On the coming death of Keynesian economics

For those who believe the economic crisis is over, Keynes is the hero of the hour. His ideas were implemented by enlightened Governments around the world--especially those of the United States and the United Kingdom. Without the decisive action to bail out bankers with borrowed money, these countries would still be mired in recession.

For the narrative to fit, no mind must be paid to the fact that countries which neglected to implement Keynesian ideas, such as Germany, are doing even better. And we must refrain from pointing out that the boost in GDP has done nothing to reduce unemployment. This is a jobless recovery, whatever that may mean.

I don't for a second believe this crisis is over. I am also far from convinced that the credit given to Keynes will be turned to blame should the recovery fail to materialize. Gary North is more optimistic than I am:

When the USSR went bust economically in 1988, then lost the Afghan war in 1989, and finally committed suicide in 1991, Marxism died. All the footnotes in the Marxist books no longer mattered in academia. All the post-1991 wailing by Marxists that the Soviet Union really had never been truly Marxist has been ignored. Why? Because the Marxists took credit for the USSR for 74 years. They praised the Soviet Union's central planning. So, in 1991, they could not get off the sinking Soviet ship in time to justify the Marxist system.

By 1991, China's economy was booming because of Deng's abandonment of Marxist economics in 1978. That left only Albania, Cuba, and North Korea. The Marxists had nowhere to turn to that offered evidence of economic success. Overnight, they became a laughing stock on campus.

This will be the fate of Keynesians when the governments of the West finally go bust or else abandon the deficits and the fiat money.

North has a point, but I see two problems with his analysis. First, it is extremely unlikely that the "recovery" will last seventy-four years. It is far more likely that it will be revealed to be chimerical by the end of the year than that it should last three quarters of a century. This is important because the more an idea is impressed upon the minds of men, the harder it is to uproot. If the stock market collapses tomorrow, and the unemployment numbers shoot up, the Keynesians will have some explaining to do. But the longer the false recovery lasts, the harder it will be for them to explain away the failure of their theories.

Second, I am not so sure the Keynesians will be discredited by more than the small number of people who pay attention to these sorts of things. Ron Paul has done a tremendous service in educating people--myself included--about the school of Austrian economics. His impact, exemplified by his recent win at the CPAC straw poll, should not be understated. But even with the increased interest in economics that accompanies every end of the boom phase of the business cycle, much work remains.

North is aware of this, but I'm still concerned that so much of the populace remains completely ignorant of economics in general, or at least of any alternative to the Keynesian chatter that dominates everywhere outside of the Internet, that the opportunity will only be capable of so much. Mainstream economists should have been run out of town after their embarrassing inability to notice the economic crisis they now take credit for having averted. But Krugman still has his column, and I think it depressingly likely that this will not change, even should the economy worsen to the extent that no one can mention recovery without being laughed at.

After all, most of the neo-conservatives who proved so abysmally inaccurate about WMDs, the Al-Qaeda connection--in fact, most everything about the Iraq War--are still ubiquitous. Bill Kristol will probably continue to write alongside Krugman even after they should have both been discredited.

This said, North is right about the opportunity for adherents of the Austrian school. As economics is only one of my interests--I have a full-time job as a computer programmer--I don't think I'd be able to contribute to North's project to dismantle the Keynesian system. Nor, to be honest, do I believe my sparse readings in economics qualify me for the role. But I wish him the best of luck.

Still, my brother, who is presently majoring in economics, and I plan on reading Keynes's General Theory of Employment, Interest and Money sometime this summer on this blog. I can't promise a line by line examination of the book, but we should be able to cover some of the main points, as PJ and I have tried to do for On Liberty and The Republic. Every little bit helps.