In an interesting piece over at Economist’s View the case is made from moving away from “morality arguments” and just looking at how we can pull ourselves out of the depression now.
Although the piece provides a clean argument, and involves discussions by economists as intelligent and convincing as Martin Wolf and Paul Krugman I have to admit I nearly completely disagree with it.
Fundamentally, I believe that these economists are making an implicit moral judgment when they state that we need to “improve current outcomes” through employment and consumption. I am not saying that they are wrong, however trying to make their conclusions sound value free is incredibly misleading.
The idea that “output” and “employment” are “too low” requires value judgments – we cannot take them as an a-priori truth, and we should try to understand the dynamics of how we got where we are in order to make any sort of conclusion. Stating that ignoring these dynamics somehow makes our analysis value free is terribly misleading – but nonetheless it is what these authors are saying!
To be clear about what I am saying, I feel the crux of the argument is poisted transparently by Krugman (a fact that I do respect):
That is, The General Theory for the most part offers a static model, not a dynamic model – a picture of an economy stuck in depression, not a story about how it got there. So Keynes actually chose to answer a more limited question than most people writing about business cycles at the time
Although the more limited question is useful (undoubtably) the scope with which we should ask this question depends on the specific case we are in. We can’t just say “spend more, spend more” we have to understand the path which led us to the recession before we can understand whether “pulling us out” is worthwhile.
Note that a recession by itself is not a negative thing – if the economy has been “running past capacity” in some sense, then we would want activity to slowdown, in order to maximise the welfare of society. The goal is to maximise welfare after all – not to prevent our GDP statistic from declining. If I discovered that a decline in GDP would increase the happiness of people in New Zealand I would fight tooth and nail to try and sell the policy – this is something economists should all try to do.
Now, another thing Krugman says is:
One measure of how hard it was for Keynes to divest himself of Say’s Law is that to this day some people deny what Keynes realized – that the “law” is, at best, a useless tautology
I would agree with this in part – Say’s Law is a tautology. However, this does not make it useless in of itself – it merely means that we need to add more to it before it can have empirical content. Furthermore the things we add to it are our value judgments – and these are the things we need to defend.
Attacking tautologies for being always true has seemed silly to me – sure we can’t reach a conclusion from a tautology, but a tautology allows us to show equivalence between things, and allows us to frame issues. Once we have done this, it is far easier (and more transparent) to apply value judgments to reach our conclusions.
Personally, I think that the Economist’s View blog, Krugman, and to some degree Martin Wolf, are all guilty of try to make their point of view seem value neutral. Ultimately, the arguments of the Austrian economists, the new classical economists, and the new Keynesian economists all hold water – but they rely on different value judgments and different “morality plays”. Trying to say that the work of Keynes is true irrespective of our moral lense is a lie.
Update: Interesting piece on the Krugman article by Alex Tabarrok.