Thursday, May 21, 2015

The Horror of the Confidence Fairy (part iv)

(From Part iii)

"Who is John Galt?" (Ayn Rand, "Atlas Shrugged")
"This is the best chapter in the book and one of the most important economics essays of all time." (Tyler Cowen, "Keynes’s *General Theory*, chapter 12" or here)
"Bukharin was right when he stressed that the [subjectivist] marginalist school adopts the point of view of the rentier". (Ernest Mandel, "The Marginal Theory of Value and Neo-Classical Political Economy")

Whether you call her Confidence Fairy, Regime Uncertainty, or Animal Spirits, her father, Keynes, introduced her to the history of economic thought in Chapter 12 of his masterpiece ("animal spirits - of a spontaneous urge to action rather than inaction") and explained her significance one paragraph later:
"This means, unfortunately, not only that slumps and depressions are exaggerated in degree, but that economic prosperity is excessively dependent on a political and social atmosphere which is congenial to the average business man. If the fear of a Labour Government or a New Deal depresses enterprise, this need not be the result either of a reasonable calculation or of a plot with political intent; it is the mere consequence of upsetting the delicate balance of spontaneous optimism. In estimating the prospects of investment, we must have regard, therefore, to the nerves and hysteria and even the digestions and reactions to the weather of those upon whose spontaneous activity it largely depends."

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It doesn't take a literary critic to perceive in Keynes' ode to the subjectivity of the all-important, powerful and benevolent, if fickle, "average business man" a self-satisfied worldview which had barely changed in twelve years, since the publication of "A Short View of Russia". Keynes (like Ayn Rand and Ludwig von Mises) sees the capitalist as the economic demiurge, whose broad shoulders sustain the world he alone created:
"How can I adopt a creed which, preferring the mud to the fish, exalts the boorish proletariat above the bourgeois and the intelligentsia who, with whatever faults, are the quality in life and surely carry the seeds of all human advancement?"
Nor does it take a psychologist to suspect Chapter 12 to be highly introspective, self-descriptive, almost confessional, with its constant appeals to personal experience ("We know from extensive experience … Nor can we rationalise our behaviour …") and even his own personal petty phobias (he explained one year later his "fear of a Labour Government": "It is a class party, and the class is not my class", that made of the Labour Party the "Party of Catastrophe" in "Am I a Liberal?").

In both passages Keynes, the financial speculator -- or rentier, if you prefer -- more than addressing academics, is addressing his fellow Olympians, the financial capitalist and the bourgeois, in general -- whom Rand illustrated with John Galt, the demi-god who, reacting to their impositions, could destroy the world of the moochers by his mere absence.

There is a strong family resemblance between Confy and her dad. Perhaps Rand should have given Keynes a second thought.

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The spontaneously generous encomium this chapter receives from leading libertarian economist Tyler Cowen may surprise at first, but is not gratuitous:
"This is the best chapter in the book and one of the most important economics essays of all time.  …
"Upon rereading it, I am overwhelmed by its insight and also its relevance to our current
[i.e. April 30, 2009] predicament." (here or here)

(To be continued)

Tuesday, May 19, 2015

The Horror of the Confidence Fairy (part iii)

(From Part ii)



If not Lord Skidelsky, who is Confy's real father?

As it turns out, she has at least one putative father: Robert Higgs (senior fellow at the Ludwig von Mises Institute, adjunct scholar at the Cato Institute). He claims her paternity (and Peter Boettke, a prominent Austrian economist, bears witness of that), says she is older (18) and her real name is Regime Uncertainty:
"The vulgar Keynesian does not understand that extreme policy activism may work against economic prosperity by creating what I call 'regime uncertainty,' a pervasive uncertainty about the very nature of the impending economic order, especially about how the government will treat private-property rights in the future (Higgs 1997). This kind of uncertainty especially discourages investors from putting money into long-term projects." (here, page 471)
Little wonder "vulgar Keynesians" (as Higgs calls them) don't like little Confy/Regina.

Other Austrian economists, too, seem fond of Confy, err, Regina: Donald Boudreaux, and Daniel Kuehn, for instance.

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Given that, it's easy to understand one of the reasons why Paul Krugman's "Unreal Keynesians" (March 23) -- mentioned last time -- is so remarkable.

Although one might suspect Krugman was looking towards Lord Skidelsky after their debate a few days earlier, he is ostensibly answering constant Post Keynesian criticism ("I use equilibrium models and don't emphasize the instability of expectations").

Krugman, with some frustration, returns the ball to his critics:
"One way to answer this is to point out that Keynes said a lot of things, not all consistent with each other. …
Now, what have those who declare themselves the true Keynesians had to offer? Has insisting that expectations are volatile and unpredictable been helpful in this context? Actually, if anything it lends support to believers in the confidence fairy. After all, if it's all animal spirits, who are we to say they're wrong?"
"Say … what???" My feelings exactly, Stewie.

That explains Lord Skidelsky's temporary defection: anti-Keynesianism is actually quite Keynesian!

You see, the Confidence Fairy (or Regime Uncertainty) has a third, 79-year old identity: Animal Spirits. And that third identity has an immaculately "true Keynesian" pedigree.

To my knowledge, this is the first time a prominent Keynesian economist, like Paul Krugman, publicly (A) acknowledges explicitly the connection between Keynes and the opprobrious Confidence Fairy, via Animal Spirits; and (B) declares it inconsistent with Keynesian stabilization policies.

Others, like Lord Skidelsky, made revealing references before, without suggesting any inconsistency. Some journalists had also established the Confidence Fairy/Animal Spirits connection. But this is the first time a leading academic Keynesian spelt those two things out.

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You can see how unfair and profoundly misinformed are Fresh Water economist John Cochrane's views. Worse still, from his own point of view, they are ultimately self-defeating, because they contribute to Keynes' spurious image of patron saint of the Kensian Left, which some of Keynes' followers are desperately trying to manufacture of thin air.

He could learn a thing or two from the Austrians.

Lord Keynes' fate -- it seems -- is to be snubbed by his brethren.

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"I am spellbound. This [Keynes] is the most beautiful creature I have ever listened to. Does he belong to our species? Or is he from some other order? There is something mythic and fabulous about him. I sense in him something massive and sphinx-like, and yet also a hint of wings." (Douglas LePan)

That hint of wings, no doubt, was the baby Confidence Fairy flying around her real dad.

(To be continued)