Friday, February 6, 2009

Hookah-Smoking Caterpillar Keynesians

by the Sandwichman

We are all Keynesians now but some are more Keynesian than others. Keynes was NOT a Keynesian. There are, nevertheless, New Keynesians, post-Keynesians, bastard Keynesians, Popular Front New Dealers, military-industrial complex Keynesians, StimPack™ salesmen and supply-side tax-cutting trickle-down voodoo economics crypto-Keynesians.

Most commonly encountered are the hookah-smoking Caterpillar Keynesians and the Humpty-Dumptians. It is conceivable -- indeed it is almost inevitable -- for a self-styled Keynesian to be both a Caterpillar and a Humpty-Dumptian simultaneously.

For the hookah-smoking Caterpillars, the federal budget is a mushroom, one side of which makes the economy grow taller and the other makes it shrink. For the Humpty-Dumptians, economic growth means "there's a nice knock-down argument for you!" When H-Ds use a multiplier it means just what they choose it to mean -- neither more nor less. Taken together -- the Humpty-Dumptians with the Caterpillars -- there is only one side of the mushroom that matters.

Astonishing as it may seem, there is a kernel of truth to the mushroom and multiplier story. To get at that kernel, though, it is best to eschew the platitudes and tautologies of the Caterpillars and Humpty-Dumptians themselves and listen (critically) to the Village Idiots instead. Peter Schiff is an Idiot. So is Niall Ferguson. Harold Cole and Lee Ohanian are certifiable Idiots. These people are Idiots because they find an inherent flaw in the conventional wisdom and they run with it -- not seeming to notice (or care) that there are parallel weaknesses in their own analyses and prescriptions.

Cole and Ohanian took it for granted that working fewer hours was a bad thing. Enough said. Ferguson rails against debt and then prescribes a wholesale "restructuring" of debt that would, in effect, amount to a substantial default on debt. As Ferguson acknowledges, one "objection to such a procedure is that it would reward the imprudent." He waves that objection away with the glib assurance that "bad behavior only matters if it is likely to be repeated" and the reckless assumption that such a restructuring would be a one-off bonanza. Not only would such a plan reward the imprudent, it would also bestow a windfall on prudent debtors while leaving prudent non-debtors out in the cold. So why not just gather everything up into one big pile and give an equal share to everyone?

Schiff worries that government intervention will only perpetuate a phony economy based on borrowing and spending. The Sandwichman has tremendous sympathy for Schiff's moral outrage against phoniness. So what is Schiff's prescription? Let the market run its corrective course and make people "take the tough medicine." After all, if it tastes like poison, it must be good for you. Oh, doctor! doctor! The attentive reader may notice that while Ferguson and Schiff share an aversion to prolonging the phony debt economy through deficit spending, they offer diametrically-opposed policy prescriptions -- even before reckoning with the political palatability of either of their approaches.

It is only through a process of elimination that the Caterpillars and Humpty-Dumptians remain standing as the "least daft". In my next post, I will propose a method for wringing a bit more of the daftness out.

3 comments:

Dan said...

I don't think it cannot be said enough that Niall Ferguson is an idiot. The only economics I'd previously heard from him was on NPR's Planet Money podcast (on which he genuinely did not seem to understand wealth, a concept he was trying to explain at the time).

Anyway, I was given The Ascent of Money a few days ago and did not make it past the introduction - again he seemed either not to understand the difference between stocks and flows or to simply disingenuously use the two concepts for the propaganda value. The only other bit I looked at was about the 1973 Chilean coup - there was no reference to the CIA involvement, and Project Cybersyn was ignored in favour of describing Allende as essentially a Leninist.

Sorry for going off topic a bit. Niall Ferguson is an idiot who should be ignored at all times.

PQuincy said...

I read Ferguson's op-ed today with some puzzlement. Not an economist myself, but his prescription that we must absolutely NOT nationalize the banks, but instead have the government take control of them (in the same paragraph, n.b.), had me stumped.

Likewise, his insistence that a universal cap on mortgage rates at, say, 3%, would make everything happy seemed a trifle odd for someone who generally wants less government interference (except when he wants more, I guess, like most Republicans).

And his seamless segue from household, corporate and government debt into highly leveraged investment banks struck me as a bit dodgy too. I haven't bought a single CDS on a lower tranche of a CDO built out of the higher yield slices of a MBS, though they were on sale down at Target for a while. Don't know about you guys...

Jack said...

I think that we all miss a strategic point when we simply write off people like Ferguson as idiotic. Have you not noticed that he and others of his ilk have become ubiquitous in and on the popular media? I saw David Brooks's smillng face on two seperate interview shows last evening. The Charlie Rose Show was one of the two. I couldn't listen and watch through more than a single minute.

Wonks like Ferguson and Brooks are effective because they are portrayed by the media as ideologically neutral. They are as idiotic as the Cheshire Cat, smiling all the way to the bank. They and their cohorts, who can be found at a multitude of "think tanks" (where the thinking is limited to ideological screed), are not part of an idiocracy. That is our imagining. They are part and parcel of the kleptocracy that leaves the many scratching their heads and wondering what happened to my nest egg and income.
I didn't notice any loss on the part of any of those who profess to bring us the right understanding of economic events. It's just that their right is ideological rather than correct. They are not idiots. They have no scrouples, but they have been effective in their roles as publicists for the plutocracy that controls this country and its economic engine.