My General Theory On 'General Theory'
Several Issues ago, I posted my reading list for a self imposed “fall semester” (‘back to school’ - #0618). I’m happy to report that I’ve finished the first two books with a flourish. But now halfway through the third, I’m thinking of dropping the course all together. I love to read, and I love to learn, but I’ll be honest with you, I’m finding John Maynard Keynes’ “The General Theory of Employment, Interest and Money” practically unbearable.
It’s not because there are typos in almost every paragraph (there are), and it’s not because the publisher (Classic Books America) didn’t correct the footnotes and comments to attribute proper page numbers (they didn’t), and it’s not even because he glosses over many issues as if I’ve memorized all his other works (he does), it’s because I have a hard time listening to people who practice what I call “Egotistical Engineering”. It’s the act of declaring yourself knowledgeable enough of a system such that you think you can control the variables.
Case in point; I believe what happened in New Orleans in 2005 wasn’t a natural disaster, it was a man-made one. Scientists and engineers studied the laws of physics and the nature and effects of weather, pronounced themselves experts and convinced a community they could provide reasonable assurances to their safety. We wanted to live there, so we did. We knew a hurricane like Katrina was a possibility, but minimized it’s probability, and, like Icarus, our hubris took over and we flew too close to the sun.
The biggest difference between most of the Economics books I’ve read and that of Keynes, is that the classical economists seem focused on trying to understand the system in order to predict outcomes. Keynes seems focused on the possibility of manipulating the system to elicit results. His intent seems to be proving that we CAN influence economic principle to the benefit of humanity, without questioning if we SHOULD or even exploring the question of what defines a benefit to humanity.
Don’t get me wrong, I realize that innovation always starts with the belief that there is a better way. But in my opinion, Keynes throws too much scientific analysis out the window in his rush to explore possible means of social engineering. Complex variables are easily dismissed and grand assumptions are accepted without question as he tries to describe a system as broken mostly due to the fact that the results aren’t to his liking.
For instance, at one point I was left scratching my head as Keynes derided Wall Street for failing to live up to what he apparently decided was its “proper social purpose” to “direct new investment into the most profitable channels in terms of future yield.” Now, I wasn’t there when the Stock Exchange was created, but from what I understand, it was established as a means to add liquidity to the market, not as a tool to assure money was invested wisely.
And this is where Keynes’ writing scares me more than a Stephen King novel, it’s not so much that I question what he postulates, it’s that I fear how easily he passes judgment on his own conclusions. Reading Keynes work, it’s easy to see where people come up with programs like the New Deal, TARP and multiple stimulus bills. But like Dr. Frankenstein, we experiment with raising a dead economy without much thought about whether what we create will be better or worse than what we already have.
The basic principle behind most theories on economics are that things like supply, demand, investment, spending, interest rates, employment rates, and everything else will find their own natural level. But that balance doesn’t care what we want, and it can’t be made to bow to our will just because we desire different results. Every time we tinker with the equilibrium we create even more ripples in the pond.
And instead of finding ways to work with what we’re given we sacrifice natural peace for the artificial promises of a controlled chaos.
Keynesian economics is like building levies in New Orleans. For a while, you can control the flow of the river and beat back the rise of the tide, but eventually that bigger storm always comes. And when it does, I’ll always look to follow those who head the weather more than those who look to control it.