Arguments Between the American Left and Right

Ideological considerations

Considerations             (c) Can Stock Photo / radiantskies

We are experiencing currently   probably some of the most important clashes of ideas since the Age of Enlightenment. If you pay attention to current events around the world, and if you have read The Structure of Scientific Revolutions by Thomas Kuhn [S2], you can probably discern the developing paradigm crisis with the paradigms countries use to rule themselves. Of course the revolution we face is not a scientific revolution per se, but Kuhn’s description of scientific revolutions is just as applicable to a revolution in our conceptions of social and economic reality. In all countries with liberal (here I mean classically liberal) ruling institutions derived from the West’s Age of Enlightenment, their peoples are experiencing severe problems with their economies, and a wide-spread disenchantment with democratic government and ideals. Just do a Google search with the search phrase “disenchantment with democracy” to see how much many see this as a problem.

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Are There Economic Laws?

Adam Smith, J.B.Say. David Ricardo and Cal Menger.

The four greatest neoclassical economic philosophers: from top left clockwise,
Adam Smith (Wikimedia Commons / Scottish National Gallery),
J.B.Say  (Wikimedia Commons),
Carl Menger (Wikimedia Commons / Mises.org, 
and David Ricardo(Wikimedia Commons  /  National Portrait Gallery).

After my last post,  Say’s Law Vs. Keynes’ Law: At the Heart of the Argument, a reader left the following comment.

I think it’s silly to call something a law which is far from universally true, which both of these things are (far from universally true)… while I don’t see any Keynesians claiming what you’ve called Keyne’s law to be a law, I do see conservatives defending Say’s generalization as a “law”. Why the pretension of “law” at all?

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Say’s Law Vs. Keynes Law: At the Heart of the Argument

Left: Jean-Baptiste Say (5 January 1787 - 15 November 1832), Wikimedia Commons Right: John Maynard Keynes (5 June 1883 - 21 April 1946), Wikimedia Commons / National Portrait Gallery

Left: Jean-Baptiste Say (5 January 1787 – 15 November 1832), Wikimedia Commons 
Right: John Maynard Keynes (5 June 1883 – 21 April 1946), Wikimedia Commons / National Portrait Gallery

At the very heart of the argument between neoclassical economists and Keynesians is the dispute over which economic law best reflects reality: Say’s Law of Markets or Keynes Law. Much of the discord between dirigistes and neoliberals (aka conservatives or classical liberals) would evaporate if this argument could be settled to general satisfaction. At its core the argument is about what changes affect market supply-demand balances the most: changes in supply or demand.

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Dirigisme No Longer Works. What Replaces It?

Line of shoppers in front of a Polish shop in the 1980s. A common sight in Warsaw pact countries ruled by communism.

Line of shoppers in front of a Polish shop in the 1980s. A common sight in Warsaw pact countries ruled by communism.
Wikimedia Commons

Actually, dirigisme as a way of ruling a country has never really worked. Dirigisme, the philosophy that a country’s elites should rule a country though technocratic expertise, was just never applied with sufficient force to screw up the works. Not at least in Western countries until relatively recently. The Soviet Union was the first really huge example of how badly state control of the economy wrecked its functioning.

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The Progressives’ Sisyphean Labors

Punishment of Sisyphus

Sisyphus and his rock
Photo Credit: Wikimedia Commons / Titian(1490-1576), Prado Museum

Sisyphus is a figure from out of ancient Greek mythology, the founder and king of the city Ephyra, which was (supposedly) later renamed Corinth. He sinned against the gods, particularly against Zeus, by being avaricious and deceitful. He killed travelers and guests, a violation of the Greek laws of hospitality called xenia, a particular sin against Zeus in his role as the protector of guests.

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The Dirigiste Mind

Famous dirigistes from the past.

Particularly notable dirigistes from the past. From top-left clockwise: King Louis XIV of France, Karl Marx, Adolf Hitler, Benito Mussolini
Image Credits from top-left clockwise: Wikimedia Commons/Louvre Museum, Wikimedia Commons/John Jabez Edwin Mayall,
Wikimedia Commons/German Federal Archives, Wikimedia Commons/Time.com
Recent thoughts I have had concerning Vladimir Putin, Karl Marx, Adolf Hitler, and Benito Mussolini have led me to wonder about the following question: What causes any human being to adopt the dirigiste mind-set? There seem to be an awful lot of people in the world who believe economies would work one heck of a lot better if they were only more centrally directed by their government. These include progressives in the United States, Western European-style socialists in the European Union, the fascists of the Russian Federation, the communist mandarins of China, and most Japanese involved with the Japanese government. For that matter, I get the impression dirigisme claims most of humanity as believers. But what can possibly convert them all to that religion? Continue Reading…

The Fermenting of the West’s Discontents: Crisis of Ideology

The three witches in Shakespeare's Macbeth

Double, double toil and trouble;
Fire burn, and cauldron bubble.

The three witches in Shakespeare’s Macbeth, Act 4, scene 1
Image Credit: Wikimedia Commons/Johann Heinrich Füssli 1783

The Western World’s political and economic elites, standing in for Macbeth’s witches, have certainly been fermenting Western discontent in their magic cauldrons. All over Europe and North America, electorates are seething with anger, frustration, and fear. Could this be the end of … what? It is hard to see exactly how the Western World will change its many world-views, but change them we must if we are to continue existing. If reality is actually different from our views of it, it has a tendency to remind us of the difference in generally unpleasant ways.

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Dismal Economic Numbers

US real GDP growth from Q1 2009 to Q2 2016

Real U.S. GDP growth rate from the first quarter of 2009 to the second quarter of 2016. The maroon curve is a linear fit to the data from Q1 2014 to Q2 2016.
Image Credit: St. Louis Federal Reserve District Bank/FRED

Today the Commerce Department announced the GDP growth rate was a very disappointing 1.2 percent for the second quarter of 2016. This is considerably below the 2.6 percent growth expected by economists. To make matters even worse, the first quarter GDP growth rate was revised downward to 0.8 percent, making the average annualized growth rate for the first half of the year 1.0 percent.  This is a very far cry from the U.S. historical average of 3.22%.

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Spain Struggles Against the Keynesian Current

Mariano Rajoy, Prime Minister of Spain, addresses supporters in 2011 electoral campaign

Mariano Rajoy, Prime Minister of Spain, addresses supporters in the 2011 electoral campaign
Photo Credit: Wikimedia Commons/manulqsa

After the success of the Leave side in the Brexit election last Thursday, we were treated to even more news Sunday about rebellion against EU economic policies. The welcome news came from Spain in a national election where the Spanish increased the parliamentary strength of the center-right Popular Party (PP), lead by Prime Minister Mariano Rajoy. Six months ago, The Spanish election that put Rajoy in power had failed to give any party a majority. This time around, the Spanish increased PP’s seats in the parliament, called the Congress of Deputies, from 123 to 137. This is still shy a majority of the 350 members, but the election does demonstrate some degree of approval for PP policies, and a rejection of the policies of the left-wing Podemos party.

The Socialists were in second place with 85 seats, keeping the third-place Podemos movement with 71 seats from becoming even the largest Left-wing party in the Congress of Deputies. The fact that Podemos ended up so poorly was counter to what opinion polls were showing, leading some to believe they might even snatch power away from the PP. It seems opinion polls are suffering everywhere, not just in the U.S. and in the U.K. However, lacking a majority, Rajoy must still cobble together a coalition to rule, which may be easier said than done.

Nevertheless, the election still represents a degree of approval of PP’s anti-Keynesian, supply-side economic reforms. Going against the Keynesian advice of Brussels and Washington, Rajoy and the PP have cut government spending, cut and simplified taxes, and liberalized labor laws to make it easier for companies to hire and fire workers. The salutary results should be a lesson not merely to the European Community, but to the United States as well. The PP’s neoclassical economic policies have turned Spain’s economy around, causing it to grow 3% over the past two years and 3.2% over the past year, according to the EU’s statistical agency. Meanwhile the unemployment rate has fallen from a peak 26% to a still horrendous 22.7%. Compare this with a 1.7% growth rate for Germany last year and 1.3% for France.

The fact that Spain can find economic growth greater than 3% by cutting taxes, expenditures, and government economic regulation should give the lie to the Keynesian excuse of Secular Stagnation (see the posts The Keynesian Excuse: Secular Stagnation and What to Do About Keynesian Secular Stagnation). It is not free-market failures dooming us to slow growth. It is government failures that are weighing us down.

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The Keynesian Emperors Have No New Clothes!

The Emperor has no clothes!

The Emperor has no new clothes!    
Image Credit: Wikimedia Commons/Vilhelm Pedersen (1820-1859)

Given all their failures in suggesting successful economic policies around the world, one would have thought Keynesians would have been generally scorned by now, their doctrines almost universally rejected. Continue Reading…

The Role of Ideology in Politics

School of Athens

The School of Athens, a place for the development of ideologies
Image Credit: Wikimedia Commons/Raphael (1505)

Many of the people with whom I have talked over my lifetime, if indeed not most, hated the idea of ideology. Often this is because they have seen ideologies run amuck to create great evil, as in the ideology of fascism during World War II, or the closely related ideology of communism during the Cold War. Many times they disliked ideologies because of the perception they were too abstruse, too unrelated to reality. People often pride themselves as pragmatic, not ruled by the dictates of any theory. Instead they imagine themselves guided by their experiences, by the tangible, by observations of what works and what does not.      Continue Reading…

An Indonesian Reagan

Joko Widodo, President of Indonesia

Joko Widodo, President of Indonesia
Photo Credit: Wikimedia Commons/Government of Indonesia

For a country that is widely reputed to have a lot of crony capitalism, Indonesia is pretty lucky to have Joko Widodo as its president. Previous to his election as president in 2014, he had been Mayor of Surakarta from 2005 to 2012 and Governor of Jakarta from 2012 to 2014. According to his Wikipedia entry, he is the first Indonesian president not to have come from the country’s political elite or as an army general. Wikipedia also tells us that he is “widely seen as reflecting popular voter support for ‘new’ or ‘clean’ leaders rather than the ‘old’ style of politics in Indonesia.”

What makes him important for our purposes however is that he is instituting a number of economic reforms that should cause the Indonesian economy to vigorously grow. The Wall Street Journal informs us Widodo started a deregulation drive last year, easing rules on foreign ownership of companies in a wide range of industries. It appears that as a result of this pruning of government regulation, that GDP growth has increased a little to 5% annualized growth in the first quarter of this year.           Continue Reading…

Europe’s Monetary Experiment Not Working!

How can we get a little inflation around here?!

How can we get a little inflation around here?!
Photo Credit:
 Canstockphoto.com/Bialasiewicz

Do you remember how the European Central Bank (ECB) decided to try to add more zing to the Eurozone’s economy by adding quantitative easing (QE) to negative interest rates? (if not, please read The Insanity of Negative Interest Rates and The Bad Examples of the ECB and BOJ.) Well it seems not to be working very well, as the Eurozone slid back into deflation in February!      Continue Reading…

Rational Expectations, Market Clearing, and Real Business Cycles

University of Chicago

The University of Chicago, where much of New Classical Economics was built by Robert Lucas, Jr.
Photo Credit: Wikimedia Commons

In my last post I began an examination of what is at present the only viable alternative to New Keynesian economics: New Classical economics. There may be many who are perplexed that socialism would not be considered a candidate for our economic organization, but socialism has given ample historical reasons for being rejected. If you are not convinced,   Continue Reading…

Alternative to the Keynesians: New Classical Economics

The Muir portrait of Adam Smith

Adam Smith (1723-1790), founder of classical economics, which has flowered into New Classical Economics
Image Credit: Wikimedia Commons/By Unknownhttp://www.nationalgalleries.org/object/PG 1472, Public Domain

At this time in history, the dominant school of economics is that version of Keynesian economics known as New Keynesian economics. As the New Keynesian school self-destructs all over the world with its bad predictions and prescriptions, we should look for more accurate alternatives. The corresponding school of neoclassical economics is known as the New Classical economics, sometimes also called the New Classical macroeconomics. Just as the New Keynesians added ideas of microeconomics in what they call the “new neoclassical synthesis”, the New Classical economists added ideas of macroeconomics derived from neoclassical economics.    Continue Reading…

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