Saturday, January 5, 2013

Did Keynesian Economics Win the Cold War?

(This began under another name, in defense of Keynesian economics.)

The policies of the past 30 years have not been Keynesian, no. Keynes advocated a particular type of government intervention — heavy regulation of investment and finance based on a particular understanding of macroeconomics — rather than government intervention in general. I think we can agree that we do not have heavy regulation of investment and finance.

The other side of that is that Keynes did say that the right kind of government regulation can produce positive results. And that, of course, is the problem with Keynesian policies for libertarians. We are in the process of deciding if we are willing to accept that role for government. But I suspect the long-term outcome is foregone; countries that do not adopt Keynesian policies will be out-competed in world markets.

One could imagine a country clinging to pre-Keynesian policies. It would be subject to boom and bust economics. Poorer than its neighbors, it would have to erect trade barriers to keep out the consumer goods of its healthier neighbors. Now—this reminded me of the Soviet Union. During the period 1950-1980, when Western Keynesianism was at its peak, the Soviet Union did erect trade barriers, and its citizens did envy the West.
Could it be that Keynesian economics won the Cold War?

[2012.02.02: On reflection, probably not. It probably had more to do with the corruption or lack of of the respective economic systems. But the rest of the article stands.]

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