The McAlvany Weekly Commentary has fast become one of my favorite financial podcasts (right alongside Financial Sense) – last week’s episode was another good one. The boys interviewed Hunter Lewis, author of Where Keynes Went Wrong, to discuss the man, the myth, and most importantly – his legacy of justifying central economic planning in the Western world:
Hunter: I want to stress the point you just made, which is that the way the government calculates inflation and unemployment today has changed a lot over time. Some of the biggest changes came during the Clinton administration. If we calculated unemployment the way we did in the 1930s, we would have depression levels showing right now, a lot more than what they are saying, and we would certainly have more inflation showing, as well.
We do have an environment of both inflation and unemployment and that, again, is just the result of these bubbles that have been blown up since the mid 1990s, and they have been blown up, just as you said, by holding interest rates too low, printing way too much money, in an effort to keep interest rates down. A combination of too much money and too low of an interest rate just creates a bubble. Meanwhile, again, the Keynesian economists – and that means most economists – say, “Oh, bubbles are just natural. Bubbles are just part of the market system.” If that is true, why is it we have had nothing but bubbles since the mid 1990s, and we didn’t have bubbles before that for decades? Again, it is just nonsensical to say that these kinds of bubbles are normal, when they are so evidently abnormal, and they are the source of our problems.
David: The business cycle is something that Keynes was not particularly fond of – abolish slumps, and instead, seek to maintain a perpetual quasi-boom, to paraphrase him. There was, in the 19th Century, a period, let’s say between 5 and 10 years, where it was more or less two steps forward, one step back, and a regular, if you want to call it, mini-boom and mini-bust cycle. Nothing deeply catastrophic, but surely painful to those who were on the wrong side of an investment, and those messes got cleaned up pretty quickly, again, in a two steps forward, one step back process. Keynes’s response was, “No – perpetual bliss.” And wasn’t his view really that of a utopian?
Hunter: Absolutely. As in any other utopian thinking, it just doesn’t make sense. It doesn’t recognize reality. The truth is that mild recessions are the price you pay for avoiding deep recession. When you try to eliminate mild recessions, as Alan Greenspan did, and Bernanke did, all you do is create the kinds of problems we have today.
It’s a great listen, especially for those who would like a brush up on Keynes’ philosophy. You can listen to the podcast here: The Final Days of the Keynsian Utopia: An Interview with Hunter Lewis.