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.