Hayek on Keynes

This is from Hayek on Monday Conference in 1976 where he discusses the failures of Keynesian economics. But I must confess that if Hayek thinks of public spending as “a simple monetary device”, then he has characterised Keynesian economics in a way that no one will recognise, including me.

MOORE: In your Nobel Memorial lecture, why did you say, speaking of economists, ‘we have made a mess of things’. Now can I ask you this, why have economists made a mess of things? Why have they? Are they blind or are they …

HAYEK: No, it was the seduction of a very impressive and ingenious man, John Maynard Keynes, who persuaded economists that there was a simple way of permanent[ly] securing full employment. He was wrong but he was exceedingly persuasive, and he had gained the support of probably 95% of the current international economists. I have been arguing against the ever since.

I have been arguing with him when he was still alive, but there was no chance of getting a hearing so long as it seemed plausible that by a simple monetary device you could assure full employment. And that monetary device was in fact of such a nature that in the short run you could do it, that in fact at the same time you created distortions of the structure of the economy which in the long run was bound to bring about unemployment, a thing which a few of us had pointed out.

What seemed to be in contradiction was the actual experience — currently it worked beautifully — that we have been predicting you will have to pay for this in the future, people just wouldn’t listen to you. Well what we have predicted [h]as come to be very true. We found out that the Keynesian method of creating employment by accelerating inflation works only for a limited period and creates a condition for the following unemployment and that is the state of disillusionment in which we are now.

A great many economists feel that what they have — I mean the economists who have been trained between the middle 30s and the present, are now finding out that they have been taught a wrong doctrine.

It was 95% then and it’s 95% now, but if the other 5% thinks we are dealing with a small monetary device and not something larger and more insidious then there really is nowhere to begin the process of reversal.

As for the “simple monetary device”, it seems to me that he may have explained it later:

The basic problem is that with a new Keynesian economics they’ve given a charter to the trade unions to ask as much as they want and imposed the duty on monetary authorities to offset this by providing enough money.

There are many ways to buy off a majority of the population with higher money wages only one of them. His characterisation of the processes involved may have worked for the time and been suitable for a television audience but does not penetrate far enough to explain the nature of the problem.

[My thanks to Rafe for the link.]

There are climate sceptics everywhere, even at The Age

In The Age this morning and also The Sydney Morning Herald there’s an article on climate scepticism by their long-time cartoonist John Spooner. How sound, how sensible, how on the money. Such a pleasure to read. You should read the whole thing yourself. Here is a bit just to get you going:

I was once told by a friend that when it comes to scientific issues of major public concern, it is ‘not what you know but who you know’. I think he meant that my fledgling scepticism about dangerous anthropogenic global warming (DAGW) was pointless, for as a cartoonist I was as unqualified to assess the science as he was.

The implication was that all who are untrained in ‘climate science’ are required to accept the scientific and political authority of the Intergovernmental Panel on Climate Change (IPCC) and its local colleagues such as the CSIRO: the scientific establishment.

I found my friend’s advice baffling.

Anyone familiar with the judicial process knows the gravest issues of liberty and fortune are often determined by a jury selected from the public. Expert witnesses can give evidence in support of either side at a trial. The judge must rule on questions of admissibility, but in the end it is the jury that decides which scientific evidence is to be believed.

When it comes to climate change, we are the jury, not the IPCC. Dead on the money from end to end.

He believes it but does anyone else?

It’s not that he says it but that he believes it that makes this so pathetic:

WAYNE Swan has blamed the conservative Tea Party movement in the US for damaging the global economy and contributing to the “whack” to Australia’s budget position that has ruined Labor’s planned 2012-13 surplus.

The Acting Prime Minister and Treasurer used Twitter yesterday to warn that the looming fiscal cliff in the US, coupled with the European debt crisis, had directly affected Australia by reducing tax receipts, thus undermining next year’s budget surplus.

But Mr Swan saved his key criticism for the Tea Party, accusing it of holding the world to ransom and setting back the post-global financial crisis recovery for the past 18 months.

‘The impact of America’s fiscal cliff saga combined with Europe’s deep problems is having a real impact on the entire global economy,’ he tweeted.

‘Of course, we’re seeing that impact first hand in Australia with the huge whack we’ve copped to our revenue base.

‘The fact is, no matter what happens this week, huge damage has been done over the last 18 months thanks to the Tea Party’s influence. It is lamentable that so much of the world’s post-GFC economic recovery has been held hostage in such a reckless way by the Tea Party.’

Automatic cuts to social security and defence accompanied by scheduled tax increases are threatening to plunge the US back into recession, with President Barack Obama cutting short his Hawaii holiday to return to Washington yesterday to try to hammer out a solution to stop America sliding over the fiscal cliff.

Personal responsiblity for any of this is zero. Why he wants a surplus here but thinks the US can go on forever with its insane deficits he does not explain.

Elites, serfs and freeloaders

hopeful dems v rep

This is a survey whose results hardly need much explaining to me. The world is in the grip of the left and there seems no genuinely conceivable way to loosen that grip short of serious catastrophe. And even then, if they elect some right side party, it is for emergency purposes only. The middle of the road is so far to the left, and is kept there by a media that is even more to the left than the average, that there is little prospect of anything other than an elites-serfs-and-freeloaders kind of future. The elites will keep themselves in power by promising a guaranteed minimum income for the freeloader class.

Reading as I have been doing the socialist literature of the nineteenth century through the eyes of one of its great critics, Yves Guyot, the one constant is “those who do not work, do not eat”. This was an old staple then partly addressed to those who received income through interest payments and dividends but mostly to those who did not pull their weight in the workplace. Now we really do have a massive cohort of non-working income earners dependent on the State but they have become the very essence of left side politics and its most reliable base of support.

Just to take the American example, in the United States the distribution of “food stamps”, which can now be used to buy TVs and whatnot, reaches towards half the population. When Obama became president the proportion was one third.

If you have a vision of a world made up of independent, self-reliant individuals who will look after themselves, you are nostalgic for a world that is disappearing so rapidly and in a way that it is almost impossible to imagine a return to how things were. And this is before we even start thinking about foreign policy and international relations.

If you’re a Republican why wouldn’t you be depressed?