Robert Lucas

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More Uncertainty

Actually, now I think more about it, how can we ever have ‘more’ uncertainty? The massiveness of our lack of knowledge about the future surely reduces that word ‘more’ to trivial irrelevance.

As the wise G.L.S. Shackle taught us: anything beyond about ten years into the future is so opaque as not to exist at all other than in our imaginations. Which is why all business has to accommodate itself within the narrow future. Anything other than the short term is not worth the risk. Or, rather, we ought to leave such risks to the body politic which has the greatest ability to absorb the loss caused by error.

The basic state of nature is that it hides from us what its unfolding will produce. We simply cannot know. People who state otherwise are fooling themselves and are blind to reality. They have substituted some form of faith for acceptance of our real condition.

I think it was Frank Knight who cut to the chase of the problem: we need to predict the future in order to conduct our lives within some recognizable pattern. To predict the future we depend, explicitly or not, on its similarity to the past. But the very fact we need to predict the future suggests that we are aware that it will be different from the past. So we are caught in a paradox. If the past and the future are the same we need no prediction. We simply need memory. We need not concern ourselves at all with change. Yet we observe change. And the very existence of change invalidates, at least in part, our reliance on the past as knowledge about the future.

Much of modern economics exists in an alternative world where none of this interferes with the perfect, clockwork like, working of allocative logic. To economists in that tradition an economy is a mechanism for allocating resources and the entire problem is fully specified: there are no uncertainties whatever. Around the edges of their theories it might appear that they have acknowledged their deviation from reality, but at the central core of their work there still persists a leap of faith that dooms them to be forever disconnected from an actual economy.

And Robert Lucas is hopelessly wrong when he argues that economic reasoning has no value whenever uncertainty prevails. Perhaps his doesn’t, but proper economic reasoning, that is to say economic reasoning that bends itself to the centrality of uncertainty, is of great value because it helps us explicate and inform policy to mitigate uncertainty.

Plus it allows us to perceive an economy as more than a simple, mechanical, allocative machine. It is also a discovery device. It is a source of novelty. Uncertainty engenders responses such as innovation, risk taking, and exploration. Those things are a source of enrichment and the accumulation of knowledge.

It is also critical to remember that the growth in knowledge is itself uncertain. We cannot prove either the truth or falsity of what we claim to know with any certainty. We are doomed to live in perpetual, and to some disconcerting, doubt. But it is precisely this doubt that propels us to uncover new knowledge.

It is also this doubt that ought ensure we excise due care in the construction of social policy. Since we can never know for sure what the impact of a policy is we need to proceed cautiously, acting boldly only where we see the damage of uncertainty being potentially greatest.

The failure of the great libertarian economic agenda of the last thirty years is due exactly to its lack of admittance of uncertainty. Those who advocated great programs of deregulation, fiscal shift, and trade liberalization made claims of certainty with respect to the outcomes of those programs. They defied reality. They ignored the limits of their own knowledge and foisted the consequences of those limits onto the rest of us. Many of them had a scarcely hidden political agenda to upend the safety and progress of the post-war middle class. Others, though, believed, with an unbecoming fervor, in the cause of ‘free-market’ economics. They, because they admit of no uncertainty, saw no need to provide continuing protection against the vicissitudes of life. For them it was a matter of creating sufficient incentives and allowing people to make their own plans about how to deal with what they regard as the simple calculations of life. Not only did they deny the existence of potentially damaging unknowns, they even denied the existence of limits on our ability to understand, and to handle, what we do know.

The tragic consequences of their cynicism and hubris are what we see around us in the dysfunction of the economy, growing inequality, environmental degradation, and the disconnection of our economic leadership from the realities faced by everyday people.

The great irony of this is that the false system upon which they based their policy advice, the system that failed to acknowledge limits and the uncertainties we face was based on a series of conjectures they call, collectively, ‘rational expectations’. It is a system which, in its defiance of reality, also defies reason. Thus it is the very epitome of irrationality.

So, perhaps, we can admit of one certainty: they were arrogant fools. And, perhaps another: we must ignore them henceforth.

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Mind the Gap

I wonder when economics will reconnect with modern thought. I wonder, for instance, when economics will take on board contemporary theories about real human behavior and jettison its antiquated and utterly unreal notions of rationality.

Not that I will hold my breath.

One of the great planks of orthodox economics is its odd fascination with rationality. It fixates on it as if it had anything to do with the way in which real people make their decisions. It doesn’t. It is a perversion of what actually goes on.

But it makes the math more tractable. And as we know from Robert Lucas: economics is simply math. Well he didn’t quite say that. He said that the only economics worth a lick is that expressed and theorized as math. Since human quirks and self-contradictions make math a tad difficult if not impossible, economists in the Lucasian tradition simply ignore real humans and invent a new species more compliant to the needs of economics-as-math. In order to pull this neat trick off those economists have had to invent their own psychology, sociology, anthropology, biology, and so on. They have had to ignore all those subjects otherwise. So, for instance, advances in psychology are reflected nowhere inside economics unless they undergo a “fitness” test. With “fitness” being an attribute that ensures total compliance with the prior regime of rationality.

Yes, I know that behavioral economics is a hot topic nowadays. It is revealing just how little economists knew about people – the gap is embarrassing, but so far the Lucasians have managed to ignore that gap and, instead, plod along in their imaginary world.

That world is one where their totally fictions and laughable micro economic theories supply a foundation for their consequently ridiculous macro economic theories. There’s no way around it: modern orthodox macro theory is constructed in mid-air where it is safely sealed off from contamination by the real world.

Meanwhile down here in the muck and mire of human interaction, where what real people actually do matters, we all ought to be very mindful of that gap.

You know the one: the gap between reality and the market magic that so obsesses most economists.

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Ethics, Politics, and Economists

You may have seen the article in the New York Times referring to the discussion within the economics profession about ethics. Or rather the apparent lack thereof. There has been an outpouring of commentary within that part of the blogosphere devoted to economics, so I thought I would add my own and personal perspective.

Almost alone amongst the social sciences economics has no professionally determined code of ethics. This is odd since the subject prides itself on its contribution to social welfare via its theorizing and subsequent policy recommendations. Economists have a disproportionate impact on the lives of their fellow citizens precisely because of the subject matter. Economic wellbeing is a vital topic for everyone. The recent crisis and the policies put in place to lift us out of it are testimony to the impact the ideas of economists can have.

So you would think that the discipline would be careful with its theories, and make sure that they were efficacious, sensible, and socially productive.

Not so.

True to the market magic roots of the dominant form of economics, what I call orthodoxy, its practitioners see no need to have an organized policing of their activities. The cut and thrust of competition, and the scientific notion of replication of testing are presented by many as sufficient restraint on wayward behavior. Robert Lucas is quoted in the NYT article giving exactly this reason for the lack of need for a formal ethical standard. Economics people like him argue is a science not a technology, and thus those who make policies based upon its ideas should take care themselves if they engineer society based upon Lucasian or related theory. Caveat emptor rules the day. These same folks have no interest in a collective responsibility for their subject. Why would they? Their most cherished assumption is based upon the concept that individualism is paramount. Thus to them a collective or group exercising authority to restrain unethical behavior is an unnecessary intrusion into the private world of the individual. For them ethical standards begin and end with the individual, not with a group.

They thus elide responsibility for their group. That the world was plunged into the abyss because politicians and bankers put orthodox economic ideas into practice is not, apparently, an ethical consideration. Nor is the need to reveal potential conflicts of interest individual economists may have when being asked to render a professional opinion.

So economists are free to give opinions, which they do with abandon; they are free to write popular books examining everyday topics through the often jaundiced and simplified lens of orthodox economics; they can join boards; they can go on television, write editorials, engage in debate, and otherwise seek to bend the real world to conform to their theoretical constructs; and above all, they can seek to profit from their theories by engaging in business either directly, or as consultants, all without ever revealing their prior connections, entanglements, or other involvement.

In short they can come and go from their mountain top without ever having to explain themselves fully.

I take deep issue with this.

Aside from the more mundane need to reveal sources of funding and other potential conflicts of interest that may or may not distort an economists research agenda and advice, there is the matter of the impact economic ideas have on the common good.

Doctors are enjoined to do no harm.

Economists are free to do as much damage as they like. One of the most worrying trends of the last three decades has been the total commitment of orthodox economic ideas to supporting a generally right wing political agenda. This may be unwitting. It cannot be unnoticed. Only the most blind of professors could have ignored the incessant anti-government rhetoric, the attacks on regulation, and the attempts to undermine the social safety nets put in place during the years of Keynesian hegemony. It is a nice but specious distinction to argue that such attacks are simply the result of an improved theory. It is convenient to overlook the ideological taint that permeates such theory, but the surely taint exists.

Some economists complain that non-orthodox economists are too invested in left of center politics. It may well be true that some heterodox economists are not exactly friends of the Republican party. But that merely shifts the question it does not answer it. Heterodox economists are not those claiming scientific status. They are not claiming to be “positive”. They, mostly, recognize the intractable connection between politics and economics. It is the orthodox, the market magic folks, who make such claims and thus hide their ideological roots beneath the skirt of scientific righteousness.

So as the debate about ethical standards roils on I feel foolish to have to point out that ideas have consequences. This is hardly a revelation. But to hear people like Lucas speak you would think it is shockingly new. For someone with his stature to belittle the need for the discipline to act with the utmost care, and to enforce even a simple standard of ethical behavior, is in my opinion, a dereliction of duty. He teaches his ideas to future leaders of business and politics. He has a responsibility to ensure that those ideas do no harm. He may well think they conform to that standard. I disagree. They are failed and destructive. To me that disagreement lies at the heart of the discussion. To perpetuate failed ideas; to prolong the damage they can do; and to seek to influence young minds without reflection on the failure of those theories is plainly irresponsible.

To admit of no error is not human. Nor is it sound science.

As a minor part of the community, I say: stop.

Ethics deserves a discussion.

Economics requires a standard.

We may disagree on many things, but we should agree to do no harm.

I hope Professor Lucas relents and engages more fully in the discussion. He owes that much to the subject.

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Its Official! The Recession’s Over … Yawn.

Hang out the flags. Set off the fireworks. The recession is officially over. Whoopee. The National Bureau of Economic Research says so. In fact, by their count, the recession ended in June 2009.

There, don’t you all feel better?

Not really.

The “Great Recession” was officially 18 months long, making it a full 2 months longer than the slumps of 1973/1975 and 1981/1982. Those two recessions were doozies and unemployment surged in both. Banks shuddered. Businesses lost money. Shops were closed. But neither felt like this last one. The reason being that both were followed by decent recoveries. Obviously I have a personal gripe about the 1973/1975 slide since its aftermath was sufficiently meandering to set the stage for the Reagan takeover and all the deterioration in our economy that his slippery illusion has implied.

Still, here we are, on the other side of what history will record as the worst slump since World War II. We are edging slowly away from the abyss. So slowly that many of us cannot tell the difference between being in recession and being in recovery. But let’s not be churlish: we should acknowledge that we are afloat and not sinking. At least those of us still gainfully employed. As for those other folks …

If you are someone who believes in market magic, let’s say you were schooled in textbook economics, then the slump has failed to clear out the dead wood sufficiently for the recovery to be robust. In particular you are really annoyed that wages have not dropped low enough to make it attractive for businesses to hire workers in droves. For you magic lovers the lunacy of government intervention has prevented the market from solving our ills. This slow growth is a direct result of that persistent and foolhardy intervention. If only, you mutter to yourselves, unemployment had reached 20%. Whatever it takes. Maybe 25%, like back in the good old days of depression era economics. Back when workers took their medicine like the undeserving ingrates that they are. Silly things like the minimum wage have stopped the market from “clearing”. Demand for workers is too low only because – you suggest – wages have failed to drop to a market clearing level. Then there’s all those payroll taxes imposed by the silly politicians who seem to think we should set aside cash for workers retirement. Phooey! If workers cannot save for their own retirement they should starve. That’s what the market says. And you believe the market magic myth.

It helps if you are a tenured professor when you articulate this myth. That way the slump never actually gets too close to the comfortable surroundings within which you pursue academic freedom.

But that’s another story.

No one ever said that hypocrisy and academia were not entwined.

Meanwhile those of us who base our economics on reality, and not magic, see it very differently.

We see the entire problem as one of insufficient demand. There are no jobs because businesses are being very sensible. They aren’t hiring until they can expect to make a profit from the labor of those new workers. Until business expectations turn more optimistic unemployment will persist. So the central aim of government is to stoke the economy in order to boost expectations. Once we get the engine rolling it will take off on its own and we can withdraw our support. Since the taxpayers are the ones who benefit from the growth in the economy, they get new jobs, pay raises, and all sorts of other neat stuff, it is not unreasonable for them to chip in up front and pay for the necessary boost to get the engine going. They chip in by taking on the responsibility to pay back the debt the government issues as it primes the pump.

Its a perfect example of “we the people” taking responsibility for our own welfare. Its also reality. It also is an affirmative rejection of the notion that “we the people” have to get hammered before we react to the mess that the bankers made.

We are grown ups. We will fix our own mess thank you. We do not have to wait for the market fairy to awake and wave her magic wand.

I am always astonished at how many good people grow up to reject the idea of Santa Claus or the Tooth Fairy, yet still cling to the Market Magic Myth.

It was always a made up story designed to keep the workers supine. The suffering inflicted by the depressions of the 1800’s and that of the 1930’s was turned into a punishment for the ills of the laboring class. It was converted into a parable about the “natural workings” of an economy. The story telling reached its apogee in the arcane and obscure pages of academic economics. Generations of workers were told that the decentralized mechanisms of the free market produced wealth for all. They would get a share of that wealth if only they obeyed the workings of the mechanism. Sometimes that meant hunkering down and starving as the market sought to work its magic and locate a new wage level. That new level seemed always to be lower than the old. But hey, there were new jobs in new places if only you all were willing to take that new wage.

This was the essence of the myth that became modern economic theory. In the hands of people like Schumpeter – he of the “gales of creative destruction” – and then the postwar wave of right wing theorists like Friedman and Lucas, economics became an apologia for naked capitalism. It gave up the pretense of being a science. Instead it contented itself with a justification of a particular form of economic activity.

Nowhere, and I mean nowhere, is there a scientific argument that free markets work to the benefit of society. Nowhere is there a body of scientific proof that central planning is worse than decentralized planning. On the contrary. You may be shocked to hear that during the 1930’s a great debate raged within economics between those who argued central planning was at least as efficient as capitalistic decentralized planning. The argument became known as the “Socialist Debates”, and engaged some of the most famous thinkers of that time. Oscar Lange defended socialism, while Hayek and von Mises defended capitalism. You might be even more surprised to hear that it was generally agreed that the socialists won the debate. There is no proof to support the contention that markets are better at anything. There never was. There was simply assertion and assumption. The victory was hollow. Poor Lange lost on points because of the horror of authoritarianism in Nazi Germany and then in the Soviet Union. That horror so tainted the discussion that postwar economics in the West became single mindedly pro-market, even in the absence of proof.

Back in the 1930’s it was Keynes who acted as the bulwark. He provided the realist view that saved capitalism from its own doings. He saw that the magic was a myth, and argued for a realist intervention in order to prevent the carnage that an imploding market can inflict on the workforce. By mitigating those effects he realized that he could stabilize democracy and allow the middle class to flourish.

This is, of course, nothing new to you. I bring it up because the Great Depression acted as an inflection point. The great debates back then were left incomplete and the proofs were never provided. Keynesian economics prevailed for three decades. It was only when the 1973/1975 recession seemed to disprove Keynes that market magic theorists like Friedman were able to get back into the discussion. With voters disillusioned by the oil shock and the falling away from the heady postwar growth rates of the 1950’s and 1960’s, it was easy to turn their heads back to the capitalist side of the 1930’s debate. Only this time, the Cold War ensured that there was no socialist or centralized side in the discussion. The debate was entirely one sided.

I think, perhaps, that our Great Recession is another inflection point. It is time to redress the one sided nature of the debate and ask simple questions of the magic believers. Questions like: where’s your proof?

I think of the last thirty years as a great experiment. The economy has been managed, by Republicans and Democrats alike, along free market lines. Regulations have been limited and reduced. Taxes have been cut. Welfare has been gutted. The minimum wage has been held down. Laws protecting trade unions have been eliminated or neutered. The list goes on. It may shock you to learn that it took a personal call from Milton Friedman to the SEC in order to persuade that body to allow the establishment of options trading. Up until his call the SEC saw options trading as a form of gambling. Friedman’s reputation was sufficient for them to open up trading. The derivatives melt down of 2007/2008 was thus a direct heir to his theorizing. It was his set of ideas that underpinned the financial collapse. To Friedman and magic believers derivatives are a way markets mitigate risks. Realists see them as gambling.

The experiment failed.

We now have the proof.

Then again, we always did. Ask any CEO whether they believe in free markets and they will respond with a resounding “yes”. Just as long as we retain patent laws; copyrights; restrictions on unions; import quotas where “necessary”; subsidies for agriculture; price supports etc. And just so long as they can establish centralized strategic plans to guide their businesses.

In other words not one CEO truly believes in market magic. Not one. They all run their businesses along centralized planning lines. General Motors is not a free market. Nor is General Electric. Apple. Microsoft. None. They are centrally planned mini economies.

In fact more economic activity in America goes on within the safe harbor of corporately constructed centrally planned economies than takes place in supposedly free markets. Even the OECD, hardly a socialist haven, supports that observation.

Now I am not going to support socialist economics. I find it fails too. But we must be more realistic about the economy in which we operate. We need to recognize that the free market experiment failed. It was always going to fail. It was based on ideas that were incomplete or highly tailored to the 1930’s. In the hands of ideologues masquerading as economists it became twisted. Economics was conflated with politics. It became the American state religion to argue that unfettered capitalism was the only economic system to believed. And like all state religions it turned from being believed, to being revered, to being enforced without thought.

We forgot why the debates of the 1930’s took place. And we forgot that neither of the two sides was correct. Keynes was. And he was in the middle.

I hope we can forget the extremism of the free market magic myth, and return to practical realistic economics. There are jobs depending upon it. Indeed, our respective futures do.

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Class Conflict?

It is taboo in America to talk of “class” as if it doesn’t exist. Of course it does, we just don’t like to admit it. I say this because so much of the current crisis seems to have class-like connotations, and more commentators are arguing in ways that indicate they agree.

A case in point is the recent article in The Nation by Joshua Clover – thanks to Phil Cunningham for pointing it out to me. James Kwak at The Baseline Scenario posts a parallel article. Finally Tony Judt, the historian, devoted almost his entire book “Ill Fares The Land” to the increased separation within American society.

The common theme that all three of these writers is their focus on the enormous shift in wealth that the last three decades have wrought. This shift was no accident. It was deliberate, and orchestrated by those who benefitted most. That they were enabled and assisted with enthusiasm by middle class Americans who have been left much worse off remains a mystery in need of thorough explanation.

The facts are clear and well known: wealth has been systematically concentrated by the very upper tier of wage earners, and by corporations whose policies and activities are, in general, dictated by that tier. The professional elite took full advantage of the tax regime put in place by Reagan and then modified by Clinton and the two Bush’s to secure their income stream. They also were the best positioned to exploit the deregulatory environment that has been the predominant governance structure since Reagan also. Pay scales were twisted towards the upper echelons, and those infamous bonuses in banking poured riches into the hands of a very few. A new privileged generation was created, and they are defending their privilege fiercely and astutely. Any talk of class warfare is squelched immediately as “un-American”. The only folks who benefit from dismissal of such talk are those who have the wealth. The rest are left to their anger and increasing sense of disconnection from the old “American Dream”.

I have hammered this issue recently, so I won’t repeat myself except to say that I think that the imbalance in wealth that now is so pronounced within American society is a major, if not the major, contributory factor in our crisis.

That no one on the left in politics has roared against the injustice being done is testimony to how thorough the ideas of the right have taken hold: even our media and academic elites are entrapped by the illusion. Further, politicians of all stripes have succumbed to the money that the power brokers can throw into elections. We have so many elections that the ability of a politician to resist the cash is reduced to zero. Members of Congress are now devoted to fundraising rather than governing. Senatorial races are so expensive that even the six year cycle is not long enough to allow for sufficient fundraising. Our Senate is fast becoming – if it is not already – a rich person’s club. It is no wonder that the banks and big corporations have disproportionate influence. They are the ones with the deepest pockets.

This theme will only loom larger as the wealthy attempt to stave off a return to the better balance of the 1950’s and 1960’s. They stand to lose a great deal, they will not go down without a fight.

But that’s no news.

My point today is to illustrate the gulf that now has opened up in our society.

I was fortunate enough to spend much of the summer this year in Dorset Vermont, a town characterized both by its physical beauty and its comparative wealth. Home prices in Dorset are established by the flood of money from New York City and Boston. True Vermonters cannot afford to live there. The locals are reduced to living on the periphery and providing the services needed by the largely absentee property owners: they mow lawns, clean homes, and shovel snow. They run gift shops and take care of the golf courses. In other words they ensure that the property owners can enjoy their privileges with ease.

This arrangement is two edged. The locals certainly benefit from the jobs generated by the influx of cash. But they are priced out of the community. The town is beyond them. Discontent lurks very close to the surface, and can easily be detected in conversation. While New Englanders are not exactly known for their warm embrace of outsiders, the situation has become more acute as more and more of the town is devoted to large and expensive homes that are occupied only occasionally. My own observation is that most of the homes on one prestigious street are used by their owners once or twice a summer. One at least seems to be simply a Labor Day retreat. The luxury implied by the ability of an owner to use a very expensive home a few days a year is the point to be driven home.

Inequality has always existed. And it always will. But not for decades has the distortion been so great that we have enough families to own enough towns like Dorset that they can reduce so many others to a support function. In the old days the folks providing the services were tied to a family. They were servants. That they are somewhat less closely tied nowadays simply means we can avoid calling them servants. They are now the service economy. But they are just as dependent. They are just as incapable of experiencing the life of luxury as the servants of yore. It is no accident that the majority of jobs generated in the recent past have been in these low wage service functions. The middle income layer has been stripped away either through global shifts to low wage nations, or through the destabilization of “flattened corporate hierarchies”. We have no middle management anymore, so we should not be surprised to have fewer middle income wage earners. In each case – globalization and lean management – the benefits flowed to profits and those with professional skills. Those left at the top of the now narrower pyramid received a disproportionate share of the increase on social wealth created. They used their advanced educations to “rent seek”. Which they did with a vengeance.

That this is now America and is not worthy of commentary is my issue. The division exists and is opening up. Eventually, as it always has in the past, it will breed a backlash. I believe the Tea Party challenge to the Republicans is part of that backlash. Anger is rising. It needs to be well understood and not dismissed.

One last thing: both Joshua Clover and Tony Judt point the finger at Hayek. I would add von Mises, Berlin, and Popper as well. As Judt articulates there were a number of Austrian born theorists back in the 1930’s who devoted their analysis towards a justification, and spirited defense, of a liberal worldview. That they overcompensated in their zeal is easily understood: they were embroiled in a passionate defense of capitalism and democracy in the face of the apparent success of communism – in the Soviet Union – and fascism – in Germany and Italy. During the 1930’s the depression and the manifest failure of capitalism represented a true existential threat to the liberal conception of society. Hence the works of Hayek and von Mises in economics and Popper and Berlin in philosophy. Most postwar neo-liberal economics can be traced back to Hayek or von Mises as reinterpreted by Milton Friedman and Robert Lucas and their cohorts at the University of Chicago.

I can excuse Hayek and von Mises for their mistakes. They were made in a good cause as they fought to save the liberal worldview from the extremism threatening the West back then. I cannot excuse Friedman et al since they were under no similar existential threat, and had the opportunity to see the benefits that the greater income equality of the immediate postwar years had brought to America.

That greater equality was a result of one major idea: that the government can, and should, play a positive role in society by ensuring all its layers of income earners prosper and derive benefit from the productivity increases brought about by technological advance. This idea was best articulated by Keynes whose work both Hayek and von Mises attacked with vigor. They failed to appreciate that capitalism requires limits if it is to not to be antithetical to democracy. Untrammeled capitalism runs headlong into the democratic ideal. Why? Because capitalism is essentially elitist. It inevitably concentrates wealth. Not just in the hands of the successful, but in their offspring. It creates class structure through time. Democracy, in direct contrast, is egalitarian. It presumes a degree of equality. It degrades class, and presumes opportunity is available to all. By involving everyone it inevitably ends up redistributing wealth through social programs and entitlements.

So democracy and capitalism collide in their extreme forms.

It is only when both are modified that they provide mutual support. Capitalism only survives when the middle class benefit from it. Democracy only survives as long as inequality remains within bounds and there is some engine for the provision of greater wealth.

It was Keynes who saved capitalism from its failures in the 1930’s. He insisted on it being limited. Hayek, von Mises, and their later followers reviled and ignored Keynes by insisting on its purity. Their’s was an idealism born of zealotry. It was decoupled from history and reality. It was easily co-opted by the elites for their own ends. It provided an easy story to tell. And it fitted nicely with the pre-existing American mythology of the rugged individual. The Keynesian message was too pragmatic and failed to resonate with voters during the sharply defined Cold War era. Americans sought, and then fell for, an ideal that could not produce its promise in the uncertain and flawed environment of the real world.

Just as the rugged individual was never real, nor was the free market and its supposed cure all qualities.

But by choosing the myth Americans have undone the great leveling that created the wellbeing that characterized the postwar years. The middle class was complicit in its own downfall.

So now we have rampant capitalism and weakened democracy just as Keynes would have predicted. That the two great liberal ideas are now in conflict does not augur well. They need reconciliation. We need to throw out the rotten purities advocated by Hayek, von Mises, Friedman and Lucas. They were an illusion that generated a class conflict.

Which is something we can do without.

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