Friday, January 7, 2011

Bernanke As Keynes

Prior to his death, F.A. Hayek asked Keynes if he was alarmed at the misuse of his fallacious theories by his various disciples:
His reply was that these theories had been greatly needed in the 1930s; but if these theories should ever become harmful, I could be assured that he would quickly bring about a change in public opinion. (from Hayeks' "Personal Recollections of Keynes and the Keynesian Revolution", pg. 287)
Two weeks later, Keynes died. He never did find the time to turn public opinion around with a snap of his fingers.

Recently, Ben Bernanke was interviewed on 60 Minutes and asked if he was worried about the potential for surprising, rapid price increases following his monetary policies. Here was his reply:
We could raise interest rates in 15 minutes if we have to. So, there really is no problem with raising rates, tightening monetary policy, slowing the economy, reducing inflation, at the appropriate time. Now, that time is not now.
Earlier in the interview, Bernanke insisted that decreases in current unemployment levels would take some time:
The unemployment rate is just not going down. Unemployment is just about the same as it was in mid-2009, when the economy started growing. So that's a major concern. And it looks that, at current rates, it may take some years before the unemployment rate is back down to more normal levels.
You know, it's funny because Bernanke, like Keynes before him, insists he will have the ability to stamp out any ill side-effects of his policies instantaneously. For the one part of his "dual mandate" (low unemployment, stable prices), Bernanke claims omnipotence. But when it comes to his ability to effect any positive influence over the other part of his "dual mandate", he is strangely powerless and must patiently wait for time to play its role in healing all wounds.

One day, Bernanke may only wish he could be so lucky as Keynes as to drop dead before anyone comes begging him to snap his fingers and make the world less crazy than it was before his policies were enacted.


  1. I made a recording of Hayek on Bill Buckley’s PBS show “Firing Line” back in 1977. Hayek said that Keynes’ “The General Theory” was merely an ad hoc theory meant to artificially lower British wages in the 1930s through inflation.

    I sent a 4:45 clip to Bob Murphy who put it up on his blog:

    At some point, the Murphy link went dead and I sent the clip to Greg Ransom who has it at his “Taking Hayek Seriously” site:

    There’s also a link there for the written transcript of the entire show.

    I think this quote is devastating to the Keynesians.

  2. Bob Roddis,

    Thanks for the link. I agree, it is devastating. Then again, we're not Keynesians. Those people do not seem to be born with ears.

  3. In regards to Keynes, Hayek was misled. Keynes was not a man of principle. He would say and do whatever he perceived would suit his interests at the time. Keynes sought to ingratiate himself with authority and power. As an academic from a pedegreed institution he was well placed to achieve his aims.

    Keynes reversed his position on various subjects (trade for instance) without being troubled by the self-inconsistencies he generated. As quickly as he turned he could reverse once again. As previously indicated, the man was completely unprincipled.

    Hayek reports Keynes' comment and he appears to be convinced by it. More than likely Keynes was merely saying what he needed to in order to keep Hayek off his back- mollify potential opposition, prevent a powerful intellectual from mounting a serious critique that would hold him to the fire and pin him down, avoid the loss of influence that would entail, avoid the possiblity of being revealed as a charlatan.

    In the final analysis Keynes was not about to abandon his system, no matter what he may or may not have said to Hayek. Keynes' life was all about seeking influence to power. That made him an enemy of freedom, a proponent of collectivism and big government interferences. In that regard he did not alter a whit. His comments to Hayek were merely cover to develop some more intellectual wriggle room while he waited to see how politics were developing. He was setting himself up to take advantage of whatever situation emerged.


  4. Sione,

    In other words, he was a snake and an a-hole and if a revised edition of The 48 Laws of Power ever comes out, Keynes should play a starring role in some of the anecdotes, right?

    I couldn't agree more!