Walter and Bill on Keynesianism
I love Walter Block and Bill Bennett. In their paper, “Involuntary Unemployment” (Dialogue, Vol. 1, 2008, pp. 10-22), they write on the persistence of Keynesian theory despite its failures to explain real-world economic phenomenon:
Keynesianism has played a virulent role in the economics profession. Its central idea, that there could be an underemployment equilibrium, is a hard one, evidently, to jettison. Like a vampire, intellectually shooting this economic philosophy is not good enough: one must employ garlic, or a silver bullet, or some such, lest it arise from its “killing,” ghoul-like. Keynes (1936) has been “killed” over and over; yet it marches on, oblivious to its own death.
To wit, one would have thought that Keynesianism would have been stopped dead in its tracks by the phenomenon of stagflation. For, the Keynesian remedy for inflation was to reduce aggregate demand; for deflation, or depression, to increase. What, then, when not one but both of these phenomena present themselves at the same time? Any economic philosophy with but a modicum of respect would have vanished into the woodwork in the face of so obvious a rejection of its basic tenets. But not, of course, Keynesianism, which has a life of its own despite being blatantly contradicted by real world experience.
This refusal to contemplate an equilibrium situation at other than full employment stems from this “dead from the neck up, but not below,” phenomenon.
In a footnote, they add: ”The authors of the present article are located in New Orleans, the vampire capital of the universe. We brook no disagreement with our claims in this regard. Although we usually eschew argument from authority, in this one case we stand ready to employ it.”
Read the full paper here.
No doubt building on the Keynesianism-as-vampire analogy, The Onion last year offered this spoof of a Paul Krugman column that captures the essence of the Block-Barnett argument. What was (sadly) not a spoof was Guenter Reimann’s 1939 description of the German economy in his book The Vampire Economy, which readers of this blog know Keynes lauded in his introduction to the German-language edition of the General Theory. In it, Reimann explained how the National Socialists manipulated German economic activity through its regulatory and tax regimes, inflation and its resulting price controls, and violations of property rights. The Mises Institute offers a zero-price PDF download of Guenter’s remarkable book, as well as the ability to purchase a hard copy, here.