The Other McCain

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Keynesianism and the Economics of Envy

Posted on | April 1, 2011 | 9 Comments

We today find two Keynesian economists excoriating the Republican Party as an engine of organized greed, responsible for the suffering of the downtrodden at the expense of the evil rich.

Paul Krugman accuses the GOP of embracing the policy prescriptions of Herbert Hoover’s Secretary of the Treasury, Andrew Mellon. And while Krugman notes that the story of Mellon demanding “liquidation” may be apocryphal, he neglects to mention that Hoover did not, in fact, follow Mellon’s advice.

Joseph Stiglitz bemoans the growing wealth of the “top 1%” and declares: “Lax enforcement of anti-trust laws, especially during Republican administrations, has been a godsend to the top 1 percent.”

These are the stories that Keynesians tell themselves to justify the continuation of Keynesian policy.

Obama’s first two years in office — the massive “stimulus” expenditures, the takeovers of GM and Chrysler, the passage of ObamaCare, the Fed buying Treasury debt, the mortgage “adjustment” programs, etc. — were a grand experiment in Keynesian interventionism, and a grand failure, even by the Keynesians’ own standards.

Having forgotten the lessons of 1970s, the Keynesians wish us to ignore the growing evidence that Keynesian interventions have once again steered the U.S. economy toward  “stagflation,” a phenomenon that refutes the whole basis of Keynesian theory of economic policy as orchestrating a delicate balance between inflation and unemployment.

(Professor Glenn Reynolds notes that Gallup surveys show unemployment rising, while official government statistics show unemployment declining. This anomaly need not be explained as a conspiratorial Obama administration cover-up: Never attribute to malice that which can be explained by incompetence.)

Given the evidence that Keynesianism does not work as policy, the question we ought to ask, I think, is what psychological need is served by these theories.

And the answer to that question, I think, is that Keynesianism permits eminent intellectuals to posture as advocates of the interests of the poor, whose suffering — real or alleged — is attributed to (non-Keynesian) policies that serve the interests of the rich.

To explain Keynesianism this way requires us to examine the socio-economic position occupied by such men as Krugman and Stiglitz.

Both men are at the very zenith of their professions, winners of the Nobel Prize in economics. Stiglitz is a professor at Columbia University (where the average full professor was paid $162,500 in 2008), the former chief economist of the World Bank and former chairman of the Council of Economic Advisors during the Clinton administration. Krugman is, of course, a columnist for the New York Times in addition to being a professor at Princeton University (where the average full professor was paid $172,200 in 2008).

Given their numerous opportunities for earning additional income — via lectures and consultancies, etc. — it is safe to assume that both Stiglitz and Krugman are in that “top 2 percent” on whom Barack Obama promised to raise taxes. But they do not, however, consider themselves among the “ultra-rich” of greedy corporate capitalists whose increasing wealth is the object of their economic animus.

What Stiglitz and Krugman actually resent, we might suppose, is that even with their own handsome six-figure incomes, they are not keeping pace with the investment bankers and corporate CEOs who have continued to make out like bandits despite the Obama ascendancy. No matter how eminent they are in their chosen professions as intellectual economists, Stiglitz and Krugman aren’t eligible for the kind of multimillion-dollar annual bonuses paid out to Wall Street executives, nor can they reap the windfall payoffs received by the securities speculators who orchestrate buyouts and takeovers and such.

It is those “rich” whose wealth appears so problematic to Stiglitz and Krugman. These are the corporate greedheads whom the Keynesians scapegoat as symbolic of the wrongfulness of Republican economic policy, without for a minute pausing to explain (a) why Democratic policies have failed to halt this allegedly harmful plunder, or (b) how the middle-class or the poor are harmed by the wealth of “the rich.”

Espousing a philosophy that offers a rationale for the redistribution of wealth — or at least an excuse to impose punitive taxes on “the rich” — permits the Stiglitzes and Krugmans of the world an opportunity to mask their own envy as compassion for the downtrodden toiling masses, without ever descending from their ivory towers of academic privilege.

As an expression of their own psychological needs, Keynesianism is perfect. As policy, however, it fails every time it is tried.

UPDATE: Vox Day explains basic supply-and-demand to Professor Krugman (via Memeorandum),


Category: Economics

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