PKT message, Ideology and Economics

The following may be of interest to PKT.

A fellow Gang8 member raised the question why it is not transparently wrong-headed to suggest that Government Deficit incurred in financing useful projects is 'bad' while Private Sector borrowing for the self-same projects is 'good'.

Here is my response:

As I see it, the problem is not ordinary stupidity, but the kind whereby economic "scholars" peddle ideology disguised as economic "science".

In the early postwar period U.S., the Keynesian Revolution was hijacked by do-gooder "scholars" exemplified by Samuelson and Klein, for whom it represented a means of back-door socialization of the U.S. economy.

In this respect, here are two extracts from Klein's Ph. D. thesis on 'The Keynesian Revolution' written under Samuelson at MIT during World War II:

"The application of the Keynesian model to the working of a socialist economy is ironic because Keynes was quite outspoken in his distaste for socialism, especially the Soviet system. In fact, while Keynes has been an accurate predictor of many economic events, he has made very poor predictions in the case of Russia. For example, he predicted, "...if Communism achieves a certain success, it will achieve it, not as an improved economic technique, but as a religion." This statement shows a complete lack of understanding of the political, technological and economic basis of the Soviet system. Keynes, glorifier of the bourgeois life, little knew that the arguments why the Russian economy has been and may continue to be one of uninterrupted full employment under socialism follow directly from his own simple model."

(pp. 77-78)

"Again, as in the Treatise, Keynes did not really understand what he had written...." (p. 83)

In the U.S. political arena, it turned out that left-wing economic ideologues "did not really understand" that, if successful, their program of back-door socialization would in turn be hijacked by their right-wing counterparts.

Nor did it take long, as indicated by President Eisenhower's warnings against the "military-industrial complex" having its government-financed way.

As late as the 1976 edition of his Economics, Samuelson cited Richard Nixon ("I am now a Keynesian") and Milton Friedman ("We are all Keynesians now.") without any apparent realization that the tables were being turned, with the "military-industrial complex" claiming an ever-increasing share of the Keynesian Pie while successive U.S. Administrations from Reagan through Clinton to Bush II have cut back the social-welfare component from its Great Society heights of the late 1960s.

The advent of post-Bretton Woods world monetary arrangements accelerated the turn-around both in the U.S. and across the globe.

Ideology and economics is a dangerous mix.

Gunnar