05/23/14 – Sheldon Richman – The Scott Horton Show

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Welcome back to the show, guys.
I'm Scott Horton.
This is my show.
I'm Scott Horton, and our first guest on the show today, it's the heroic Sheldon Richman.
He's the vice president of the Future Freedom Foundation, and he's the editor of their monthly journal, The Future of Freedom, which you can subscribe to at fff.org slash subscribe.
And it's just 25 bucks a year for the print edition, 15 to read it online, and highly worth it, and you get to help support a great libertarian institution that features the best writers in the libertarian universe.
So that's at fff.org slash subscribe.
And yes, they do pay me a pittance to say that, but that's all right, too, because it's no conflict, because as you well know, back when I was only paid by antiwar.com and not much at that, I still interviewed Sheldon and the FFF guys all the time, because yeah, they're my boys.
There you go.
And Wendy, too.
I like her.
Hey, welcome back to the show, Sheldon.
How are you?
I'm doing fine.
Okay, good.
Appreciate you joining us today and appreciate you writing things for me to read, too.
Let's talk about Keynes.
I think it's sort of the premise of your article today that at least there's plenty of reason for people to have plenty of problems with John Maynard Keynes and his economic prescriptions, I guess his diagnoses and prescriptions.
And yet you're saying despite any problem that anybody has with him, everybody has got to concede that others really like this guy, and they like believing in him.
And so I guess that indicates that either there really is something to it, or there at least is really something to why people like believing in him, even though he's wrong.
So first of all, please describe kind of thumbnail about Keynesian economics, you know, the general theory, diagnosis and prescription in a thumbnail.
What might be wrong with it?
I know you disagree.
And then, you know, tell us why it is that people still like it all anyway, if it's so off base.
Well, Keynes was a John Maynard Keynesian.
Lord Keynes was a very well known and eminent intellectual in Great Britain, even before the Great Depression.
But when the Great Depression came along, he published a book in 1936 called The General Theory.
Although in a funny way, he described his own book as not really a general theory, but as something addressing the times.
And times was, you know, the depth of the Great Depression, 25% unemployment in the United States, a huge drop in, you know, in production.
And so you had stagnation and not very good times, obviously.
So he writes this book, which is trying to explain why there could be chronic unemployment in a market economy.
You know, the previous economists, the classical school, the Austrian school, and others, you know, always talked in terms of an economy that could rejuvenate itself if it got into trouble.
It contained its own forces of correction, especially if the government got it into trouble by, you know, printing money and doing other things.
If it was left alone, the market would regenerate itself.
In other words, people acting, you know, market doesn't act, only people act.
So when I say the market rejuvenates itself, I mean that people taking appropriate, you know, responses to the problems going on around them, reshuffle resources and put them more in line with consumer demand.
And therefore, we can talk in terms of the economy fixing itself.
So he proposed a way to end, you know, get economies out of their ruts, namely, ending chronic mass unemployment.
But he wasn't much concerned with what got the economy back into the rut in the first place.
When the Austrians would talk about that, Hayek was one of Keynes' main nemeses, probably the main nemesis.
Hayek wanted to talk about what caused depressions, what caused the business cycle.
Keynes wasn't interested in that.
He said, let's just talk about what to do about it.
You would think that how the economy got into the mess would give us some guide to how to get out of it.
But he didn't believe that.
He just thought, no, let's not talk about, you know, what might cause depressions.
Let's just talk about getting out of depression.
So he proposed, of course, printing money and government spending because he thought the problem was insufficient demand in the economy for workers and for goods.
And therefore, that's why there was not much activity going on and why people were so badly, you know, for long term, out of work for such a long time.
However, as Larry White explains, my article really bases, based on a chapter in a very good book by Larry White called The Clash of Economic Ideas, which goes over about the last hundred years of controversies in economics.
And Larry's writing from a, you know, Austrian perspective.
The problem with Keynes, the reason why it hung on was at the moment that Keynes was writing, in 36, when things looked so bad, although things had been improving a little bit, they'd been tearing down again in 37.
There was a depression within the depression in 37.
But the reason it hung on was according to Larry and according to other people, Milton Friedman and others, Keynes seemed to give hope.
He seemed to be saying we could do something right away to make things good by getting, we can get people back to work by government spending and, you know, public works and printing money and stuff like that.
And the Austrians, Hayek and others, were saying, no, the market, the economy really has to cleanse itself of all the errors that were committed because government was printing money and holding interest rates artificially low in the 20s.
You've got to give it time to work things out.
Well, this idea of you've got to give it time seemed to be telling people, look, it's going to be a mess for a while, so just get used to it.
While Keynes was saying, no, we can fix it right away.
And even when the Austrians would say, wait a second, fixing it right away is going to set the stage for the next bust, they got poo-pooed saying, oh, you know, oh, go away.
You're just naysayers.
You're just gloom and doomers.
We can do something today and you guys are just standing in the way.
And that's one reason why Keynes' ideas have held on for so long.
Anytime there's a crisis, of course, politicians want to make things look good fast because, you know, there may be an election coming up or they don't want to lose support in the polls.
So you can see the appeal of something, you know, do something.
We had to do something, you know, and therefore anything qualifies because it's something, right?
Especially, you know, in the Great Depression, you got people really starving to death.
And so it's nice for some fancy guy in a fancy house and a fancy suit with a fridge full of food to talk about how we just have to, you know, grin and bear it when he's not having to bear a damn thing.
But of course, there's probably wasn't a single person who knew better than to do what they wanted to do who wasn't in that position, right?
So if you got a belly full of nothing, you're eating dirt and some millionaire is telling you that, oh, no, if we try to feed you, that's going to screw up the pricing system.
You're going to want to cut his throat and eat him.
Well, that's right.
And look, economics is not simple.
It's not intuitive.
And, you know, average people don't pay enough pay attention to it.
They don't, most of them don't ever study it.
The ones that study it don't remember anything after the final exam where they were taught that Bayer-Kansey and economics anyway.
So most people aren't going to understand that.
That's right.
So the snake oil salesman in politics who has a court economist like, you know, Keynes by his side can say, look, do you want to go with me?
We'll do something right away.
Or do you want to go with that guy who says, no, the economy's got to work out these errors, you know, and, and, you know, it's going to take time and, you know, it's going to take the long run.
That's, that's why Keynes said it was in the previous book, but that's why Keynes made the famous statement in the long run we're all dead.
It didn't so much mean that the long run doesn't matter.
And let's only look at the short run.
That's not really what he was saying in that book, an earlier book on the treatise on money.
He was saying, we can't wait for the long run that, you know, he felt the classical economists and the Austrians were saying, look, things will work out in the long run.
And he was saying, wait a second, a lot of us are going to be dead by the time the long run comes along.
We can't wait for that.
So, so yes, at the surface, Keynes seems to win.
And that's why he I think that's why he did win.
I think another thing that helped Keynes's case was that he gave intellectual cover for what the politicians wanted to do anyway, right, which was borrow, spend and print money.
So he gave them an intellectual aura.
Hey, now, look, this big shot economist in Britain says it's the right thing to do that we do all these otherwise crazy things.
So I think that's one reason why it's popular to this day.
And look, you can turn on Chris Matthews or any of these people on really any of the stations.
And if you if you listen to some pun that give economic analysis, chances are it's going to be it's going to be Keynesian.
The government needs to spend.
I mean, Chris Matthews every day is saying, why isn't the government building roads and and putting people back to work by building fixing bridges and all this stuff?
And he wants accused more than once has accused people who don't believe in economic Keynesian economics as not believing in science.
If you're anti Keynes, you're just anti science, which means you probably also don't believe there's manmade catastrophic global warming.
And you probably also don't believe in evolution.
You put all that together.
Somebody save us from Chris Matthews.
Yeah.
All right.
Now, so here's the thing.
Let me try to play devil's advocate here a little bit, which is that the reason there was a giant bust was because there had been a gigantic program of welfare for rich people in the 20s.
This giant bubble wasn't a bubble for the little guy.
It was a bubble for the rich guys.
And then they busted it so bad and then they screwed up everything, you know, with their giant tariffs and everything else.
It was the rich and powerful who did all the things that caused the depression that made it worse all along and who had socialism for them since the days of Alexander Hamilton and the Federalist Party and the John Adams administration.
Come on, let's do some internal improvements, which means transfer money from the taxpayer to their friend, the banker or their relation, the banker, more likely.
And so it seems like, you know, obviously, I just want to abolish the whole damn everything myself.
But I can I have a lot of sympathy for the argument that since we do live in a world where there is a USA and since it always gave welfare to the rich, that by the 20th century, the poor kind of sort of had a point in saying, at least give us back some of our own money in the form of old age pensions or maybe build us a highway or something that's going to benefit the rest of us, too, since you're stealing and printing money anyway.
And now it's the break.
But we'll be right back with Sheldon Richman and the possibility of good government spending right after this.
Hey, I'll sky here.
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All right.
All right.
I'm Scott Horton.
I'm talking with Sheldon Richman.
He's about as libertarian as hell, man.
He's the vice president of Future Freedom Foundation.
He's got this article today about why people want to keep believing in Keene.
So I'm doing my best to impersonate one of them.
Hey, what about it?
How about the idea, Sheldon, that the U.S. government has always been Keynesian in terms of military Keynesianism and in terms of stimulating bankers' pockets and, you know, railroad owners and this kind of thing.
And so it's only fair for them to stimulate broader sectors of the economy and especially do things like build massive highway systems and and useful bridges and dams and old age pensions for our grandparents so they don't all have to just lay down and die once they're too old to work and that kind of thing.
So how about that?
But but if Keynes's proposals, which are based on a fallacious view of the economic process are wrong, then they're wrong no matter what the objective is.
So you can't pay back the people who have been unjustly treated by doing using the same kind of policies except directed at them.
And the whole problem with, well, you know, as Whitey explains in the chapter, Keynes basically threw out, you know, well over 100 years to almost 200 years worth of knowledge about how economies work.
He basically said, well, economies don't work.
There are no economic forces really that lead to coordination and general prosperity.
That's why governments are going to usually be needed to, you know, to help it along because if demand falls, government's going to need to step in and spend the spender of last resort.
So he was wrong about that.
So his solutions stemmed from fallacy.
And so they're going to be wrong even if they're intended to help the masses rather than to help the privileged.
All right.
Well, but then.
So if it is taken as a given that whatever the excuse is, whether it's to try to, you know, whether they call it counter cyclical stimulus spending to make up for the last boom and bust that they had caused or whatnot.
Still, what's the overall argument that it's that bad for the economy, for example, to have a social security program, which so many people love so damn much?
Well, social security isn't isn't isn't distinctively Keynes.
I mean, social security begins with Bismarck, Otto von Bismarck, in the in the late 19th century in Germany as a way to keep workers loyal to the ruling party and to the emperor rather than being tempted by the by either the liberal party or the Marxist party.
So that's not distinctively Keynes.
You know, Keynes ultimately wanted a socialization of investment.
He thought that that the government, which, of course, means economists hired by the government, maybe people like him would be determining what where investment would be made.
You know, he thought ideally the interest rate should be zero so that the capital would be unlimited.
But the politicians, like I said, and their economic advisors would be directing the capital.
But that that circumvents the market.
The virtue of the free market is that entrepreneurs and others have to take their lead from what can from consumer demand, which is reflected in prices and prices do their work by by channeling scarce resources and labor services to where consumers want one at most.
And also part of what the consumer demand consists of is their time preference.
In other words, the intensity of their wish for present goods over future goods.
And there are times when people begin to save and put the money away, for instance, in a bank or other forms of investment, which is that those resources that are then available for building up early stages of production, you know, mining and research and development and factories that are that are way down the line that won't produce consumer goods for some time.
Keynes ignores all that, like the time structure of production and acts like it's all simultaneous.
He thought savings was a bad thing because he thought it wasn't.
Hey, it wasn't being spent.
If it's not being spent, firms, you know, stores won't reorder and therefore there'll be unemployment.
He didn't seem to understand, although White shows that he earlier in his career understood that when people save, the money isn't just like stuffed in a mattress.
That's how people save.
They would put it in the bank or in some other form of investment, which is then makes resources and labor available to to earlier stages of production that won't yield consumer goods for a while.
When people say they're basically saying, I'm going to I'm going to put off consuming.
I'm going to save now so I can consume more in the future.
That's why people say they don't just do it out of animal spirits, which seems to be Keynes's view.
So it's a total.
That's funny.
He would even he even denies or just ignores the fact that people are going to go to the loan and take out other people's savings and spend it on building up their new company, which is supposed to turn a profit and continue producing more.
He was looking at things from the from the trough of the depression.
So he thought, well, why would anybody do that?
There's already there's already unemployed people and unemployed resources.
Why?
Why?
Why is savings going to help that?
But he didn't he didn't care to even investigate what caused all that unemployment in the first place.
And it was all the malinvestment that was brought about by the government artificially holding down interest rates as a favor to the businesses.
It's true.
And and creating money, which misshapes the economy.
The economy no longer now is lined up with consumer demand.
By the way, back then, how much of a mystery was that really?
Because, you know, I guess the best I understand that is as I've read it in Bob Higgs and the way he explained it, that especially starting in twenty seven, they really started cranking up the money supply to help the Bank of England and help the English because Benjamin Strong and Montague Norman had such a close relationship and basically Benjamin Strong was bailing out his friend at the Bank of England by debasing the American currency extra.
But then.
So that led directly to this giant stock market bubble and the crash and a crisis.
And then.
But was that really so opaque to Keynes and everybody else at the time other than Ludwig von Mises or what?
No, Hayek and others were warning about this.
So it wasn't it wasn't opaque.
They just don't they just didn't see it as a problem.
They didn't even after sort of like living right now when we're living on the other side of the O.A. bus and people still deny that the Austrians had any idea what they were talking about when they were warning all the time leading up to it.
Well, that's right.
And then and the dominant opinion in 2008 was that, you know, this was not this had nothing to do with government policy.
This was all the result of of selfish mortgage brokers and mortgage bankers.
And is it true, too, that as David Stockman says, that the Great Depression was actually already over before Franklin Roosevelt was even sworn in?
When you look at the stats, that the way all investment was going, et cetera.
I don't know if it's the case.
I don't think it's the case that before he he's sworn in, there's certainly improvement by 36 or 37.
But then but then the Fed does some things that, you know, put things back down again, like it increased reserve requirements, even though there are a lot of excess reserves.
And it did it did some other things to to put to cause the double dip.
It was like it was improving.
But don't forget Hoover, Hoover and the early years of Roosevelt were, you know, full of intervention.
Hoover was jawboning companies not to drop wage rates, even though prices were falling like crazy and that they kept so they kept wages up.
But that just created unemployment, mass unemployment.
And then and then Roosevelt comes in and cartelizes the the economy with the National Recovery Administration and the Agricultural Cultural Adjustment Act.
So so there's intervention all over the place, which turned what might have been a quick recession.
After all, the recession of twenty twenty one was relatively quick.
The government basically retrenched.
It cut spending.
It cut.
I don't know if it cut taxes, but Hoover raised taxes.
So they did everything to prevent a recovery.
And yet, yes, it's just to show you how powerful even the remnant of a market, the market can be.
There was improvement through the 30s until the Fed stepped in again and, you know, basically shrank the money supply, which then pushed pushed everything over again.
And then, you know, you also get this smooth tariff that was signed by Hoover in the 30.
And so, you know, you get all kinds of the market has all kinds of things being thrown at it.
So it really didn't have a chance to recover.
It's amazing that it recovered the extent that it did.
Yeah.
You know, I need to get David Stockman on.
I haven't read the book.
It's just vast.
But one of the things I read in one of these articles or I guess it was the transcript of a speech that he gave was that if you look at these and those numbers, there is already vast improvement before FDR even finally got there.
And then he immediately said about making everything worse.
And I don't think he was.
I think he's a Rothbardian on Hoover, too.
I don't think he was discounting the damage that Hoover had done, but he was saying, look, the recovery was already on anyway.
Well, people people do things and and try to, you know, in effect, create a recovery just by trying to, you know, scale down their businesses and make them more lean and bad times and and those sort of things aid aid recovery.
But the government kept throwing up obstacles.
Unemployment was still quite high when when when Roosevelt was inaugurated.
So I don't know how much of an improvement there was.
Hey, let me ask you this.
You got more free time this afternoon.
Actually, not.
I got a bunch of things I have to get out before this day ends.
Oh, that's too bad.
I was going to see if I could keep you one more segment.
We could talk about the economics of intervention overseas, but I think I got a little random my own comments.
It'll be all right.
OK, but all right, everybody.
So that's Sheldon Richman.
The article is at FFF dot org.
His The Goal is Freedom.
That's TGIF.
The goal is freedom every Friday at FFF dot org.
And this one is called Immortal Keynes.
Oh, say it ain't so.
Thanks very much, Sheldon.
Good talk to you.
OK, great talking to you, Scott.
Hey, I'll Scott Horton here for the Future of Freedom, the monthly journal of the Future of Freedom Foundation, edited by libertarian purist Sheldon Richman.
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