Tuesday, August 21, 2012

As I've said for forty years, people do not take naturally to the phony Keynesian analysis.

They have to be intimidated into believing it by the men in the white lab coats!  

I]t is almost always true that the vast majority of my students think that inflation is the real problem.

And, of course, the Keynesian Vernengo then has to set them straight using his powers of imprimatur as a “professor”.

That students do not naturally take to the Keynesian Hoax is a marvelous thing to know. Having been an advocate of the Austrian School since 1973, this Vernengo post supports my longstanding theory that not only is Keynesianism false but it is counter-intuitive.  People have to be intimidated into believing it, like in “The Emperor’s New Clothes”.

Of course “inflation” is the problem. It is the cause of the distortions in the price, investment and capital structures that result in the boom/bust cycle and depressions. If people can be inoculated with sound Austrian analysis in advance, they would never fall for the Keynesian Hoax.


  1. It is interesting in that article that he also states that income and rent should be heavily taxed so people need to continue to do hard work just for the sake of hard work. As is typical of a Keynesian he doesn't look at the ramifications of such a policy. He wants to destroy wealth so people need to work hard to scrape by- keep the masses busy. No mention on how this destroys investment capital used to fund innovations and grow wealth not just for the investor but for potential employees and other beneficiaries of such investments (economy as a whole). It is absurd that the same people that decry capitalism and free markets because "Robber Barons" will exploit the people are all in favor of government taking this roll and forcing everyone into servitude.

  2. By the way, I don't set anybody straight with any powers of intimidation. There is open dialogue and students and can and do say whatever they want. People do their exams, and provided they respond correctly using the model under consideration (which in the class I referred to in the post is an ISLM with Phillips Curve) they get an objective grade. I explicitly say that provided they move the curves correctly I don't care what kind of policy they follow. Contrary to the way you write about this "Vernengo", without even spelling it right half the time, I treat my students with respect. Funny thing is that you do not discuss any of the substantive issues of the post. Note that unemployment is a divisive social problem while inflation is not. Inflation hits everybody more or less equally, not so in the case of unemployment.

    1. Your criticism is well taken. I've changed "intimidation" to "imprimatur" and spelled your name correctly.

      My comment was mostly directed to others of the Austrian School pursuant to which inflation is the cause of unemployment as the result of its impairment of the pricing process which further results in investment in lines of production that are not sustainable. Thus, there is no trade-off between inflation and unemployment and, in fact, unemployment becomes the inevitable result of a purposeful but horrible government policy. And, in fact, college students will probably not be taught this nor will they even discover that this alternative and Nobel Prize winning theory even exists.

      My constant concern is how to explain all this to average people who have been intimidated by Keynesians into thinking that economics consists of nothing but unintelligible Keynesian jargon. I start from the assumption that people do not naturally take to the false and phony Keynesian narrative but must be taught it. The example you give of your students' initially thinking that inflation is worse than unemployment confirms my assumption. Second, Brad DeLong reports Obama saying the following:

      Look, I get the Keynesian thing. But it's not where the electorate is… p. 338.

      Indeed. The electorate does not understand that inflation is a purposeful government policy and they sure do not believe that it cures unemployment. Neither do they believe that government debt and/or spending cures unemployment. This is good because, in fact, these policies cause unemployment and the boom/bust cycle. The public needs to be made aware that its current common sense understanding of these economic matters is correct and they should not allow professional Keynesians to intimidate them with unintelligible jargon.