1. DownSouth

    Absolutely superb!

    Skidelsky makes an important point that the libertarian-Austrian-neoliberal axis (for purposes of brevity, I’m going to dub that as the LAN) never wants to admit. He says that:

    I think the political downsides of taking those risks are going to be too great and in Germany they were absolutely horrendous in the 1930s.

    The LAN is always in denial about this political verity, for Keynes actually endeavored to save capitalism, along with the republic, and not to do away with them. At the time Keynes’ prescriptions for fiscal stimulus were being implemented, there existed the very real possibility that the United States could slide off either into Nazism or into communism.

    Then, in response to Roberts’ assertion that “markets punish you,” Skidelsky responded that:

    They actually punish millions of people for the mistakes of quite a few people. And no government, no democratic government is going to allow that level of punishment… There are lots of companies who are not making mistakes, they’re just affected by the people who have made the mistakes.

    Skidelsky is making two very important points here.

    First, many innocent people are made to pay for the sins of the few. And I think there’s always a tug of war here to determine who the “sinners” are. The LAN seems to attract those who want to lay all the blame at the feet of those the bottom of the economic pyramid. “It’s those irresponsible households who live beyond their means that are to blame,” is a typical response. The Keynesian left, on the other hand, seems to attract those who err in the opposite direction, wanting to lay all the blame on the bankers for making the irresponsible loans.

    In talking about the mushrooming credit card boom and massive run-up of credit card debt that is occurring in Mexico, I felt Esteben Sotelo, a regional director of the federal government’s National Commission for the Protection and Defense of Financial Services Users, hit pretty close to the truth. “Sotelo blames the crisis on free-wheeling lending practices by banks as well as consumers’ poor personal finance management skills.”

    Obviously, in this same vein, bankers could not pull off the control fraud that Bill Black speaks of without millions of individual households playing their small part. So I would say there are sinful bankers and sinful households, but without some pretty in-depth forensic work, it’s near impossible to separate the sinners from their victims, or to determine where the line between the two should be justly drawn.

    Secondly, Skidelsky is making the same point that I frequently make when I assert that no nation freely accepts neoliberalism, that neoliberalism is always enforced at the point of a gun. And this brings us to the great internal consistency that inheres to LAN philosophies, for they’re always replete with talk of liberty and freedom. But LAN’s economic prescriptions are never accepted by a free people. So despite all the protestations to the opposite, the LAN always ends up being highly anti-democratic. Probably no better demonstration of this has ever been rendered than in Hayek’s comments to the Chilean press in the wake of the overthrow of Salvador Allende by the military dictatorship of August Pinochet.

    As Greg Grandin observed:

    Hayek glimpsed in Pinochet the avatar of true freedom, who would rule as a dictator only for a “transitional period,” only as long as needed to reverse decades of state regulation. “My personal preference,” he told a Chilean interviewer, “leans toward a liberal dictatorship rather than toward a democratic government devoid of liberalism.”

    The Mexican writer Carlos Fuentes in The Buried Mirror gives meaning to the type of political action upon which Hayed placed his imprimatur:

    In a savage action, Allende partisans were rounded up, gathered in a stadium, and murdered en masse. Others were sent to concentration camps, and still others were exiled and sometimes murdered abroad. Pinochet did all of this in the name of democracy and anticommunism.

    I will concede one point to the LAN, and that is that some level of punishment and pain on the part of the innocents seems to be necessary in order to build a fire under them and spur them on to rein in the sinners. There seems to be no way except by inflicting pain to engender the political will necessary to effect substantive financial reform. And in this regard, Keynesian stimulus can act like a pain-killing narcotic, alleviating the pain but not the disease. This creates the illusion that the disease has been cured when it hasn’t, sapping the political will out of endeavors to effect meaningful financial reform. But herein lies another grand stroke of cognitive dissonance on the part of the LAN, for with their laissez faire, anti-government and anti-regulation dogmatism, the LAN stands opposed to the very sort of financial reforms that are necessary to rein in the sinners.

    1. John Papola

      I’m curious why Lord Skidelsky would imply that Germany’s fall into fascism, which was in no small part the result of hyper-inflation, a failure of laissez faire. That’s seems to be a problematic example, which he has used many times and I don’t think deserves repetition as a valid point. Hyper-inflation is not a market phenomenon to my knowledge, but a government/monetary authority failure.

      The great problem with Keynesian thinking, as Hayek pointed out, is that the focus on macroeconomic aggregates completely mask (to the point of virtual uselessness) the relative prices and allocations that actually compose economic choices. 1 billion in ditching digging is not the same thing as 1 billion in providing goods and serves that make people’s lives better.

      Keynesian macro is divorced from the economics of human decision making in a world of scarcity and opportunity costs. It’s devoid of any notion of WHY things happen. The idea that AD = C + I + G and therefor if C goes down, we should have G go up is virtually tautological. That equation (if you can call it that) is little more than an after-the-fact accounting of what took place, not a prescriptive or predictive formation.

      There are indeed macroeconomic problems that include the business cycle, inflation and employment. But there are only microeconomic causes and microeconomic solutions. Aggregates aren’t things that make choices or interact. The world isn’t on a philips curve that can be pushed around by wizards. Prices and incentives help coordinate the decisions that lead to economic output. If they aren’t doing a good job, either because of problems with the money supply or other bad incentives from the public or private sector, THAT is the problem we must solve.

      …but what the hell do I know?

  2. Dave Raithel

    At 7 minutes in, Roberts says (paraphrase close to quote): Keynes has given solace to politicians who spend money wastefully rather than on things that would help us…

    So, is that a concession, minimally, to the need of government intervention – they just need not to spend wastefully?

    When I first stumbled to this blog in the fall of 2007, I observed and commented even then that some people were of the opinion that letting the “market” do what it would, no matter how ill the consequences, would be best. Down South above quotes the exact line I’d pick as the proper response to that thinking.

    Two years latter, still running inside the same wheel, chasing our tails, and tales. There’s been some discussion between Megan McArdle, some guy named Steve Sumner and some other some guy last name of Allison, re moral hazard and the FDIC, which then cued the motif of getting back to a gold standard to fix what ails us. The WAPO today has a story re what the increase demand for gold is doing to the rain forests in Peru – yet another reason to go out and fuck up the environment.

    The other day here was discussion seeking a word to describe our collective cultural predicament, a state of stymied conniption. How bout just call us stupid?

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