Guess who wrote this?

The use of Google is not allowed:

“Organized public works, at home and abroad, may be the right cure for a chronic tendency to a deficiency of effective demand. But they are not capable of sufficiently rapid organisation (and above all cannot be reversed or undone at a later date), to be the most serviceable instrument for the prevention of the trade cycle.”

The answer is here.

Hint: The year is 1942.

Comments

Godwin in two:

1942? Surprising quote? Must be Hitler.

1) The spelling of "organisation" is British. The reference to "trade cycle" is quaintly British.

2) 1942: Most likely, the man or woman who said this about public works is now dead (or very old).

3) Most likely candidate, given that the quote is supposed to surprise us, is the pioneer theorist of public works spending to get us out of the Grat Depression of the 1930s --- John Maynard Keynes.

.....

I did click on the link and managed on the second click to reach the blog that posted this. I ran some google searches. No soap. Only someone with the right volume of Keynes collected works --- 30 volumes in total --- would be able to verify the quote and the context in which Keynes was alleged to express this caution.

Note: Keynes did NOT invent the policy of public works. Britain was in a Depression throughout the 1920s --- and especially after it went back on the gold standard and way too high an exchange rate of the Pound Sterling in terms of gold. There were numerous economists and even politicians of note who championed it in both that decade and throughout the 1930s.

....

The most notable politician? David Lloyd George ---Britain's fiery Liberal Prime Minister in the Coalition-government formed in 1916, two years into WWI, with the Conservative Party and some members of the new Labour Party. He remained in that post until 1922 and by the early 1930s was stumping the country to whip up support for large spending on public works . . . to no avail.

....

Michael Gordon, AKA, the buggy professor

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Michael Gordon, AKA, the buggy professor

Constant asks:

and creationists? How do they come into this?

Simple. It's an ideological continuity issue for liberals. In order to keep things neat and simple, economically libertarian-minded people need to be the same kind of people as creationists. Think of it as a plot device. Liberals like to keep their "enemies" monolithic in all senses.

Just don't be surprised when the justification for this linking makes absolutely no sense whatsoever.

Dear Tyler,

Honestly, I don't know why you're so surprised Keynes said this, or at least, why you would expect others to be. Keynes argues again and again in the General Theory that the correct government policy is direct control of capital flows and investment (anywhere from 2/3's to 3/4's of total investment). He was fundamentally against these types of public works programs and other countercyclical fiscal and monetary policy, which is reflected in his views on uncertainty and "the precariousness upon which we form expectations", among myriad other direct quotes I could offer you from the General Theory (see, for example, the last few pages of chapter 12... which, unfortunately, you have yet to approach in your book discussion series).

Why direct control and not countercyclical policy? It's a question of Keynes' methodology, one which you fail to appreciate in your study of chapter 2 and the rest of the General Theory. Specifically, a prioritization away from equilibrium analysis and towards ascribing a General Theory with the appropriate behavioral assumptions.

Hmmm, I'm assuming this is meant to infer that Keynes wouldn't support stimulus spending on public works........Not knowing the context, I read it to mean that propping up effective demand doesn't prevent trade cycles, meaning he prefers to mitigate or prevent trade cycles. Given the date (1942), I'm gonna guess that he was talking about using the upcoming Bretton Woods summit (1944) to establish a central international clearinghouse (International Clearing or Currency Union?) and the 'Bancor' as an international currency. The function of this intitution would be to force both creditor and debtor nations to correct their trade imbalances instead of putting the burden entirely on debtor nations. He felt there was no incentive for surplus nations to attempt to reign their surpluses in. This inevitably led to trade wars, protectionism, and real wars, thus his desire for preventing the 'trade cycle.' I could be wrong, but that makes more sense to me than what Tyler is attempting to infer.

I got it right away.

The greater point, dear friends, is not to co-opt a great thinker for one side or the other, but to use and build on the thoughts. I expect that is Tyler's stimulus package.

"Macroeconomists who advocate a lot of spending are in the same position as biologists fighting creationists. Macroeconomists make falsifiable predictions that have yet to be knocked down, they have mountains of supporting evidence for their hypotheses, and they rarely engage in politics (because the science speaks for itself)."

Wow. Again wow. What falsifiable predictions? Name one. Show me how its falsifiable. What mountains of supporting evidence?

God. Its like you live is some alternate universe or something. I don't know how to talk to people like you. You seem to have no fucking clue as to how badly science can screw up or what its limitations are. Its like some form of blind faith. Scientists say something so you are forced to believe it. You never question. You just believe.

Science is a human idea and a human institution. It makes mistakes. Its driven by intellectual fads and fashion as much as evidence. And in macroeconomics its often driven by stylized facts which are wrong. Scientist don't necessarily adopt theories because they are empirically verified. Why were Bayesian ideas ignored for so long. Because they were wrong? No. Because very powerful scientists successfully advocated against it and Bayesian methods were analytically intractable. That has changed now. Some story holds true in many scientific disciplines. Why were lognormal models used for stock prices when it was known that empirical distributions have fat tails. Analytic tractability and simplicity. Why did communications engineers use Poisson models for internet traffic even though it was later found that they models were a very bad fit to actual internet traffic. Because Poisson models were simple and well understood.

Very very very rarely and only in limited situations are there mountains of evidence to backup a theory. In fact I would say the only science in which there are mountains of evidence is in physics. And even in areas of physics e.g. General Relativity, there are nowhere near mountains of evidence. When you say mountains you are basically talking about thermodynamics, classic physics, optics, special relativity, quantum mechanics, etc. There aren't mountains anywhere else.

What is the mountain of evidence to prove the Big Bang theory. There is no mountains. There are basically 2 or 3 pieces of experimental evidence: the successful prediction of the CMB and the Hubble expansion. I don't consider that a mountain.

Perhaps I mischaracterized Mike's argument. It seems to have fallen so easily.

assman, I agree.

Alex, I agree.

@Josh

I don't think the context changes the meaning of the partial quote. Keynes expresses skepticism about public works as stimulus -- partially because of the speed of implementing such plans. The other reason for being skeptical that Keynes gives can be reasonably interpreted as the difficulty of implementing the right projects, because it is difficult to reverse them.

Both of those criticisms are part of the current discourse of stimulus skeptics.

The quote does show that the mature Keynes still saw "deficiencies in effective demand" as the crucial part in the trade cycle.

Thanks, dsquared, for confirming my economics guesses. And thanks, Josh, for confirming my guess that the quote was out of context in this discussion.

Three for three.

Why do I link libertarians to creationists? Long experience with both. For about 15 years I argued with creationists on the internet (and its predecessors back into the 70s.) Then I switched to arguing with libertarians, about 18 years now. The similarities were astonishing: both groups used almost identical rhetorical strategies based on convincing the uninformed with a deluge of pseudoacademic twaddle. Including innumerable quotations out of context, trying to misrepresent the views of opponents as support.

Alex, if macroeconomists have made falsified predictions, then we indeed do have evidence that macroeconomics is a science. And of course before you go and create a "Darwin's Law", you should apply Godwin's Law to Hayek and his supporters.

But the real point of Godwin's Law is that few things are really as heinous as Hitler was, and so it is exaggeration. When I compare libertarians to creationists, it is because they both employ propaganda machines (thinktanks, magazines, foundations, etc) that are inflicting enormous amounts of bad argument that the lay public is ill-equipped to refute.

Gary, you are also correct about my ideas. More succinctly, it's a matter of denialism versus science. While macroeconomics is not a hard science yet, it has scientifically rejected many theories because they do not fit real-world evidence. The denialists resurrect the rejected ideas because (a) they are plausible sounding and (b) few people understand why they were rejected. Paul Krugman has been writing extensively about these rejected ideas.

John V and John Pertz, see if you can get past your simple hatred of me and address the issues.

Brandon, I can't feel your love. Is it because I didn't list you with other frothing haters such as John V and John Pertz in my last response?

Tyler does not have clean hands here: his link goes to exactly the sort of misrepresentation that I've been talking about. Not a hint of criticism. Exactly what we'd expect a propagandist to do.

And your defense of "thinktanks, magazines, foundations, etc." because libertarians are not the first is particularly stupid: that excuse would exonerate pretty much anybody from any crime.

And of course Tyler is a significant cog in the propaganda machine. It's rather clearly documented at my Criticisms of George Mason U. Economics (and Mercatus) page.

I have no idea what half of these comments are supposed to be about. Can we go back to the post itself? If the charge is that Tyler took this out of context, ok, it now seems clear he did so.

The question is did he do it out of puckishness, to give a kick in the pants to both "sides," to force everyone to look at Keynes afresh for what he actually said, instead of the political framework that "says what Keynes said?" If so, then I applaud him.

If however he did it to reinforce his ideology, then it is an act of untruth. I am aware that Tyler is a public intellectual who is paid to have a certain kind of opinion - I think this is well-known.

However Tyler has usually impressed me by trying to reduce hackery and offer more honesty. So far on this blog I believe Tyler has only "hacked out" - offered ideology in place of honesty - 3 times since I started reading this fall. I don't know enough yet myself to say whether or not his makes 4.

"I know very little of economics"

Since a lot of libertarian arguments are economic based, why don't you spend some time trying to learn the subject rather than simply trashing libertarian when you have a chance?

For example, I know little about climatology, so I don't dispute the evidence about global warming presented by scientists(while I dispute the evidence presented by propagandists). However, I can dispute the idea that, if we will not do something about it, the result will be pretty bad, arguing with some basic cost-benefit analysis.

You just can't believe that a libertarian can be honest and inteligent at the same time. Rather than debate libertarian arguments, you just dismiss a argument for being libertarian.

You say about libertarians and creationists: "both groups used almost identical rhetorical strategies based on convincing the uninformed with a deluge of pseudoacademic twaddle. Including innumerable quotations out of context, trying to misrepresent the views of opponents as support." But you can say this about a member of ANY group.

And you continue: "When I compare libertarians to creationists, it is because they both employ propaganda machines (thinktanks, magazines, foundations, etc) that are inflicting enormous amounts of bad argument that the lay public is ill-equipped to refute." So non-libertarians don't use thinktanks, magazines or foundations? I don't understand what's specially libertarian about doing some propaganda. Using my former example about global warming, I could say the same about the environmentalist movement. But I don't think this kind of activity is wrong per se.

Mike,

I don't hate anyone. It takes a fair about of projection to perceive "frothing hate" in what little I said.

Look, I used to be more politically (modern)liberal. I know how the thought processes go. I know what the assumptions are. Been there. Done that. They don't work in trying to understand where different people are coming from. And they certainly don't capture the essence of differing points of view.

I look back now, and it all strikes me as rather pretentious to have thought things similar to what you do. I am by no means a creationist...never have been, never will be. I'm 100% about science, evolution and spontaneity. I am 100% about trusting what we can really, fully know and mistrusting what we can't.

Who refuses to submit to the idea that what we can understand in economics and what we can take from it in broad consensus truths is on the micro-level in very fibers of separate human interactions in ever changing environments?

Macroeconomics...whether from "left" or "right" operates on assumptions that simply cannot be truly known. Hayek won a Nobel for that insight. That's why we have models for it. That's the problem with it. It is not microeconomics, which I see an being more solid and well grounded. The conceit is putting too much faith in what macroeconomics can tell us going forward.

And your arguments suggest that you don't really see what the real opposing argument is. You speak in frames that operate in totally different paradigm.

You say you've argued such matters for 18 years. I can't understand how you've come 18 years without fully understanding that which you claim to oppose.

Seriously, people. You're feeding a troll.

Mike, there are plenty of public choice explanations for why people vote. Public choice (as well as neoclassical and austrian econ) assumes rationality, but not people's individual preferences.

What public choice shows is that rational people do not vote in order to influence the outcome of an election. This does not mean that they have no other reasons to vote.

@dsquared:

Your argument needs a bright line between preventing the effects of the cycle on the downturn and fighting the effects of a "a chronic tendency to a deficiency of effective demand." But there is no such bright line, and Keynes can be reasonably interpreted as providing some skepticism about public works.

@assman: You may want to try Astronomy Cast eps. 5 and 6 for evidence of the big bang. Or even Wikipedia.

"Since the entire point is that we are in a situation close to a liquidity trap, when there is a significant danger of "a chronic tendency to a deficiency of effective demand", it would seem that this Keynes passage would consider public works to be "the right cure". Alex is 100% wrong in suggesting that this paragraph can possibly be interpreted as expressing scepticism about public works as stimulus - he specifically says that they "may be the right cure". The scepticism expressed here is about countercyclical fiscal policy as "the most serviceable instrument for the prevention of the trade cycle", which is a debate that nobody is having."

My interpretation of the statement is different. I believe that Keynes was speaking English and understood the meaning of what he was saying. What does chronic tendency mean? Lets first examine the word chronic:

chronic 1 a: marked by long duration or frequent recurrence
2 a: always present or encountered
b: being such habitually

dsquared its pretty clear that you believe chronic == severe or intense. But that is not the definition of the word chronic. Chronic refers to length of time or frequency NOT INTENSITY. The United States is at most 1 year into recession. This is not long lasting. And we don't have frequent bouts of low effective demand. Japan on other hand is a country with a chronic tendency to a deficiency of effective demand. Its also obvious why Keynes is saying this. In a country were effective demand is low for a very long period it makes sense to use a stimulus which is highly effective over a long period.

Also trade cycle == business cycle == boom and bust cycles. Please google trade cycle. A liquidity trap is simply a possible situation that can exist in the bust part of a trade cycle. It is a particular type of macroeconomic condition where monetary policy is ineffective. A liquidity trap is not mutually exclusive of the trade cycle. So when Keynes talks about trade cycle he is not excluding a possible liquidity trap.

Regarding the liquidity trap idea. Even if we are in one it isn't clear that a fiscal solution is warranted. After all Japan tried fiscal stimulus and according to Krugman Japan was in a liquidity trap. I guess that falsifies the idea of using fiscal stimulus to cure liquidity traps. Krugman's proposed solution wasn't fiscal it was monetary. He said that Japan should have committed to raise inflationary expectations by printing lots of money. This would reduce real interest rates by raising inflationary expectations.

So if this is a liquidity trap we know from Japan's experience that fiscal stimulus is not the answer according to God himself namely Krugman.

You can see why I have no reason to argue with mike huben. The fact that he thinks that cronyism is not endemic to democratic politics is just sad. How can one rant about the supposed theocratic tenants of libertarianism and then essentially declare that cronyism doesn't affect democratic American politics.

He is a strange fellow. Pay he and his childish website little mind. I can't believe David Friedman even bothered to reply to his site. However I don't think David argues with huben anymore because he found out what a paranoid governmental sychophant he is. It's one thing to debate with a trained academic. It's quite another pissing in the wind with a sean hannity esque lefty.

Good old John Pertz. He can't stay on subject (the quote), he doesn't refute my three correct guesses about the quote, and has nothing he can do but attack me. Who doesn't belong here?

He's also a fine example of one of the self-parodies of libertarian philosophy in my Libertarianism in One Lesson: "Libertarians invented outrage over government waste, bureaucracy, injustice, etc. Nobody else thinks they are bad, knows they exist, or works to stop them." As if nobody else knows that cronyism exists, both in government and business. As if high levels of cronyism in the Bush administration weren't one of the reasons his popularity was so low.

Jayson:
Pragmatically, what matters in this crisis is that it ends; because people are jobless and will have concomitant woes such as poverty and homelessness. If cronyism to large politically connected businesses was a route out of that, I'd be willing. But I suspect that we can do MUCH better than cronyism. DeLong and Krugman are leaning towards temporary nationalization of banks, which strikes me as better even though it has its own set of problems. I won't pretend to know better, but we have got to attempt to stop the slide into depression, even at the cost of expensive experiments. I'd also note that nationalization of banks would actually recover much of what we've already spent on the stimulus.

Those who are worried that I took Keynes out of context should keep in mind several things. First, my post was titled "Keynes as Public Works Skeptic." This is a particular kind of stimulus spending, not the whole of stimulus spending. Second, Keynes was in the late 30s and 40s opposed to start-stop stimulus. He thought starting would come too late (to help a slump) and stopping would come too late (to avoid inflation among other things). Instead he advocated the "socialization of investment" that is, a stable program of continual investment by quasi-government entitities like public utilities. This stable program would reduce the uncertainties of investment expenditure and, with a few other changes like keeping interest rates permanently near zero, would prevent slumps from occuring and keep employment high. Third, people should read Bradley Bateman's book Keynes's Uncertain Revolution and or Allan Meltzer's book Keynes's Monetary Theory, esp. pp. 179 -189 for more detail.

There is no meaningful and relevant sense in the current situation in which Mario Rizzo's words "Keynes as Public Works Skeptic" are justified by the facts cited, namely

1. that Keynes favoured a long-term program of public works (since when did that become an argument against using them as part of a fiscal stimulus?!)

2. he favoured keeping interest rates low over the long term (ditto)

3. he identified problems in ramping up public works programs quickly, and bringing them to an end quickly.

Keynes himself said "Organized public works, at home and abroad, may be the right cure..."

As I have already pointed out, Mario's quote from Keynes comes from where he is advocating complementing public works ("international T.V.A.") with buffer stocks "to offset a deficiency of effective demand..." (See Markwell for more on "international T.V.A." and the context.)

The fact that Keynes wanted a long-term program of public investment to prevent fluctuations did not mean that, if fluctuations came, he was against public works to try to get things right again!

There are many other passages in volume 27 of Keynes's Collected Writings where he is engaged in war-time discussion about post-war full employment policy that are highly relevant, such as

(pages 319-20) - Keynes to James Meade, 25 April 1943

"Capital expenditure would, at least partially, if not wholly, pay for itself. ...

Moreover, the very reason that capital expendutire is capable of paying for itself makes it much better budgetwise and does not involve the progressive increase of budgetary difficulties, which deficit budgeting for the sake of consumption may bring about or, at any rate, may be accused of bringing about. Besides which, it is better for all of us that periods of deficiency expenditure should be made the occasion of capital development until our economy is much more saturated with capital goods than it is at present."

Or - also relevant to today - at page 323:

"The Long-term problem of full employment", 25 May 1943

"Emphasis should be placed primarily on measures to maintain a steady level of employment and thus to prevent fluctuations. If a large fluctuation is allowed to occur, it will be difficult to find adequate offsetting measures of sufficiently quick action. This can only be done through flexible methods by means of trial and error on the basis of experience which has still to be gained. If the authorities know quite clearly what they are trying to do and are given suficient powers, reasonable success in the performance of the task should not be too difficult."

Mario, quoting out of context as you did is not justified, as you suggest, by this being "just a blog post, not a journal article"!

Nor do your references to Bateman or Meltzer (who I've just been re-reading, BTW) sustain your case.

For those who don't have access to the feast within Keynes's Collected Writings, I recommend the works about him by Skidelsky, Moggridge and Markwell for getting an understanding of him. In context. Not misinterpreted through quotation out of context.

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