Just finished Keynes' General Theory, am now onto this book about a correspondence between Hayek and Keynes (Edited by Bruce Caldwell, Volume 9 of the The Collected Works of F.A. Hayek)
Brings us slap dab back to the question of savings. Yesterday I wrote a rather polemical post about Greg Mankiw-my larger gripe is that while he is allegedly either a "Keynsesian" or some kind of "New Keynseian" I just can't find the beef, so to speak, where is the Keynses in his New Keynsesianism?
Recently Mankiw has come to attention by a post he wrote about a paper that's supposed to show how a supply side stimulus can work.
"This paper examines how supply-side policies may play a role in fighting a low aggregate demand that traps an economy at the zero lower bound (ZLB) of nominal interest rates. Future increases in productivity or reductions in mark-ups triggered by supply-side policies generate a wealth effect that pulls current consumption and output up. Since the economy is at the ZLB, increases in the interest rates do not undo this wealth effect, as we will have in the case outside the ZLB. We illustrate this mechanism with a simple two-period New Keynesian model. We discuss possible objections to this set of policies and the relation of supply-side policies with more conventional monetary and fiscal policies."
For the Vox paper itself http://voxeu.org/index.php?q=node/7258
Krugman gave it a rather cursory dismissal yesterday.
What really got me going though is this piece Mankiw actually wrote a few years ago but he has left in his collection of "timeless blogs." In it he was arguing for a $1.00 gasoline tax. This is back when he had just left as Chairman of Bush's Council of Economic Advisers to work for Romney's presidential campaign-some pretty interesting bosses for any kind of Keynesian to work. This passage particularly arrested my attention:
"Public finance experts have long preached that consumption taxes are better than income taxes for long-run economic growth, because income taxes discourage saving and investment. Gas is a component of consumption. An increased reliance on gas taxes over income taxes would make the tax code more favorable to growth. It would also encourage firms to devote more R&D spending to the search for gasoline substitutes."
Yes we would never want to discourage savings-which Mankiw makes sound as if it's indistinguishable from investing, when in reality savings is one thing, investment is another-we'd much rather discourage consumption that's what any real Keynesian wants.
Now I'm reading Hayek (chapter 2, pg. 74 "The Paradox of Saving) and he is complaining that under-consumptionist theory "has found a greater popularity in quasi-scientific and propagandist literature than perhaps any other economic doctrine hitherto, fortunately it has not succeeded as yet in deriving saving of its general respectability, and we have yet to learn that any of the numerous monetary measures intended to counteract its appositely harmful effects have been put into practice. On the contrary, we have recently witnessed the edifying spectacle of a World Savings Day", on which central bank governors and ministers of finance view with each other in attempting to disseminate the virtue of saving as widely as possible throughout their respective nations. And even though there are those who demand and increase in the currency on the grounds that there is an increased tendency to save, it is hard to believe that the presidents of central banks at any rate will prove very ready listeners."
He wrote this back in 1931. Today though he would not feel out of place as we live in a time when every day is World Savings Day. Which if fine, I mean people can eat edification right?
Hayek's words also remind me of a discussion I had on the comments section here at Diary of a Republican Hater early Sunday Morning Joao Marcus who did give me a very interesting paper about the gold standard and its cause of the Depression-so the paper argued.
I liked the paper and told him that but I also pointed out that the monetary view is not as anti government as it likes to think. After all if the failure of monetary policy gave us the Depression, what they are actually asking for is more government not less though on the monetary side. For my part, like Krugman, I'd be willing to take either right now.
Hayek and his Austrian School on the other hand are the ones who can claim to be consistently laissez faire-they are against government activism on either the fiscal or monetary side. Hayek is a true delfationist and believed in the lidquidationst answer to the Depression. He truly argued do nothing let prices continue to fall and everything will at some point be fine. As Keynes once said, in the long run we are all dead.