Keynes and Hayek and Cycles, Oh My!
Whether after a first glance or a penetrating analysis, the logic of both Keynes and Hayek often will seem valid to me. But it has always been much more difficult to discern whether or not their arguments are also sound because the factual bases of their premises remain so empirically elusive.
In an economic environment at equilibrium, our default bias might rest with Hayek insofar as his approach resonates with our commitment to subsidiarity principles? In far from equilibrium environments, whether boom or bust or war time, even if we stipulated that both Keynesian & Hayekian approaches would be equally efficacious in properly attenuating demand, what we do know, a priori, is that their costs would differ vis a vis both who would pay them and when they would be paid?
It is precisely in nonequilibrium environments (the complexity of which does not yield to facile analyses, economic much less political), then, that we might best resort to Keynes in redistributing these costs, both temporally, through monetary policy, and spatially (demographically), through fiscal policy? smoothing out the rough edges? And we must strive to do so prudently, mitigating any inherent moral hazards and perverse incentives, all toward the end of preserving a healthy social infrastructure, which is indispensable to a peaceful society?
And I suggest this notwithstanding any virtue that may or may not lie in allowing Darwinian market forces versus government interventions to choose all the winners and losers, beyond any notion that genuine compassion can be coerced through revenue strategies. I suggest this because, for example, hasn't there always been a broad consensus that a progressive tax structure simply makes for good social hygiene? And cannot the same be said for so-called entitlements, including social security and medicare? And certainly some meaningful assistance, carefully targeted, is similarly prudent during our rough patches, which can vary in duration and intensity, harming both culprits and innocent victims, alike, dangerously fraying our social fabric? The fact that we need government at all reveals that we are not angels, for neither a truly compassionate conservatism nor an enlightened social liberalism would need to first mail its largesse to the IRS from Wall Street or Rodeo Drive, if all were already, instead, sending it to the United Way or similar NGOs? It is an enlightened self-interest, rather, that affirms the government's role in providing such goods and services and relief, all toward the end of maintaining domestic tranquility. The government's maintenance of this vital social infrastructure is no less important to our national security than our financial, energy, utility 1
and transportation infrastructures or our military. Without them, we could fall into chaos and despair.
Also important to our national security is the government's fiscal soundness. And the sad reality is that, as a government, we cannot always afford even what we need, so triage and discipline become essential. This is not the same as saying, however, that, as a people, we might not be able to afford it. But there is only so much that can be coerced before a people, rightly or wrongly, would revolt, before a goose would fly away with its golden eggs, before the capital markets would pitch their investment tents elsewhere. Before a classical liberalism or modern libertarianism engages a social liberalism in a political over against, it has first responded to an anarchist critique and opted for limited government versus no government, but it has done so, presumably, for pragmatic reasons and not ideological principles? So, surely the libertarian critique must already be in touch, theoretically, with the pragmatic apologetics for both distributist and redistributist strategies? as recommended - not only by a practical realism -but - by the socialization impetus of subsidiarity principles, themselves, which state that, when all things are not otherwise equal, a rugged individualism must yield to a higher level of human organization? It's the "all things being equal" nuance that seems to escape today's libertarian impulse, radicalizing limited government into an ideological absolute rather than recognizing it, instead, for what it should be, merely a default strategic bias.
Common ground already exists for maintaining a progressive tax structure. Explore it without charging one another with waging class warfare or protecting the rich.
Common ground already exists for temporary Keynesian strategies. Explore it without charging one another with "tax & spend" or "give aways to the rich" or accusing the Federal Reserve of near-treason. Meet already-identified, real infrastructure needs earlier than planned in this exceptionally favorable labor cost and financing environment, but don't imagine that "make-work" initiatives and government employment, in and of themselves, are otherwise an effective use of idle human capital in the long run. Rescues should be targeted at institutions with a national security significance (financial infrastructure and credit pipelines) while markets are best left to sort out other industries (automobile?).
Common ground already exists for many of our already deeply-embedded Hayekian insights, which advocate the efficacies of lightly-regulated free markets. Explore it without disingenuously calling for government to "get out of the way" or demagogically blaming unavoidable business cycles all on deregulation. 2
Common ground exists for maintaining a social safety net. Explore it without frightening its recipients or substantively dismantling it.
Common ground exists for tax reform, precisely because the code IS ALREADY choosing winners and losers. Reform it and make it neutral for businesses (without national security significance) while preserving its otherwise progressive attributes for individuals.
Common ground already exists regarding the political parties and factions' willingness to employ BIG GOVERNMENT: whether the social cons with their moral statist tendencies, the Trotsky-cons with their neoconservative overseas ambitions and militarism, the tea party with their loyalty to our Founders' words - well, except for the document that they wrote which they imagine badly needs amending, the theo-cons with their desire to rewrite our science textbooks and the social liberals with their designs on micro-managing the economic order. It may be that the libertarians are the most faithful to our classical liberal principles in their reluctance to deploy BIG GOVERNMENT anywhere, whether in social, economic or foreign affairs, but they have also been our kooky-cons, because they treat limited government as an absolute value rather than a strategic bias.
In closing: â€œIdealism is fine, but as it approaches reality, the costs become prohibitive.â€? William F. Buckley