Karl Smith linked to Keynes' Economic Possibilities For Our Grandchildren which gets you to thinking. Smith argues that it shows the falsity in the idea that Keynes didn't care about the future, the "long run."
"The first is the suggestion that Keynes and Keynesians are short-sighted. This is so plainly false as to embarrass everyone involved. Keynes was intensely interested in the future and engaged in what we know term futurism. Trying to build and at least test for consistency rigorous scenarios about the future of humanity. His piece, The Economic Possibilities of Our Grandchildren is famous."
http://www.forbes.com/sites/modeledbehavior/2013/05/04/childless-keynesians-and-the-future-they-made/
Here is Keynes' first paragraph:
"We are suffering just now from a bad attack of economic pessimism. It is
common to hear people say that the epoch of enormous economic progress
which characterised the nineteenth century is over; that the rapid improvement
in the standard of life is now going to slow down --at any rate in Great Britain;
that a decline in prosperity is more likely than an improvement in the decade
which lies ahead of us."
http://www.econ.yale.edu/smith/econ116a/keynes1.pdf
We are in many ways living in a similarly pessimistic time. Certainly over the last 5 years there have been many pessimistic prophecies and predictions, famously Cowen's Great Stagnation thesis that our best days of growth and productivity are behind us. For Cowen, specifically this is based on his premise that the technology innovation can't possibly be comparable in the gains they give us compared with those of the past. No question we've had some economic headwinds lately. The financial crisis and the worldwide recession. As slow as our recovery has been here in the U.S., it's been much worse in Britain and Europe. Then there was the mysterious productivity slowdown of 1973 from which we've never totally recovered. Then there's the stagnation of median wages since 1979. These are the things that lead Cowen to declare we're in the Great Stagnation.
http://www.slate.com/articles/arts/books/2011/02/dontworry_be_unhappy.html
In this vein it's good to hear Keynes speaking at a time that had more grounds for pessimism even than we do; at least our worries are mostly economic-though there are the environmental worries and there are some who think we will soon run out of oil and find no alternative. Even this pessimissm is now open to question.
http://diaryofarepublicanhater.blogspot.com/2013/05/lord-keynes-us-future-so-bright-well.html
More Keynes Circa 1930:
"I believe that this is a wildly mistaken interpretation of what is happening to us.
We are suffering, not from the rheumatics of old age, but from the
growing-pains of over-rapid changes, from the painfulness of readjustment
between one economic period and another. The increase of technical efficiency
has been taking place faster than we can deal with the problem of labour
absorption; the improvement in the standard of life has been a little too quick;
the banking and monetary system of the world has been preventing the rate of
interest from falling as fast as equilibrium requires."
As that link regarding the U.S. suggests, we may not be quite at the "rheumatics of old age" yet today, either.
Regarding all the fretting about the "long run" it seems to me that when talking about macroanalysis you can say only so much about the long run. This is why I find the claims and goals of the proponents of a "progressive consumption tax" to be rather extravagant. Is it really even plausible to start talking about how a fiscal policy will impact things in 40 years?
http://diaryofarepublicanhater.blogspot.com/2013/05/does-less-consumption-spending-cause.html
Keynes was rightly skeptical of some considerations of the long run, like arguing that we shouldn't try to stabilize demand as in 40 years as this could lead to a "debt bomb." This passage by Keynes gets at the limits of long run considerations in short term policy needs:
"The outstanding fact is the extreme precariousness of the basis of knowledge on which our estimates of prospective yield have to be made. Our knowledge of the factors which will govern the yield of an investment some years hence is usually very slight and often negligible. If we speak frankly, we have to admit that our basis of knowledge for estimating the yield ten years hence of a railway, a copper mine, a textile factory, the goodwill of a patent medicine, an Atlantic liner, a building in the City of London amounts to little and sometimes to nothing; or even five years hence. In fact, those who seriously attempt to make any such estimate are often so much in the minority that their behaviour does not govern the market."
Karl Smith puts it in perspective:
"Thinking deeply about the future is an exercise in realizing how much you don’t know. You are troubled as to how you are ever going to make good long term decisions, concerning investments in family, career, financial instruments, etc.
"The first is the suggestion that Keynes and Keynesians are short-sighted. This is so plainly false as to embarrass everyone involved. Keynes was intensely interested in the future and engaged in what we know term futurism. Trying to build and at least test for consistency rigorous scenarios about the future of humanity. His piece, The Economic Possibilities of Our Grandchildren is famous."
http://www.forbes.com/sites/modeledbehavior/2013/05/04/childless-keynesians-and-the-future-they-made/
Here is Keynes' first paragraph:
"We are suffering just now from a bad attack of economic pessimism. It is
common to hear people say that the epoch of enormous economic progress
which characterised the nineteenth century is over; that the rapid improvement
in the standard of life is now going to slow down --at any rate in Great Britain;
that a decline in prosperity is more likely than an improvement in the decade
which lies ahead of us."
http://www.econ.yale.edu/smith/econ116a/keynes1.pdf
We are in many ways living in a similarly pessimistic time. Certainly over the last 5 years there have been many pessimistic prophecies and predictions, famously Cowen's Great Stagnation thesis that our best days of growth and productivity are behind us. For Cowen, specifically this is based on his premise that the technology innovation can't possibly be comparable in the gains they give us compared with those of the past. No question we've had some economic headwinds lately. The financial crisis and the worldwide recession. As slow as our recovery has been here in the U.S., it's been much worse in Britain and Europe. Then there was the mysterious productivity slowdown of 1973 from which we've never totally recovered. Then there's the stagnation of median wages since 1979. These are the things that lead Cowen to declare we're in the Great Stagnation.
http://www.slate.com/articles/arts/books/2011/02/dontworry_be_unhappy.html
In this vein it's good to hear Keynes speaking at a time that had more grounds for pessimism even than we do; at least our worries are mostly economic-though there are the environmental worries and there are some who think we will soon run out of oil and find no alternative. Even this pessimissm is now open to question.
http://diaryofarepublicanhater.blogspot.com/2013/05/lord-keynes-us-future-so-bright-well.html
More Keynes Circa 1930:
"I believe that this is a wildly mistaken interpretation of what is happening to us.
We are suffering, not from the rheumatics of old age, but from the
growing-pains of over-rapid changes, from the painfulness of readjustment
between one economic period and another. The increase of technical efficiency
has been taking place faster than we can deal with the problem of labour
absorption; the improvement in the standard of life has been a little too quick;
the banking and monetary system of the world has been preventing the rate of
interest from falling as fast as equilibrium requires."
As that link regarding the U.S. suggests, we may not be quite at the "rheumatics of old age" yet today, either.
Regarding all the fretting about the "long run" it seems to me that when talking about macroanalysis you can say only so much about the long run. This is why I find the claims and goals of the proponents of a "progressive consumption tax" to be rather extravagant. Is it really even plausible to start talking about how a fiscal policy will impact things in 40 years?
http://diaryofarepublicanhater.blogspot.com/2013/05/does-less-consumption-spending-cause.html
Keynes was rightly skeptical of some considerations of the long run, like arguing that we shouldn't try to stabilize demand as in 40 years as this could lead to a "debt bomb." This passage by Keynes gets at the limits of long run considerations in short term policy needs:
"The outstanding fact is the extreme precariousness of the basis of knowledge on which our estimates of prospective yield have to be made. Our knowledge of the factors which will govern the yield of an investment some years hence is usually very slight and often negligible. If we speak frankly, we have to admit that our basis of knowledge for estimating the yield ten years hence of a railway, a copper mine, a textile factory, the goodwill of a patent medicine, an Atlantic liner, a building in the City of London amounts to little and sometimes to nothing; or even five years hence. In fact, those who seriously attempt to make any such estimate are often so much in the minority that their behaviour does not govern the market."
Karl Smith puts it in perspective:
"Thinking deeply about the future is an exercise in realizing how much you don’t know. You are troubled as to how you are ever going to make good long term decisions, concerning investments in family, career, financial instruments, etc.
"Then the horror sets in when you realize that even as utterly ignorant as you are, you know more and have thought about this issue more deeply than just about anyone in a position of power in politics or business. If you don’t know anything then they definitely don’t know anything and they don’t even seem to know that they don’t know anything."
"We are doomed.
"Luckily for me I was born after Hayek and so I can take refuge in the region that lies between instinct and reason. In Hayek’s words, tradition. And, I can know that the forces of natural selection will act on tradition to make everything more or less, kinda-sorta work out, sometimes. Though things can get quite bumpy along the way and of course all stories end exactly the same way: Everyone you care about dies. Every thing you care about erodes away."
"On the bright side, crushing existential uncertainty and inevitable doom reminds us that if we can just make sure the world doesn’t end tomorrow, we are doing well. And, from time-to-time the world ending tomorrow is a serious possibility, so there is useful work to be done here. Keynes would like to see that we do it."
At the end of the day, this much more modest goal is all we can hope for from macro policy. Incidentally I have just started reading Bernanke's The Federal Reserve and the Financial Crisis, a collection of 4 lectures he recently gave. He does a good job of dismantling the gold standard.
One point he makes is that gold despite what you hear from the Austrians, Austerians, Paul Ryan, and other gold bugs, didn't give us stable prices. Accept over the long run. However, we pay prices in the short run so this was small comfort. In the short term the price of gold was very variable as it moved to the rhythms of the gold industry: during the last 30 years of the 19th century we had sharp deflation that punished farmers, and etc. because the amount of gold was in short supply.
The real insight of modern Macro is that there is no long run, just a series of short runs.
The real insight of modern Macro is that there is no long run, just a series of short runs.
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