Sunday 31 May 2015

The Horror of the Confidence Fairy (part vi)

(From Part v)

"But the thing that is most needed now is something monetary policy can't directly cause: more of the sort of ‘animal spirits’ needed to support an expansion of the stock of existing assets." (Glenn Stevens, RBA Governor, here)
Lacking a theory of what causes slumps, Animal Spirits offer a convenient multipurpose explanation to the Keynesian economist: Animal Spirits strike unexpectedly, and create an exogenous, unpredictable shock to aggregate demand.

This is where Keynesian economists see themselves and the Government playing a role: they are there to counter, through fiscal and/or monetary policy, that shock.

With nuances and qualifications, many a Keynesian economist subscribes to the "Animal Spirits as imp who strikes once and is to be vanquished".
"But the goat, on which the lot fell to be the scapegoat, shall be presented alive before the Lord, to make an atonement with him, and to let him go for a scapegoat into the wilderness." (Leviticus 16:10. KJV)
Understandably so: it's convenient, neat and plausible.

"There is always a well-known solution to every human problem -- neat, plausible, and wrong." (H.L. Mencken)
Other Keynesians -- particularly, Post Keynesians -- have taken issue with that view: it may be neat and plausible, but it's unfaithful to Keynes -- they argue -- therefore, it's wrong.

Again Ross Gittins, channelling the New Keynesians Akerloff and Shiller, gives a useful account of how Keynes' ideas were diluted and places the responsibility on Sir John R. Hicks' "efforts to make Keynesian thinking more acceptable to economists steeped in the neo-classical assumption" (here).

In Gittins' account, Hicks made the multiplier protagonist of Keynesian economics, leaving Animal Spirits out of the film, except for a cameo at the beginning of the story, "so they [Keynesian economists] could do what they thought mattered most, win support for Keynes's key policy prescription: the use of government spending to stimulate demand when it was deficient."

In what concerns Animal Spirits, that would have been Hicks' sin. In doing so, he created "the imp who strikes once and the avenging Keynesian economist" view.

Gittins' story seems more or less correct. Hicks, writing in "IS-LM: an Explanation":
"Neither of us [i.e. Keynes and himself] made any assumption about 'rational expectations'; expectations, in our models, were strictly exogenous. (Keynes made much more fuss over that than I did, but there is the same implication in my model also)."
So, perhaps Hicks did misinterpret or, at any event, misrepresent Keynes' ideas, particularly those regarding Animal Spirits/expectations: for Keynes -- the critics argue -- Animal Spirits played a much more central role.

They are probably right, as we've seen.

"It will be admitted by the least charitable reader that the entertainment value of Mr. Keynes' General Theory of Employment is considerably enhanced by its satiric aspect." (Sir John Hicks, "Mr. Keynes and the 'Classics' ")
Before casting the first stone, however, put yourself in Sir John's shoes.

How would you have explicitly modelled the effect of "digestion", the "weather", "fear", "nerves", and "hysteria" on the decisions of the "average business man" (let alone convinced your readership that you were actually being serious)?

Would you have made a deliberate fuss over that?

And how would you have explicitly modelled the effects of activist policy on "the fear of a Labour Government or a New Deal" on the investment decisions of the "average business man"?

Keynes' Animal Spirits may work reasonably well as a self-referential joke, but, as Sir John may have understood, economic theoreticians are known for their dull sense of humour.

Friday 29 May 2015

Kooks, Krusaders and …

"By the early 1930s, Keynes and his followers felt a sense of urgency, almost of desperation, to get their ideas accepted. It became the hallmark of Keynes's coterie to regard every economist outside Cambridge as mad or stupid (…) The Keynesian position -- and this partly included Keynes -- was much more peremptory: error must be extirpated to prevent catastrophe." (Robert Skidelsky, here).

French Christians extirpating Jews. [A]
Sometimes respondents to blog posts add valuable insight, consciously or not, to the posts they comment on.

Take, for instance, this guy's comments (let's call him X) to a recent post in Mark Thoma's blog (for obvious reasons, I will not post the relevant links).

Before proceeding, let me be clear about my opinion on X: he seems to be intelligent, articulate, and educated; he is a believer in some kind of Keynesian economics; he is passionate, and probably sincere in his leftish beliefs (including his gut-level hatred towards Marxism and Marxists); the other side of that passion/sincerity coin is X's intolerance and zealotry -- extending well beyond Marxism -- which make him very vocal.

Readers, even if they have never crossed paths with X, may know the type (here is my fictional Klose Encounter of the Third Kind with one such character).

Thoma's original post appeared at 12:24 AM (his local time), a few days ago. Including title and date, it contains exactly 250 words, mostly from a long quote to an external article by another author. As is well-known, Thoma not only writes his own posts, but also refers his readers to others' writings. X's contributions were added to one such post.

X's first comment appeared at 05:02 AM; his last, at 02:58 PM, the same day: X devoted, at least partially, eight hours to evangelising the heathens.

The table below sums up the reaction that post generated (as of May 24, 07:59AM, AEST) and X's part of it and suggest a measure of X's personal involvement:

       Comments    %   |  Words    %
X          14      11  |  2,632    30
Total     126     100  |  8,945   100

Note: "Words" include automatically generated text: time
stamp, headings (A "said in reply to" B).

X's response alone represented 11 times Thoma's literary stimulus (250 words). That's what I call a Keynesian multiplier!

Beyond the funny side, that's telling, isn't it?


X's case offers insight in a deeper sense.

Prompted by a comment, in one of his interventions (an 802-word long comment that could qualify as a blog post in its own right) X offers a good summary of Keynes' thought and some of the reasons why "Austerians" oppose it.

He starts:
"Let's not be naive about all this. Conservatives regarded Keynesian economics as a socialist Trojan horse being wheeled into the academy by the reds in Cambridge, England (…) And the rich and privileged saw Keynesian economics as a direct attack on their personal bank accounts."
Then, X gives a brief but intelligent overview of Keynes' argument, at least as seen by X. For brevity's sake, I'll omit it here entirely.

X (remember: himself a leftist of sorts) adds:
"Keynes was rhetorically deft at softening the blow of his radical proposals by considering them as a more conservative alternative to full-blown socialism".
After a long quote from the Master, X concludes:
"Because the global context in which Keynes was writing was one in which there was a politically powerful state socialist alternative to his left, Keynes was able to present his more moderately semi-socialist position as 'moderately conservative'. But of course, this rhetoric was not likely to be compelling to the banking and financial class, the rentier class and other high-flying capitalist entrepreneurs and industrial barons (…)."
It's not the first time I hear that. Frankly, I didn't buy it then, and I don't buy it now. But, for the sake of the argument, let's assume X's views: Keynes was selling his actually "semi-socialist position" as "moderately conservative" to "the rich and privileged" to cajole them into the Diet Coke of socialism.

Can you blame "the rich and privileged" for rejecting Keynes' position?

I, however, suspect X -- giving him the benefit of the doubt -- is innocently selling Keynes' actually "semi-conservative" position as "moderately socialist" to the working people, to cajole us into accepting something capitalists did not (and never will) accept: at best, futile, at worst, suicidal.

Can you blame us for rejecting Keynes' position?

And that's the thing with X: in his argument there is no reference whatsoever to the invisible working people; apparently he assumes we must accept his Revelation -- actually, his version of his Lord's Gospel -- in blind faith. When we don't, his wrath and that of the Lord befalls upon us.

(From Verdi's "Messa da Requiem", conductor Claudio Vandelli, New Russia State Symphony Orchestra)


To put X in perspective. He may be annoying, fanatical, and ultimately irrational, but at least he is literate. How much worse are those who pontificate with the same feverish zeal, but with no knowledge?

Incidentally, now it's Prof. David Ruccio's turn to endure one such missionary. Looking at the bright side, at least one thing is appropriate: this person's nom-de-guerre is CardiffKook.

Priceless! See now how you can gain insight from your commenters?

31/05/2015. Added the video.

Image Credits:
[A] "French Jews are being executed by burning" (c. 1410). Author: Unknown. This image is in the public domain. Source: Wikipedia.

Tuesday 26 May 2015

The Horror of the Confidence Fairy (part v)

(From part iv)


[I]t was Keynes, not Marx, who cracked the code of crisis economics and explained how recessions and depressions can happen." (Paul Krugman, "Why Aren't We All Keynesians Yet?")
"A good way to understand the origins of the current economic crisis in Australia is to examine the historical behaviour of key macroeconomic aggregates." (Bill Mitchell, "The Origins of the Economic Crisis")
"Q: So uncertainty is the root cause of this unemployment equilibrium?
"A: No uncertainty is NOT central for unemployment. Lack of demand is, even if prices are flexible. (Matías Vernengo, "History versus Equilibrium: a False Dichotomy")
"Animal spirits -- also known as 'confidence' and 'expectations' -- are the main factor causing the economy to speed up and slow down, speed up and slow down again". (Ross Gittins, "Economy Follows Wherever our Moods Take us")
"It will not do to treat questions relating to economic policy, to trade and industry, and especially to population, as if they were metaphysical speculations in which each person can adopt the point of view which appeals most to his temperament -- and still more frequently, perhaps, to his private interests." (Knut Wicksell, here)

One thing is to figure out who the Confidence Fairy's estranged deadbeat dad is, another is to determine how much unpaid child support he owes her mother.

But here we shall not attempt that. Instead, let's try to understand how Animal Spirits explain recessions.

Things are bound to get interesting.


Given the previous selection of opposing opinions, something must be clear: if Keynes "cracked the code of crisis economics and explained how recessions and depressions can happen," he took the secret to the grave.

From Mitchell's current non-Keynesian disregard for Animal Spirits (which I, for what it might be worth, applaud and share), to Vernengo's somewhat middle-of-the-road position, to Gittins' all-powerful Animal Spirits, there is an ample range of colours, sizes, and models to choose from.

(Bear with me on Gittins' inclusion in the list:  his position, influenced by the work of George Akerlof and Robert Shiller, is not all that different from Lord Skidelsky's and it can be contrasted with Keynes' own).

Paul Krugman's own stance seems closer to Vernengo's.



After crafting the separate threads of his argument (Chapter 12 explaining Animal Spirits), Keynes weaves them in Chapter 18. His model has "given factors", independent variables and "volume of employment and the national income", as dependent variables.

After some preliminary considerations, Keynes: "Thus we can sometimes regard our ultimate independent variables as consisting of 
  1. the three fundamental psychological factors, namely, the psychological propensity to consume, the psychological attitude to liquidity and the psychological expectation of future yield from capital-assets
  2. the wage-unit (…) and 
  3. the quantity of money (…)"
A comparison between Keynes' uncertain attempts at psychologising -- at least as reflected in Chapter 12 and reinforced in the passage above -- and the thought of his contemporary followers would seem to indicate that Gittins' Keynesian interpretation (and Skidelsky's before his retraction) is the closer match!

Would that qualify as "metaphysical speculations"?


Upon closer inspection, readers will note that Mitchell (a Post Keynesian economist strongly influenced by Marx) is explaining his own practice with no explicit reference to Keynes, let alone his Animal Spirits. A few years ago, he would still mention it -- with already palpable ambivalence. My guess is that experience has made Mitchell gradually drift away from the Master, at least on that: he, unlike Keynes, exclusively considers objective, measurable variables.

To the extent that quote is representative (and it may not be), Vernengo's position seems more ambiguous. Himself a Post Keynesian influenced both by Marx and Sraffa, one could expect his views on Animal Spirits to be closer to Mitchell's than to Gittins'. In fact, in that quote it's unclear whether he is explaining his own views, or those of Keynes (if the latter, I'm afraid he doesn't seem to be right).


So, Prof. Krugman, Keynesian views on the cause of the current situation seem to run the whole gamut, from the materialist, to the extremely subjectivist -- or metaphysical, if you will. Not bad, for the "explanation" Keynes decoded.

Somehow, I'm reminded of Nikolai Bukharin: "[T]he motives of the isolated individual constitute the point of departure for the Austrian School".

Image Credits:
I found those images on the internet. If readers know for a fact I am infringing anyone's property rights, please leave a comment and, at your discretion, I will either remove the image or provide full credits.

Sunday 24 May 2015

Bits and Pieces (VI)

Without mentioning her by name, Keynesian economist Paul Krugman ("Conservatives and Keynes", May 5, 2015) writes on the Confidence Fairy.

In my opinion, whether he realises it or not, this is the key part of his post:
"Keynesian economics, if true, would mean that governments [and economists, I'd add] don't have to be deeply concerned about business confidence, and don't have to respond to recessions by slashing social programs."
However, can you write "Keynesian economics" without "Animal Spirits"?


One who would probably deny that is Prof. Roger Farmer (Distinguished Professor of Economics, at UCLA, apparently a non-Post Keynesian economist): he proposes the adoption of Animal Spirits as a new fundamental for Keynesian economics.

In a post ("Rational Expectations and Animal Spirits", February 3, 2014) last year, Farmer had this to say about his work:
"In standard dynamic stochastic general equilibrium (DSGE) models there is a single rational expectations equilibrium. In the models I work with there are many rational expectations equilibria. Not just one, or two or three: but an infinite dimensional continuum of them. That is not a problem. It is an opportunity that I exploit to model the idea that beliefs matter. In my work, I close my models by adding an equation that I call a 'belief function'. The belief function is an effective way of operationalizing the Old Keynesian assumption of 'animal spirits'. It is a forecasting rule that explains how people use current information to predict the future. That rule replaces the classical  assumption that the quantity of labor demanded is always equal to the quantity of labor supplied."
Now (and this is the thing), how would that fit with Keynes' -- the oldest Keynesian -- Animal Spirits, is something I cannot fathom. To paraphrase Him (about whose words I was reminded recently): "I simply do not know".


Incidentally, Paul Krugman alludes to Farmer in "Choose Your Heterodoxy" (25-04-2015). An appropriate title, no doubt. But that's not why I draw your attention to it. What caught my eye is this:
"As I've written many times, economists who knew their Hicks have actually done extremely well at predicting the effects of monetary and fiscal policy since the 2008 crisis, whereas those who sneered at this old-fashioned stuff have been wrong about almost everything."
So, economists -- at least those who "know their Hicks" -- can predict things extremely well.

Fair enough. One is entitled to bragging rights if one makes a prediction and it comes to pass. Why should that be interesting?

Well, because other Keynesian economists (like Wren-Lewis and Syll) say economic prediction is not possible. In fact, neoclassical Marxist Chris Dillow agrees with them on that:
"Macroeconomics - when done well, which is only some of the time - does the former [explanation]. This might be all that can be expected. Whatever else is wrong with macro theory, the inability to foresee recessions is not the problem." 

Is that just me, or these are strange times?




I couldn't hope for a better way to illustrate my previous comment on the strangeness of our times than pointing to "Das Kapital at the Arsenale: how Okwui Enwezor Invited Marx to the Biennale", by Charlotte Higgins (h/t David Ruccio), on the public readings of Das Kapital in the Venice Biennale.

Thursday 21 May 2015

The Horror of the Confidence Fairy (part iv)

(From Part iii)

"Who is John Galt?" (Ayn Rand, "Atlas Shrugged")
"This is the best chapter in the book and one of the most important economics essays of all time." (Tyler Cowen, "Keynes’s *General Theory*, chapter 12" or here)
"Bukharin was right when he stressed that the [subjectivist] marginalist school adopts the point of view of the rentier". (Ernest Mandel, "The Marginal Theory of Value and Neo-Classical Political Economy")

Whether you call her Confidence Fairy, Regime Uncertainty, or Animal Spirits, her father, Keynes, introduced her to the history of economic thought in Chapter 12 of his masterpiece ("animal spirits - of a spontaneous urge to action rather than inaction") and explained her significance one paragraph later:
"This means, unfortunately, not only that slumps and depressions are exaggerated in degree, but that economic prosperity is excessively dependent on a political and social atmosphere which is congenial to the average business man. If the fear of a Labour Government or a New Deal depresses enterprise, this need not be the result either of a reasonable calculation or of a plot with political intent; it is the mere consequence of upsetting the delicate balance of spontaneous optimism. In estimating the prospects of investment, we must have regard, therefore, to the nerves and hysteria and even the digestions and reactions to the weather of those upon whose spontaneous activity it largely depends."


It doesn't take a literary critic to perceive in Keynes' ode to the subjectivity of the all-important, powerful and benevolent, if fickle, "average business man" a self-satisfied worldview which had barely changed in twelve years, since the publication of "A Short View of Russia" in 1925. Keynes (like Ayn Rand and Ludwig von Mises) sees the capitalist as the economic demiurge, whose broad shoulders sustain the world he alone created:
"How can I adopt a creed which, preferring the mud to the fish, exalts the boorish proletariat above the bourgeois and the intelligentsia who, with whatever faults, are the quality in life and surely carry the seeds of all human advancement?"
Nor does it take a psychologist to suspect Chapter 12 to be highly introspective, self-descriptive, almost confessional, with its constant appeals to personal experience ("We know from extensive experience … Nor can we rationalise our behaviour …") and even his own personal petty phobias (he explained in 1926 his "fear of a Labour Government": "It is a class party, and the class is not my class", that made of the Labour Party the "Party of Catastrophe" in "Am I a Liberal?").

In both passages Keynes, the financial speculator -- or rentier, if you prefer -- more than addressing academics, is addressing his fellow Olympians, the financial capitalists and the bourgeois, in general -- whom Rand illustrated with John Galt, the demi-god who, reacting to their impositions, could destroy the world of the moochers by his mere absence.

There is a strong family resemblance between Confy and her dad. Perhaps Rand should have given Keynes a second thought.


The spontaneously generous encomium this chapter receives from leading libertarian economist Tyler Cowen may surprise at first, but is not gratuitous:
"This is the best chapter in the book and one of the most important economics essays of all time.  …
"Upon rereading it, I am overwhelmed by its insight and also its relevance to our current
[i.e. April 30, 2009] predicament." (here or here)

Tuesday 19 May 2015

The Horror of the Confidence Fairy (part iii)

(From Part ii)

If not Lord Skidelsky, who is the Confidence Fairy's real father?

As it turns out, she has at least one putative father: Robert Higgs (senior fellow at the Ludwig von Mises Institute, adjunct scholar at the Cato Institute). He claims her paternity (and Peter Boettke, a prominent Austrian economist, bears witness of that), says she is older (18) and her real name is Regime Uncertainty:
"The vulgar Keynesian does not understand that extreme policy activism may work against economic prosperity by creating what I call 'regime uncertainty,' a pervasive uncertainty about the very nature of the impending economic order, especially about how the government will treat private-property rights in the future (Higgs 1997). This kind of uncertainty especially discourages investors from putting money into long-term projects." (here, page 471)
Little wonder "vulgar Keynesians" (as Higgs calls them) don't like little Confy/Regina.

Other Austrian economists, too, seem fond of Confy, err, Regina: Donald Boudreaux, and Daniel Kuehn, for instance.


Given that, it's easy to understand one of the reasons why Paul Krugman's "Unreal Keynesians" (March 23) -- mentioned last time -- is so remarkable.

Although one might suspect Krugman was looking towards Lord Skidelsky after their debate a few days earlier, he is ostensibly answering constant Post Keynesian criticism ("I use equilibrium models and don't emphasize the instability of expectations").

Krugman, with some frustration, returns the ball to his critics:
"One way to answer this is to point out that Keynes said a lot of things, not all consistent with each other. …
Now, what have those who declare themselves the true Keynesians had to offer? Has insisting that expectations are volatile and unpredictable been helpful in this context? Actually, if anything it lends support to believers in the confidence fairy. After all, if it's all animal spirits, who are we to say they're wrong?"
"Say … what???" My feelings exactly, Stewie.

That explains Lord Skidelsky's temporary defection: anti-Keynesianism is actually quite Keynesian!

You see, the Confidence Fairy (or Regime Uncertainty) has a third, 79-year old identity: Animal Spirits. And that third identity has an immaculately "true Keynesian" pedigree.

To my knowledge, this is the first time a prominent Keynesian economist, like Paul Krugman, publicly (1) acknowledges explicitly the connection between Keynes and the opprobrious Confidence Fairy, via Animal Spirits; and (2) declares it inconsistent with Keynesian stabilization policies.

Others, like Lord Skidelsky, made revealing references before, gingerly avoiding any suggestion of inconsistency. Some journalists had also established the Confidence Fairy/Animal Spirits connection, without joining the dots. But this is the first time a leading academic Keynesian spelt those two things out.

Krugman is right and this has important implications, in terms of policy -- as he acknowledges -- and theory.


You can see how unfair and profoundly misinformed are freshwater economist John Cochrane's views. Worse still, from his own point of view, they are ultimately self-defeating, because they contribute to Keynes' spurious image of patron saint of the Kensian Left, which some of Keynes' followers are desperately trying to manufacture of thin air.

He could learn a thing or two from the Austrians.

Lord Keynes' fate -- it seems -- is to be snubbed by his brethren.


"I am spellbound. This [Keynes] is the most beautiful creature I have ever listened to. Does he belong to our species? Or is he from some other order? There is something mythic and fabulous about him. I sense in him something massive and sphinx-like, and yet also a hint of wings." (Douglas LePan)

That hint of wings, no doubt, was the baby Confidence Fairy flying around her real dad.

Sunday 17 May 2015

The Horror of the Confidence Fairy (part ii)

(From Part i)

(From "Annie", 1982. Aileen Quinn, as the adorable Annie, sings "Tomorrow")

And then, a miracle seemingly happened.

At the New York Review of Books conference "What's Wrong with the Economy -- and with Economics?" (NY, March 14-15, 2015) Baron Skidelsky, keeper of Keynesian arcana, debated the Confidence Fairy with Paul Krugman.

Some days later, Lord Skidelsky published "Messed-Up Macro" (Project Syndicate, March 24), summing up his views:
"As a Keynesian, I firmly believe that market economies need to be stabilized by policy. But Keynesians have to face the uncomfortable truth that the success of stabilization policies may depend on the business community having Keynesian expectations. They [i.e. Keynesian economists] need the confidence fairy to be on their side."
In other words, stabilization policy has two opposed effects:
  1. Government spending increases aggregate demand, which increases aggregate output, and employment/income. Like dominoes falling in sequence, one thing leads to the next. Given idle productive capacity, there's no need for new investment until full capacity, output, and, presumably, employment are reached.
  2. At the other hand, instead of spending their share of Government spending (a.k.a. consumption subsidy), consumers could save it, uncertain about the future, but expecting increased taxes; if so, their aggregate demand won't increase: the chain is broken. Even if aggregate demand increased, instead of investing and employing additional people to meet demand, employers, also uncertain about the future, could divert additional revenue to the financial markets in prevision of increased taxes. Conversely, even budget cuts could, contingent upon the favourable expectations generated, lead to growth: uncertainty and highly subjective expectations (particularly business people's expectations) are key.

That is, for good or ill, collective well-being depends on these fickle, all-powerful mythical Atlases, "who, with whatever faults, are the quality of life and surely carry the seeds of all human advancement."

At any event, the consensus among "Austerians" (as Krugman calls them) is that (2) dominates (1): the Confidence Fairy.

Until March, the Keynesian econ tribe, too, was unanimous: (1) overwhelms (2).

Skidelsky broke that unanimity: the seemingly helpless Confidence Fairy could derail fiscal stimulus, after all: "They need the Confidence Fairy to be on their side".

Confy, it seemed, had finally found her Keynesian "Daddy" Warbucks!


A week or so after the conference, a short but very significant post ("Unreal Keynesians", March 23) appeared at Krugman's blog (we shall leave it for coming posts).


Confy's happiness, however, was short-lived.

On April 22 -- barely a month after the conference -- Skidelsky's "Debating the Confidence Fairy" appeared at Project Syndicate:
"I recently debated this point with Krugman at a New York Review of Books event. My argument was that adverse expectations could affect a policy's results, not just the chances that it will be adopted. For example, if people thought that government borrowing was simply deferred taxation, they might save more to meet their expected future tax bill.
"On reflection, I think I was wrong."
The Keynesian unanimity was restored and hapless, orphaned Confy, once more, was left all alone, in the street (or so it seemed), searching desperately for her daddy.

Who on earth is Confy's father?

Friday 15 May 2015

The Horror of the Confidence Fairy (part i)


"Victory has a thousand fathers, but defeat is an orphan."
(John F. Kennedy)

If you, like yours truly, are interested in economic theory, policy and/or history of economic thought, chances are you have found the Confidence Fairy somewhere on the net.

It's not that she is ubiquitous. She isn't. A recent Google search for the string "confidence fairy" returned "about 20,100 results". To put that in perspective, a search for "Justin Bieber" reported approximately 213,000,000.

But she is considerably more popular -- among econo-aficionados, at least -- than other related economic creatures: her older brothers, the "Bond Vigilantes", only got some 8,700 results.

She isn't old, either: little more than 4 years of age. The earliest memory all-knowing Google has of little Confy (as her friends call her) goes back to April Fool's Day, 2011, when the Seattle Times published the appropriately titled "The Confidence Fairy and other GOP Economic Fallacies", by Prof. Paul Krugman, the noted Keynesian:
"It [i.e. liquidationism] also invokes the confidence fairy; that is, it suggests that cuts in public spending will stimulate private spending by raising consumer and business confidence, leading to economic expansion."
But, in spite of her angelic looks, Krugman, who apparently christened little Confy, never was much of a loving godfather to her (here between us, her paternity has been a bit of a mystery and Krugman -- who as godfather might know who her real father is -- has been discreet on this).

In fact, barely months later, chillingly sinister thoughts were already crossing Krugman's mind: "The Death of the Confidence Fairy" (NY Times, 19-09-2011) and "Death of a Fairy Tale" (NY Times, 27-04-2012).

He is not alone on that. Among the Keynesian major-league names, Joseph Stiglitz, Jared Bernstein, Simon Wren-Lewis, and even the always polite Mark Thoma had also piled abuse on her. Among the other Keynesians, James K. Galbraith, Paul Davidson, Lars P. Syll ("The Confidence Fairy Bleeding", yikes!), and Dean Baker have also taken turns to threaten her mercilessly. You could be forgiven to think this is yet another version of "The Texas Chain Saw Massacre".

Unlike Vicky, beloved and pampered by all, fatherless and lonely Confy -- surrounded by a crowd of wild middle/old age men, fire in their eyes and blood in their minds -- seems to have no friend or protector in the WWW (whole wide world).


In this series we'll show who the real father of the Confidence Fairy is.

(To be continued)

22-08-2015. Prof. Krugman is pretty sure he coined the Confidence Fairy phrase. It was "a snappy way to characterize the deep implausibility of the Alesina-Ardagna stuff that was sweeping Brussels and other corridors of power in 2010". (here)

Thursday 14 May 2015

Does Mitchell Accept the Labour Theory of Value?

"Pride goeth before destruction, and an haughty spirit before a fall." (Proverbs 16:18. KJV)

MMTers will need little background on Prof. Bill Mitchell.

For those outside Post-Keynesian economics: Mitchell is professor of economics at the University of Newcastle, director of the Centre of Full Employment and Equity -- CofFEE -- and a notable proponent of Modern Monetary Theory.

In a recent post ("The Existential Crisis of Labour-Type Political Parties", May 12, 2015), he writes (the long quote is fully justified):
"What this story tells us is that traditional notions of class conflict between Labour and Capital within the Capitalism production system are alive and well.
"Workers still want more for less and bosses want more for less. No matter how many people become self-employed as an act of desperation in economies starving for adequate spending, the principle remains the same – there has to be a surplus created and expropriated by the owners of capital.
"Capitalism hasn’t gone away no matter how it has morphed into some international global morass with financial capital now dominating over industrial capital.
"The fact remains that the dynamics of capital still drive the show. Every day, there is something happening that tells us how the struggle is ongoing.
"The desire for individual freedom to do what we want does not undermine the centrality of the state being our vehicle to discipline capital and prepare for some sort of post-capitalism evolution.
"Please read my blogs – We need to read Karl Marx and When the left became lost – Part 1 – for more discussion on this point.
"The idea that the ‘left’ and ‘right’ dichotomy, or working class versus capital etc are obsolete is rejected by the evidence.
"It is an idea that is propagated by those with a vested interest in developing the ‘free market’ myth where we are all, essentially, free traders and own-producers at heart who agree (aided by market forces) to specialise into labour suppliers or capital providers.
"The myth continues that we are all free traders – everything is voluntary and all exchanges are mediated by market prices which deliver equalised use values to each exchanger to be enjoyed upon completion of the same.
"The reality is different. Workers do not sell labour – they rather sell labour power (the capacity to work). That immediately invokes a managerial imperative.
"Why? Answer: because the use-value of the labour power is enjoyed (extracted) within the actual exchange (that is, while the workers are still at work). The use-value – the source of profit – is uncertain and a control function is indicated.
"Bosses have to control the realisation of that use value as production in an environment where the majority of workers would rather not be there. That is a very different dynamic environment to one where we go into a shop and buy a trinket to be enjoyed later.
"There are clearly complex layers over the basic capital-worker distinction and certainly these layers are exploited by the power elites to obscure them further (for example, gender, sexuality, race etc) but when push-comes-to-shove the struggle over the distribution of income arising from production is still highly significant."

Could you imagine the horrified look in the face of the Lord Keyneses of the world (both, the real one, and his amateurish "reincarnation") reading that? "We need to read Karl Marx"? Wasn't him, according to the real Lord Keynes, the author of an "an obsolete economic textbook which I know to be not only scientifically erroneous but without interest or application to the modern world"?

To add insult to injury, Mitchell's Wikipedia entry states:
"Mitchell was born to working class parents in Glen Huntly, Australia, in March 1952. The family moved to Ashwood, a new Housing Commission suburb in Melbourne, soon after."
Life has a way of humiliating the vacuously ignorant, to prove him wrong, whether he be dead or alive.

"Does Wray Accept the Labour Theory of Value?" July 17, 2014.

Wednesday 13 May 2015

Coming Attractions…

You've never seen her before… but you have felt her malevolent presence…

Who is her? Where did she come from? What evil forces are behind her?

From the director who brought you "When Frankenstein met Freddy Krueger", and "Dracula's Toothache"…

The Horror of the Confidence Fairy!

Everything you always wanted to know about the Confidence Fairy but were afraid to ask: madness, human sacrifice, satanic rituals, cannibalism, gore and blood.

Your life… will never… be… the same…

(Coming soon to a Magpie blog near you.)


Pass the popcorn, please!


Monday 11 May 2015

Bill Black on Slurs, or the Invisible People.

Bill Black on racial/ethnic slurs in the British media.

Frankly, I couldn't agree more with Black: "Ethnic slurs are not acceptable to any civilized person of any background". (here)

Unfortunately, while well-meaning people -- like Black -- are rightly concerned with racial/ethnic slurs and make their voices heard on that, nobody, it seems, is concerned with social slurs: so, provided our ethnicity is not mentioned, we remain the "boorish proletariat" and the "mud", "those who do not know at all what they are talking about".

Ethnicity out of sight, slur out of mind.


This reminds me of one of Prof. Robert Paul Wolff's blog posts. Wolff was discussing the work of the philologist and literary critic Erich Auerbach.

A person by the name of Jerry Fresia added this comment (April 27, 2015 at 8:44 AM):
"This 'strict separation of styles' seems to be a manifestation of the utter contempt that ruling people have had for the lowest of the low that in their (ruling types) [eyes] have rendered common people historically invisible. I get a kick out of how the servants in Downton Abbey are permitted to silently witness the most candid and condescending attitudes, towards them, of 'their betters.' Or consider Romney's famous 47 percent diatribe in the presence of wait people. Clearly he had no sense that lowly wait people might, to borrow from Marx, 'enter upon the scene of history.' I think, too, of the Sandinista revolution in Nicaragua where one illiterate peasant hid weapons under the very floorboards in a tavern frequented by the Somocistas. …"
Among other things, and for those who may have forgotten, Fresia is referring to this greatest, most embarrassing, and catastrophic of gaffes, committed by a man who, in 2012, was running for President of the U.S.A. and, therefore, was the subject of intense public scrutiny.

How could any politician have committed such indiscretion?

The facile answer -- one his political opponents probably prefer -- is that the guy is really dumb.

There may, or may not, be some truth in that: I suspect Romney's IQ is besides the point. As Fresia very astutely remarked, working people seem to be "invisible", both to friends (like Black) and foes (like Romney).

Traditionally Heartless/Clueless.

Chris Dillow on the false dichotomy Liberal Democrats employed as their only selling point during the U.K. election campaign:
"A leaflet from the Lib Dems sullies my doormat decrying 'heartless Tories' and 'clueless Labour', echoing Clegg's claim that the Lib Dems would 'add a heart to a Conservative government and add a brain to a Labour one'. This seems to me to be doubly wrong."
Dillow traces this practice back in time:
"However, the Lib Dems aren't proposing this false dichotomy merely because they are a party without principle who can only define themselves by what they are not. The 'cruel right' and 'silly left' are old prejudices. In 1988 Alan Blinder wrote a book Hard Heads, Soft Hearts in which he tried to combat that distinction. And in 1996 Tony Blair complained of the longstanding but 'foolish' tendency to regard Tories as 'cruel but efficient' and Labour as 'caring but incompetent'."

Dillow may feel some satisfaction with the results the Lib Dems achieved:

Party              Seats   Change
Conservative      331     24
Labour            232    -26
Lib Dem              8    -49
SNP                 56     50
UKIP                1      1
Other               22      0


What I find interesting, though, is that British politics, it seems, haven't changed that much.

Take for instance, this old address delivered at the Liberal Summer School at Cambridge.

Speaking on his personal name, the speaker declares that no British party of his time satisfies a positive test, based on the parties' "attractiveness" to the speaker:
"[W]hen we come to consider the problem of party positively -- by reference to what attracts rather than to what repels -- the aspect is dismal in every party alike."
But there is another test, a negative test: what party least repels the speaker?

In this test, the Liberals come on top. Its virtue: being less repellent than Labour and Tories. Liberals are better than them, in other words, because it is neither Labour nor Tories:
"On the negative test, I incline to believe that the Liberal Party is still the best instrument of future progress --  if only it had strong leadership and the right programme".
So, what makes the Tories and Labour more repellent than the Liberals?

The Tories are repellent because the speaker doesn't like them. Why not? He doesn't quite say. It doesn't seem to be because they are "cruel" (or related to their economic policies). Beyond:
"They offer me neither food nor drink -- neither intellectual nor spiritual consolation. I should not be amused or excited or edified."
There is little indication about what specific things the speaker finds repellent in the Tories.

He finds Labour repellent, too. But here he is more specific:
"Ought I, then, to join the Labour Party? Superficially that is more attractive. But looked at closer, there are great difficulties. To begin with, it is a class party, and the class is not my class. If I am going to pursue sectional interests at all, I shall pursue my own. When it comes to the class struggle as such, my local and personal patriotisms, like those of every one else, except certain unpleasant zealous ones, are attached to my own surroundings. I can be influenced by what seems to me to be Justice and good sense; but the Class war will find me on the side of the educated bourgeoisie."
There is more:
"But, above all, I do not believe that the intellectual elements in the Labour Party will ever exercise adequate control; too much will always be decided by those who do not know at all what they are talking about."
It's not quite to say that Labour are "clueless", but it's not far: they are stupid and working class.


Considering said address was delivered 90 years ago, by none less than Lord Keynes himself, I'd say that Nick Clegg was following a venerable tradition, even if for some reason this time the British voter was not charmed.

Friday 8 May 2015

UK Elections: Letter of the 100.

Over a month ago, the talk of the day in the U.K. was the letter that over 100 business leaders signed in support of the Conservative Party, warning against the effects a Labour victory in the general elections would have had on business confidence:
"We believe a change in course will threaten jobs and deter investment. This would send a negative message about Britain and put the recovery at risk. In a personal capacity we therefore sign this letter."
With the elections held and its results widely known, Magpie News is at liberty to reveal details about the discussion previous to the letter's release.

A prominent liberal business man and patron of the arts proposed the inclusion of the following paragraph:
"This means, unfortunately, not only that slumps and depressions are exaggerated in degree, but that economic prosperity is excessively dependent on a political and social atmosphere which is congenial to the average business man. If the fear of a Labour Government or a New Deal depresses enterprise, this need not be the result either of a reasonable calculation or of a plot with political intent; it is the mere consequence of upsetting the delicate balance of spontaneous optimism. In estimating the prospects of investment, we must have regard, therefore, to the nerves and hysteria and even the digestions and reactions to the weather of those upon whose spontaneous activity it largely depends."
Sources close to Magpie News report that the other signatories did not feel comfortable signing the letter with that paragraph included and requested its deletion.

Asked by our sources why he felt uncomfortable, one of the signatories -- requesting anonymity -- commented dryly: "I don't want to be associated with Lord Keynes' hysteria, let alone his intestinal fortitude".

It was not possible to contact Lord Keynes for his comments on this latest snub, following previous examples like this.


Somehow, thinking of the Confidence Fairy reminded me of "La Donna è Mobile", from "Rigoletto", by Giuseppe Verdi (Richard Wagner's 19th century would-be rival). And thinking about "La Donna è Mobile" inevitably reminded me of the Italian Luciano Pavarotti:

That was Pavarotti (29) playing in 1964 from Leninist Russia. (I am sure there are many famous and magnificent Anglo-Irish tenors: drop me a line and I'll be happy to credit them)

Wednesday 6 May 2015

Nazis, Marxists, and Socialists?

Right-click for a larger image in a separate tab: it's worth it. [A]
Sam Holbo, from Crooked Timber, asks "in what sense were the Nazis Socialists?"

I'm sure Marxists and Socialists of all kinds have frequently found that Nazi = Marxist (or Nazi = Socialist) alleged equality. After all, the proponents of that thesis ask with "unimpeachable logic": didn't the Nazis call themselves National-Socialists?

So, the elucidation of that conundrum should be a topical one, for us.

Holbo has a theory:
"It was an attempt to appropriate the word [i.e. Socialist/Socialism], to wrest a positive symbol out of the enemy's grasp. It's worth thinking about … but not too hard, of course. Most political party names are kind of nonsensical, or at least not accurately descriptive."
I think that's pretty close to the mark, but let's not put the cart before the horse.

Holbo and those commenting argue their opinions in different ways.

What I find strange is that nobody thought the obvious answer: would it not make sense to see if the man who christened the Nationalsozialistische Deutsche Arbeiterpartei ever explained why he adopted the symbols of another party?

And, as it turns out, he pretty much did. So, from the horse's mouth:
"The fact that we had chosen red as the colour for our posters sufficed to attract them [i.e. social democrats and communists] to our meetings. The ordinary bourgeoisie were very shocked to see that, we had also chosen the symbolic red of Bolshevism and they regarded this as something ambiguously significant. The suspicion was whispered in German Nationalist circles that we also were merely another variety of Marxism, perhaps even Marxists suitably disguised, or better still, Socialists. The actual difference between Socialism and Marxism still remains a mystery to these people up to this day. The charge of Marxism was conclusively proved when it was discovered that at our meetings we deliberately substituted the words 'Fellow-countrymen and Women' for 'Ladies and Gentlemen' and addressed each other as 'Party Comrade'. We used to roar with laughter at these silly faint-hearted bourgeoisie (sic) and their efforts to puzzle out our origin, our intentions and our aims.
"We chose red for our posters after particular and careful deliberation, our intention being to irritate the Left, so as to arouse their attention and tempt them to come to our meetings-if only in order to break them up-so that in this way we got a chance of talking to the people."
(p. 395)
The choice was made not because the beliefs of National Socialists and Socialists were similar -- they weren't -- but to catch the public's attention, either by shocking the "silly faint-hearted bourgeois", or by angering the Socialists/Communists. It was a propaganda gimmick. The use of the word "Socialist", the colour red in their flags, the way of addressing each other are not signs of ideological alignment, but of opposition: it's a theft, not a gift.

Let me spell that out for the bourgeois, who cannot reason properly by excessive fear. Adolf Hitler, the author of that passage, is saying there is no equality Nazi = Marxist, whatever their symbols. Get it now?

It couldn't be otherwise. Hitler believed Marxism an international Jewish conspiracy for world domination. The photograph above (from a creation of the French collaborationist Comité d'action antibolchévique) speaks for itself.

It wasn't gratuitous Hitler insisted on calling the father of Marxism "the Jew, Karl Marx". It wasn't a display of admiration or affection, either.

Mind you, Hitler wasn't the only one believing that Marxist = Jew:
"International Jews.
"In violent opposition to all this sphere of
[respectable bourgeois English] Jewish effort rise the schemes of the International Jews. The adherents of this sinister confederacy are mostly men reared up among the unhappy populations of countries where Jews are persecuted on account of their race. … From the days of Spartacus-Weishaupt to those of Karl Marx, and down to Trotsky (Russia), Bela Kun (Hungary), Rosa Luxembourg (Germany), and Emma Goldman (United States), this world-wide conspiracy for the overthrow of civilisation and for the reconstitution of society on the basis of arrested development, of envious malevolence, and impossible equality, has been steadily growing. …
"Terrorist Jews.
"There is no need to exaggerate the part played in the creation of Bolshevism and in the actual bringing about of the Russian Revolution by these international and for the most part atheistical Jews. It is certainly a very great one; it probably outweighs all others.
With the notable exception of Lenin, the majority of the leading figures are Jews. Moreover, the principal inspiration and driving power comes from the Jewish leaders."
Those words, if we are to believe Wikisources, were penned by Sir Winston Churchill and published on February 8, 1920. Illustrated Sunday Herald (London).


So, we have two equations:

Marxist = Nazi.


Marxist = Jew.

It will be evident, I hope, they can't both be true at the same time.

A Marxist/Socialist would say that both are false. But -- hey! -- we are wrong on everything.

Anti-Semites, like Hitler, believe the second and know the first to be ridiculous.

And the "silly faint-hearted bourgeois", then and now, certainly claims to believe the first (and possibly the second!), and no logical argument, no concentration camps or mockery are enough to persuade them to the contrary:
"We [i.e. Hitler and the Nazis] used to roar with laughter at these silly faint-hearted bourgeoisie (sic) and their efforts to puzzle out our origin, our intentions and our aims."
Hopefully -- again -- the irony will not be lost on the readers.


Incidentally, Batya Ungar-Sargon (Tablet Magazine: A new read on Jewish life) has an interesting article "On John Maynard Keynes' 130th Birthday", published on June 5, 2013. Its summary line: "A look at the economist's troubling relationship with the Jews".

Image Credits:
[A] "Image de l'exposition Le Bolchevisme contre l'Europe" (1942). File licensed under the Creative Commons Attribution-Share Alike 3.0 Germany license. Not suggestion his author's approval of me or my usage of his work. Author: Unknown. Source : Wikipedia.

Monday 4 May 2015

Germany, Greece and Enlightened Elites. (And ii)

(From part i)

According to Moggridge (1995), Keynes was made aware of the Plan by Morgenthau himself. Rightly or not, Morgenthau and Harry Dexter White (another key Plan advocate) seemed to believe that “in short, Keynes seems to be in our side” [*]

Harry Dexter White and John Maynard Keynes, 1946. [A]

Moggridge doubts that: “It is true that by the summer of 1944 Keynes had come to favour [Germany’s] dismemberment, but his attitudes on other matters were not as simple as White believed."

A little later, Moggridge quotes Keynes from a report to the Chancellor of the Exchequer:
"Morgenthau started off on this before coming to our main business … When Harry White broached the same subject I took the line that all plans relating to Germany which I had seen so far struck me as equally bad, and the only matter I was concerned with was that it should not be the British Treasury which had to pay reparations or support Germany. I gathered that the plan is not quite as crude as it appeared in the reports from Quebec. All the same it seems pretty mad, and I asked White how the inhabitants of the Ruhr were to be kept from starvation; he said that there would have to be bread lines but on a very low level of subsistence. When I asked if the British, as being responsible for that area, would also be responsible for the bread, he said the U.S. Treasury would if necessary pay for the bread.” [#]
Keynes sounds stunningly subdued for a man who could pour scalding contempt on his opponents -- as he did on the Russian “Leninists” -- or the author who, in the immediate first post-war, resigned in frustration from his advisory role during the Versailles peace conference to write these prescient and dramatic words:

“If we aim deliberately at the impoverishment of Central Europe, vengeance, I dare predict, will not be limp. Nothing can then delay for very long that final Civil War between the forces of Reaction and the despairing convulsions of Revolution, before which the horrors of the late German war will fade into nothing, and which will destroy, whoever is victorious the civilization and progress of our generation.” (“The Economic Consequences of the Peace”, here)
Why the change in Keynes' tone?

Frankly, I have no idea. I haven’t found any conclusive pronouncements to explain that (if the readers know of one, by all means, shoot). 

Perhaps in the effort to not offend his influential and powerful Bretton Woods transatlantic counterparts, Keynes preferred to remain non-committal, ambiguous, even feigning callousness: if the British Prime Minister, in his hour of need, learned to humble himself rather abjectly before a powerful colonial, Lord Keynes could be forgiven for following suit. 

Diplomacy, it seems, may involve the recognition that discretion is the best part of valour: you are bold against those who can't reply, only. If that was the cause of his low profile, a man of Keynes' legendary humility must have suffered enormously.

Perhaps in the deepest secret, Keynes, who was otherwise notorious for his sudden and radical changes of mind, on this subject remained courageously of the same opinion and vehemently opposed the Morgenthau Plan.


In any case, if I were German, I'd have little to thank Roosevelt, Morgenthau, Churchill, Keynes, and their fellow Olympians: it wasn't their magnanimous disposition that saved your country. It was their fear of the Red Army.

Further, to know about Keynes' casual views on ethnic cleansing would only send chills down my spine.

And if I were Greek, I would not expect more generosity from Frau Merkel than the generosity Roosevelt was ready to dispense on the Germans, or Reichkanzler und Führer Hitler had planned for Eastern Europe; or more sympathy and courage from Herr Schäuble than the sympathy and courage Keynes exhibited.

Lacking the Red Army bugaboo to scare these people into generosity, I'd try to find another way out, really quick.

But, alas, I'm neither German nor Greek.

[*] Moggridge, op. cit. p. 772.
[#] Moggridge, op. cit. p. 776

Image Credits:
[A] "Assistant Secretary, U.S. Treasury, Harry Dexter White (left) and John Maynard Keynes, honorary advisor to the U.K. Treasury at the inaugural meeting of the International Monetary Fund's Board of Governors in Savannah, Georgia, U.S., March 8, 1946." Source: Wikipedia/IMF. This file is in the public domain.

Saturday 2 May 2015

The Dynamic Duo: Keynes and Mankiw.

"After fifty years of additional progress in economic science, The General Theory is an outdated book. … We are in a much better position than Keynes was to figure out how the economy works."
"How can I accept a doctrine which sets up as its bible, above and beyond criticism, an obsolete economic textbook [Marx's Das Kapital] which I know to be not only scientifically erroneous but without interest or application to the modern world?"
Holy birds of a feather, Batman!

Friday 1 May 2015

Authoritarianism and Revolution? Kumbaya!

Let's suppose it's 11:00 pm of a Sunday. Tomorrow is a working day and you are in bed (you are not in the U.S.).

Suddenly, loud music comes from the street. You look through the window: some white teenagers have a party in the middle of the street.

You ask them to keep it down. They politely refuse: “This is a free country, dude” -- they say. “We have the right to party. You are a killjoy impinging on our freedom.”

You come back into your place and call the police. The cops arrive and order the kids move somewhere else.

Is this coercion? I think so. An exercise of authority? Obviously.

The teenagers refuse, with determination: “We don't accept your authority, dude”.

When the cop tries to handcuff the one speaking for the group (another coercive, authoritarian act), the kid produces a handgun and points it straight to the cop's face.

The cops shoot him and the kid drops dead. The other teenagers look terrified: the girls shriek and cower behind their car; the other boy is petrified. You yourself are shaken.


Now, let’s go over the whole thing just to make sure we understand the situation.

Was the cop using coercion against the kids? Yes.

Was he trying to impose his authority over them? Yes.

Did he use violence and force against them? Yes.

Were the kids terrorised? Yes.


Now, for the big questions: Would you blame the cop for that? Is that your fault, for calling the police?


I'll speak for myself: I wouldn't blame the cop or yourself. You were protecting your peace. The cop acted in self-defence. If the kids had just kept quiet or moved away, as repeatedly asked, there is no reason to believe things would have escalated. If the boy had not produced a weapon, he might still be alive and kicking.


That was just a hypothetical. But if it ever happened, and you were either the cop or the neighbour who called him, you would pray to God the judge is a Marxist, because if the judge were a sanctimonious Keynes-wannabe, you would be in deep shit.

You see, workers (like the neighbour) must not impinge on the freedoms of those who exploit them, because if they did, they would be coercing them and that’s bad.

Workers cannot self-organize against an organized enemy, because if they did, they would be authoritarian (like the cop) and that’s worse.

Workers cannot use violence -- even in self-defence -- against those who use violence against them, because if they did the oppressors would cower in terror (like the surviving teenagers) and that’s just, like, the worst, really.

Yup. All those things are bad, like, totally bad … when the workers do them against the exploiters … only. Workers must appeal to Kumbaya my Lord … Keynes. Capitalists can choose between Lord Keynes or Adolphe Thiers.

Like Engels said:
“Therefore, either one of two things: either [A] the anti-authoritarians don’t know what they’re talking about, in which case they are creating nothing but confusion; or [B] they do know, and in that case they are betraying the movement of the proletariat. (here)

Take your pick: [A] or [B]?


Related Reading:
Social Democracy in The Communist Manifesto. October 14, 2014.