This is a note I have written to the contributors to What’s Wrong with Keynesian Economic Theory?
______

I hope you have all by now received your own copy of the book.

I have also put a blog post up at the Elgar website which is my own view of the book and how significant I think it is which you can find here

Let me therefore again thank each and every one of you for your articles. As I try to convey in the Introduction, a book such as this is an extreme rarity. This is from a blog post I wrote here in Australia where I tried to explain just how rare the book is.

The following quote is from Henry Hazlitt’s Economics in One Lesson.

When the government comes to repay the debt it has accumulated for public works, it must necessarily tax more heavily than it spends. In this later period, therefore, it must necessarily destroy more jobs than it creates. The extra heavy taxation then required does not merely take away purchasing power; it also lowers or destroys incentives to production, and so reduces the total wealth and income of the country.

The only escape from this conclusion is to assume (as of course the apostles of spending always do) that the politicians in power will spend money only in what would otherwise have been depressed or “deflationary” periods, and will promptly pay the debt off in what would otherwise have been boom or “inflationary” periods. This is a beguiling fiction, but unfortunately the politicians in power have never acted that way. Economic forecasting, moreover, is so precarious, and the political pressures at work are of such a nature, that governments are unlikely ever to act that way. Deficit spending, once embarked upon, creates powerful vested interests which demand its continuance under all conditions.

Hazlitt also published his Critics of Keynesian Economics of which it is said..:

Henry Hazlitt confronted the rise of Keynesianism in his day and put together an intellectual arsenal: the most brilliant economists of the time showing what is wrong with the system, in great detail with great rigor. With excerpts from books and articles published between the 30s and 50s, it remains the most powerful anti-Keynesian collection ever assembled.

And here’s the thing. The book was published in 1960 and other than Mark Skousen’s sadly out-of-print Dissent on Keynes (Praeger 1992) there has not been another attempt to do the same until my own modest What’s Wrong with Keynesian Economic Theory? which was only released last month. It is thus almost twenty-five years since anyone has has brought together a series of critics of Keynesian economics and more than fifty years since the only other. And as scarce as they were even then, critics of Keynes were easier to find, let me tell you, in the 1930s, 40s and 50s [and I might mention that Hazlitt included two nineteenth century articles of sublime excellence by J.-B. Say and J.S Mill]. Such economists are almost completely gone today in spite of there being every reason to think they should be found at every turn.

There are 13 of us in this book. I would doubt there are a hundred economists in the world who are actively anti-Keynesian and see the problem with economic management in Y=C+I+G. Yet even now there is talk of a further stimulus and negative interest rates which are further attempts to deal with our economic problems from the demand side. There was a recent article in The Wall Street Journal by Robert Barro where he said “It wasn’t the severity of the Great Recession that caused the weak recovery, but government policies” which for me is progress.

And he notes the fall off in productivity. But he doesn’t specifically say as I would that the fall in productivity has been because of the diversion of our resource base into various Keynesian stimulus projects, or due to low interest rates misdirecting resources. What I have, however, learned in putting this collection together is that some of those who are anti-Keynesian – and will remain nameless but I can say that Robert Barro was not among them – declined to contribute an article because it would put them offside with their colleagues.

So I thank you again. Hopefully the book will find its way to enough readers to make a difference to how policy is framed from now on in.

The thing about these Keynesians is that they have no shame. The nonsense that Australia avoided recession after the GFC is one of those self-serving myths that will not stand an ounce of analysis. The data above (from the IPA) are the latest much-revised version of what happened to the unemployment rate during the GFC. A rise in the unemployment rate by two-plus percentage points over the course of a few months is recession enough for me, whether or not we actually had two consecutive quarters of a falling GDP. Ken Henry was Secretary of the Treasury at the time, and his advice was “go hard, go early”. So Rudd and Co went hard and early, with the results before us for all to see.

So now the self-same Ken Henry is on the front page of The Australian today with some advice on how to fix the problem that hard and early have led to: Fix budget before the crunch hits, urges Ken Henry.

National Australia Bank chairman and former Treasury chief Ken Henry warns that Australia faces an unacceptable risk with its budget deficit and fears the nation will wait for a painful economic crunch before confronting true ­financial repair.

In an exclusive interview, Dr Henry issued his most powerful warning about the failure of politicians and the national parliament, saying responsible fiscal policy had become a “pretence”, the economic reform narrative “no longer exists” and politicians are fixated by “appeals to populism”.

Dr Henry said Australia was now running the risk that its AAA sovereign credit rating might be downgraded, coinciding with another global financial disturbance, and in this situation the consequences for Australia “would be truly catastrophic”.

He said this was a “small risk” in relative terms but “the consequences are so large you cannot take the risk”.

Dr Henry said politicians through domestic economic ­policy failures were now exposing the nation to such risks that the entire reason for the reforms of the 1980s and 90s had been ­forgotten.

Unless the momentum was recovered, Australia would find “we are right back with Paul Keating’s banana republic statement”.

Well Ken, what a disaster we have created for ourselves. You must tell us where we went wrong. The following gets to the heart of the matter, which one would have hoped a Treasury Secretary would already have known. The quote is from Henry Hazlitt’s Economics in One Lesson which was brought to our attention by Tel on a previous post.

When the government comes to repay the debt it has accumulated for public works, it must necessarily tax more heavily than it spends. In this later period, therefore, it must necessarily destroy more jobs than it creates. The extra heavy taxation then required does not merely take away purchasing power; it also lowers or destroys incentives to production, and so reduces the total wealth and income of the country.

The only escape from this conclusion is to assume (as of course the apostles of spending always do) that the politicians in power will spend money only in what would otherwise have been depressed or “deflationary” periods, and will promptly pay the debt off in what would otherwise have been boom or “inflationary” periods. This is a beguiling fiction, but unfortunately the politicians in power have never acted that way. Economic forecasting, moreover, is so precarious, and the political pressures at work are of such a nature, that governments are unlikely ever to act that way. Deficit spending, once embarked upon, creates powerful vested interests which demand its continuance under all conditions.

Hazlitt also published his Critics of Keynesian Economics of which it is said:

Henry Hazlitt confronted the rise of Keynesianism in his day and put together an intellectual arsenal: the most brilliant economists of the time showing what is wrong with the system, in great detail with great rigor. With excerpts from books and articles published between the 30s and 50s, it remains the most powerful anti-Keynesian collection ever assembled.

And here’s the thing. The book was published in 1960 and other than Mark Skousen’s sadly out-of-print Dissent on Keynes (Praeger 1992) there has not been another attempt to do the same until my own modest What’s Wrong with Keynesian Economic Theory? which was only released last month. It is thus almost twenty-five years since anyone has has brought together a series of critics of Keynesian economics and more than fifty years since the only other. And as scarce as they were even then, critics of Keynes were easier to find, let me tell you, in the 1930s, 40s and 50s [and I might mention that Hazlitt included two nineteenth century articles of sublime excellence by J.-B. Say and J.S Mill]. Such economists are almost completely gone today in spite of there being every reason to think they should be found at every turn.