Keynes and the Long Run
Keynes and uncertainty about the the future: about childlessness or philosophical assumptions?
Political economist Robert Skidelsky, in a piece from last week’s WaPo entitled True, Keynes cared little about the long run. But that wasn’t because he was gay, deals with Keynes’ famous phrase in the aftermath of Niall Ferguson’s intemperate comments on the subject.
First, the basic context:
Speaking to an investors conference early this month, historian Niall Ferguson was asked what John Maynard Keynes meant by his famous statement that “in the long run, we are all dead.” In an ad lib response, Ferguson suggested that Keynes’s philosophy reflected the fact that the “effete” economist was gay and childless, and therefore did not care much about the fate of future generations.
Second, the quote in question:
The passage under debate — which comes from Keynes’s 1923 book, “A Tract on Monetary Reform” — discusses what is known in economics as the quantity theory of money: the notion that a change in a nation’s money supply causes a proportionate change in prices. Keynes, whose book “The Economic Consequences of the Peace,” a searing attack on the Treaty of Versailles, had already made him famous, pointed out that “in the long run,” this relationship was “probably true.” But, he went on, “this long run is a misleading guide to current affairs. In the long run we are all dead.”
Third, the issue at hand:
Keynes’s focus on the short run was grounded in the philosophical principle of “insufficient reason.” If individuals have no sufficient reason to believe that a good situation today will have adverse long-term consequences, it must always be rational for them to aim to maximize their short-term good.
What is striking about this is that is generally considered a conservative principle that policies always have unintended consequences and that human reason cannot fully anticipate what comes in the future. Indeed, Skidelsky continues the above passage with a linkage to an essay Keynes wrote on Edmund Burke, the noted conservative thinker:
In an essay on the conservative philosopher Edmund Burke, Keynes translated this moral principle of individual behavior into the political principle of prudence:
“Burke ever held, and held rightly, that it can seldom be right . . . to sacrifice a present benefit for a doubtful advantage in the future. . . . It is therefore the happiness of our own contemporaries that is our main concern; we should be very chary of sacrificing large numbers of people for the sake of a contingent end, however advantageous that may appear. . . . We can never know enough to make the chance worth taking. . . . There is this further consideration . . . it is not sufficient that the state of affairs which we seek to promote should be better than the state of affairs which preceded it; it must be sufficiently better to make up for the evils of the transition.”
This leads to the money graf:
This is the bedrock of Keynesian economics. So Ferguson was quite right to say that Keynes discounted the future — but it was not because of homosexuality, it was because of uncertainty. Keynes would have rejected the claim of today’s austerity champions that short-term pain, in the form of budget cuts, is the price we need to pay for long-term economic growth. The pain is real, he would say, while the benefit is conjecture.
Regardless of one’s views on Keynesian policy recommendations, it is difficult to think the above through and say that it is lacks intellectual foundation or, worse, to attribute it to some notion that Keynes’ lack of progeny was its source.
And for what it is worth, Skidelsky concludes with some partial criticism of Keynes:
Personally, I think Keynes’s view of the future as radically uncertain is too sweeping. Although it is impossible to assign reliable statistical probabilities to specific events — Will North Korea launch a nuclear strike in the next five years? What will be the price of oil in 10 years? — we do have some experience of the likely long-term consequences of bad behavior, and it would be foolish to ignore it. The future is not a random bet.
But in many matters, politicians would be well advised to follow Keynes’s advice and prefer the present generation to future ones. There is only so much pain voters will tolerate. And there is insufficient reason to believe that today’s austerity will bring tomorrow’s prosperity.
That last point is what the debate ought to be about. Too many pretend that pain now equals gain later,when we, in fact, lack evidence to prove that assertion.
A parting note, the phrase “In the long run, we’re all dead” makes for a great line in a rap battle: