Keynesianism in Democracy

Two years ago, semiconservative pundit Josh Barro declared that “Conservatives Have No Idea What to Do About Recessions.” The eminent progressive economist Paul Krugman agreed, then tweaked crotchety Josh by saying this idea-less condition afflicts not only “anti-intellectual and doctrinaire” Republican policymakers but also “prestigious conservative economists” such as, um, Barro’s father Robert.

Conservative intellectuals like Robert Barro, Krugman suggested, have rejected the economists’ notion of aggregate demand, and in so doing they have rejected not only Keynesian economics but also the wrong-yet-acceptable monetarist alternative and its very great avatar Milton Friedman. Why? Because politics: Krugman sees Barro père as having “the sense that acknowledging that markets fail, ever, would be the thin edge of the wedge for liberal policies.”

With apologies to Alex Pareene’s version of Malcolm Gladwell: Say that Krugman is right about Robert Barro’s motivations. Could Barro still be right in rejecting Keynesian economics? What if Keynesian economics contains a lot of truth, though? Surely then Barro would be wrong in refusing to advance those true Keynesian ideas.

Or would he?

In 1977, the classical liberal economists James Buchanan and Richard E. Wagner argued that the advancement of Keynesian economic ideas is counterproductive in a mass democracy. Buchanan and Wagner allowed that there could be some ‘truth’ in Keynesianism but said that intellectual economists—few in number and limited in influence—can no longer assert the consistent level of control over economic policy that would be necessary to deliver results. Why not?

John Maynard Keynes, as evidenced in material cited by Buchanan and Wagner, tended to think of policy in his Britain as being handed down by an intellectual aristocracy that would not soon be displaced. Keynes believed that sway over the economic levers could and would be maintained by smart folks, whatever else may transpire. But in America now, as Paul Krugman and Josh Barro both know, that ain’t so. The columns and tweets of today’s smarties, whoever they are, are just an input into the roiling democratic processes that determine policy.

So what should that input be? Krugman’s answer is twofold: Keynesian economics and Democratic Party politics. We are fortunately blessed to have with us a party of politicians who take their cues from sensible people. The Democrats are smartly Keynesian, and so if they remain in power then countercyclical policy is guaranteed. Stimulate the economy when it busts, then use boom times to control inflation and reduce debts.

But Buchanan and Wagner pointed out that since the boom-time Keynesian policies of tighter money, lower spending, and higher taxes are never popular with voters, it doesn’t make a lot of sense to bet on continuous Democratic victories. An opportunistic opposition party could put forward pseudo-Keynesian ideas designed to win elections: Say, if tax cuts are stimulating during recessions, then shouldn’t they be stimulating all the time? A voter who really understands Keynesianism, who learned what she was taught in intermediate macro, wouldn’t be suckered by such an opposition. But in a mass polity dominated by noneconomists, vague notions about the benefits of ever-lower taxes can sink in. Sometimes the Republicans win, and who knows what they end up doing.

So Buchanan and Wagner’s answer was this: Mass democracy requires a wiser brand of economist, one who understands Keynesian economics but refrains from offering the Keynesian policy prescription. Economics professors shouldn’t, in their classrooms, push their smart kids to advocate for strongly countercyclical budgeting. Teach them about the idea, yes, but teach them too about the politics that are likely to frustrate its successful implementation, and remind Timmy in the front row that he’ll never chair Ways and Means.

Buchanan and Wagner thought a better result would obtain if the economists and their sharp students hold that politicians should consider the government to be broadly constrained by its budget. Then less nuttiness gets around. The idea of ever-lower taxes, dumb on its face, is affirmed as dumb. And some of the less defensible Gladwellism in politics is stymied. A crotchety man or two might be happy about that much.

They would be, right?

Advertisements