One of the few benefits of the global financial meltdown and its consequent government activism is the return of the economics of sanity. Paul Krugman's Nobel prize is excellent news. So is the rehabilitation of Keynes and the resurrection of Gordon Brown.
If Keynesian economics is back in vogue, then it's Friedrich Hayek, Milton Friedman and the laissez-faire Vienna School who are suddenly out of fashion. Yes, the free market Gods have failed.
I particularly liked that last touch about "the free market Gods," which I took as an affirmation that it was faith-based thinking that got us into this mess, just as it had gotten us into the mess in Iraq, not to mention our entire approach to the Global War on Terror.
Regardless of where the vogue happens to be (remembering, as always, those words from The Money Game, by the "other" Adam Smith: "The crowd is always wrong"), I figured that, having just hammered Friedman and (at least by association) Hayek, it was time for me to refresh my memory of John Maynard Keynes; so I turned to the chapter, "The Mandarin Revolution," in John Kenneth Galbraith's The Age of Uncertainty. From Galbraith I was reminded that Keynes' first interest as a student at Eton was mathematics; and it was only at King's College at Cambridge that he fell in with economists. Thus it would be fair to say that his respect for mathematics was as great as any that could be found at the University of Chicago. This led me to wonder what it was about Keynes' path that led to a departure from that Vienna School thinking that would later be embraced in Chicago.
One hint came from a passage that I had marked in my copy of Galbraith concerned with Keynes' activities after the First World War:
Mostly in those years Keynes wrote. Good writing in economics is suspect—and with justification. It can persuade people. It also requires clear thought. No one can express well what he does not understand. So clear writing is perceived as a threat, something deeply damaging to the numerous scholars who shelter mediocrity of mind behind obscurity of prose. Keynes was a superb writer when he chose to try. This added appreciably to the suspicion with which he was regarded.
This passage may be read as a loosely-veiled attack on the cultural influence of Vienna Circle positivism on the Vienna School economic theorists. The fundamental precept of positivism is that pure mathematics (and, consequently, the modeling of logical deduction by pure mathematics) can speak for itself without the mediation of prose, which will always be vulnerable to going "off message" by virtue of less logical devices, such as rhetoric. (Consider, as a historical context, Plato's opinion of the rhetoric teacher Gorgias.) Good writing is therefore suspect because it distracts from those mathematical models wherein "all/Ye know on earth, and all ye need to know" resides. Keynes, himself, was therefore also suspect for turning away from the "direct communication" of the mathematics at his command in the interest of a communication that would serve the needs of readers who were not experts at interpreting the pure mathematics and logic behind the results they supported. At the risk of being overly reductive, Keynes held to the personal conviction that people matter more than mathematics and became a thorn in the side of those theorists who agonized over why people would not willingly do what the models told them was best for them.
This people-based approached would later receive an ironic endorsement through Public Television. In many ways the ideological dispute between the Chicago School and Keynesianism was embodied in a personal rivalry between Friedman and Galbraith. That rivalry came to a head when the televised version of The Age of Uncertainty was being produced. Each "episode" corresponded to a chapter in Galbraith's book but also included an "epilogue," during which Galbraith interviewed a leading economic theorist about the "lesson of the week." Rather like the evil fairy Carabosse in the Sleeping Beauty ballet, Friedman was mightily offended at having been passed by for any of these weekly epilogues and, rather than forcing Galbraith into deep slumber through a poisoned spindle, enlisted his free-market allies to support his own ten-episode television series, entitled, aptly enough, Free to Choose.
For all of the power of that supporting positivist ideology, Friedman launched his series with a gesture that was purely rhetorical. This was because Galbraith had chosen to conclude his argument with a visit to Singapore as a model example of how successful a controlled economy could be. This apparently inspired Friedman to begin his series in Hong Kong, where his first episode, "The Power of the Market," amounted to an apotheosis of the sweatshop mentality, the perfect example of what, during Ronald Reagan's campaign against Jimmy Carter, came to be called the rising tide that would lift all boats. The extent to which those sweatshop workers had been reduced to less-than-human objects (or, to invoke Hayek's metaphor, serfs) mattered little compared to the power of free markets to promote growth.
The Hayek reference serves to magnify the irony. The basic argument of The Road to Serfdom was that excessive regulatory control, shown in the best possible light in Galbraith's analysis of Singapore, would turn us all into a new generation of serfs. What we have seen instead is that free-market thinking has been the ideological standard of the War Against the Poor; and its victims now suffer the serfdom of those Hong Kong sweatshop workers with little hope of rising from the muck. Nevertheless, it would be premature to declare, as Keen did, that "the free market Gods have failed." If they are truly out of the picture (which I find unlikely), then, at best, they are in hibernation, rather like those desert toads that bury themselves underground in suspended animation, only to spring back to life with the first drops of the spring rains (whence come the next rising tides). Even under Keynesianism there will be those coming up with new strategies to "keep the poor in their place" by providing them with new and freshly paved roads to serfdom!