Getting Our Priorities Straight

A good friend just sent me a link to Aaron Swartz's blog. It's really good; I'll be following it.

This post is a response to Aaron's post Keynes, Explained Briefly, an endorsement of the economic theories of John Maynard Keynes. (For some reason, this is my second heavy post on economics in a row. Sorry, folks.)

Here's Aaron's summary of Keynes:

So those are Keynes’ prescriptions for a successful economy: low interest rates, government investment, and redistribution to the poor. And, for a time — from around the 1940s to the 1970s — that’s kind of what we did. The results were magical: the economy grew strongly, inequality fell away, everyone had jobs.

But, starting in the 1970s, the rich staged a counterattack. They didn’t like watching inequality — and their wealth — melt away. There was a resurgence in classical economics, Keynes was declared to have been debunked, and interest rates were raised drastically, throwing millions out of work. The economy tanked, inequality soared, and things have never been the same since. For a while people talked about levels of inequality that hadn’t been seen since the 1920s. Then they talked about a recession the size of which hadn’t been seen since the 1930s.

We could easily fact-check the above by looking at average economic growth in different decades and evaluating them based on analyses of which policies were more or less "Keynesian." We could do the same for other countries as well. But instead, I'd like to take this idea off on my own tangent. Here's what came to my mind when I read the above paragraphs:

For the sake of argument, let's assume that Keynesian economic theory is the best, most definitive economic theory, beyond dispute.

The economic benefits of applying the model come at a political cost. The problem is that for it to work, you have to give the people who make all the rules, and have the power to enforce them, an additional power: to take your money away. Then you have to trust them to only do so when it's in the long-term interest of you and your community. (If I were a Libertarian, which I'm not, this would be my opportunity to say something glib.)

Such a system may indeed produce great results when it works. But it's not fault tolerant. When you don't have well-meaning, competent, accountable leaders -- when you've given enormous power to the corrupt and/or incompetent and/or unaccountable -- the failure mode is dictatorship and atrocity.

Let's take a historical example. Europeans have generally made a Keynesian economic bargain: give the government great power, and trust good leadership and the parliamentary process to keep that power directed toward Good, not Evil. For the most part, the results have been good: Europe is full of prosperous, developed countries and prosperous, happy people. But every once in a while, a dictator comes to power, shuts down the newspapers, and kills a lot of people.

At this point in my first draft of this post, I tried to count genocides, mass killings, and ethnic cleansings in Europe in the last century. I got a little bogged down: is the Armenian genocide "European"? Sure, there's Bosnia. But do mass killings of Jews, Roma, Yugoslavians, gays, dissidents, etc. in the 30's and 40's constitute multiple incidents or just one? Moscow is in Europe, but the Russians never had a democratic government to begin with; do the Purges count? Let's just sum up by saying: bad people have done a lot of bad things. During the same period, there has been nothing at all similar in North America.

On the other hand, the number of massive global economic slumps caused by the United States in the last 100 years: two. Number caused by anyone across the Pond: none.

So what's your poison?