Keynes’ Revenge Best Served Cold

Milton Friedman, in my book, can do no (economic) wrong. In Anatoly Kaletsky’s recent book—Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crises (Public Affairs, 2010)—Friedman and the rest of us “market fundamentalists” can do nothing right.

Following the spectacular collapse of the banking system in 2007-09, a gaggle of commentators came forward explaining how they had known it all along, that the events of the day were preordained by (fill in your favorite villain) greed, sloth, envy; too little regulation or too much. While I personally believe we are still too close to these events to judge for history, it is amazing that so many can look at substantially the same facts and draw such different conclusions.

Earlier this year I reviewed new books from Joel Kotkin and Richard Florida—while often poised in opposition online and on the op/ed pages, I see them as two sides of a similar socio-economic coin.  Kaletsky, on the other hand, is the classic stern Econ 101 teacher who, despite never having run an actual business, loves to lecture us on everything we’re doing wrong. Keynes is his god and we are his subjects.

I tried to keep an open mind on picking up this book, which I did based on Chuck Marohn’s review on Strong Towns blog last winter.  I really wanted to better understand the logic of “quantitative easing”; Chuck warned us it was “a long, hard slog” and he was right. Tho the author is a journalist this is a cold bologna sandwich after the deli delights from Kotkin and Florida.  It’s not just the style that upset my digestion, but the content as well. I suppose Kaletsky would say I’m simple minded for believing the problem was Wall Street Bankers who knew they were too big to fail—that there was too MUCH government involved, not too little.  We can play that blame game all day.

All was not lost in my self-flaggelation with this pedantic tome.  It reminded me to re-read Chuck’s review, where he admitted he hadn’t finished the book with this hopeful prediction:

We’ve used this analogy before because it is a good one: we’re changing from a server-based economy to a web-based economy. Envision the government as an old mainframe server, trying to keep up with the myriad of inputs and complexities that exist in the world today. It simply can’t. A far more efficient model — one described eloquently, if brutally, by Darwin in Origin of the Species and one used brilliantly by the people at SETI and Conquer Cancer — is one of diffused power and decision-making. A highly connected web. Crowd sourcing, if you prefer.

It may be that it’s not too little government or too much.  It’s that we have an Old Economy government mucking about distorting markets in the on-the-ground New Economy.  No matter what Keynes might say from beyond the grave.



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