You must pay the piper.” They are answered from the other side of the cathedral by the self-proclaimed followers of Mr. Keynes, the great classical economic heretic, who scream, “No, the way out of insolvency is to spend more, the government will insure all debt.” Neither side seems aware the vaults of the roof of their great cathedral rain down on their heads and the walls crumble. Their beliefs and dogmas from the 19th and 20th centuries offer little practical guidance for the world of the 21st. Unfortunately, that doesn’t stop them from fouling the collective political nous, influencing our own generation of madmen in authority.

From almost the beginning, the greatest problem of economics has been its craving for legitimacy as a science, instead of as a system of political values. Birthed at the end of the Enlightenment, when it was in extreme bad taste to found systems of power based on theology, economics looked to science — which again and again has proved as problematic as any theology for rationalizing systems of power. The classical economics of the 19th century, most specifically the doctrine of laissez-faire, came directly out of the Enlightenment, a continuation of the loosening of the shackles of feudal society begun several centuries before with the Renaissance. At the end of the 18th and beginning of the 19th centuries, the political economy bonds of feudalism remained substantial across Europe. So, as industrial society began to flourish, a doctrine of laissez-faire, of keeping the state away, was logical. Although in reality, as Polanyi clearly documents in The Great Transformation, the state actually played an integral role helping institute the industrial era, and contrary to zealous belief, promoting the doctrine of laissez-faire itself. more