The Eater of Children

The EU's monetary and economic affairs commissar Olli Rehn is concerned that his reputation as the enforcer of austerity gives the wrong impression about the true nature of Olli, deep down. As the NYT reports, he wants to 'peel off' the label that has been stuck on him. One very big concern of his is to avoid the impression that he is somehow not a Keynesian.

 

“The European Union's top economic policy maker and scourge of debt-fueled budget deficits, is fed up with austerity. Or at least with being tarred by a term that "is clearly used to label somebody as an unworthy person who is almost eating children."

With more than 26 million Europeans out of work and the economies of the 27-nation bloc shrinking over all for six quarters in a row, Mr. Rehn, the commissioner for economic and monetary affairs, has become a lightning rod in recent months for swelling anger across Europe against the harsh belt-tightening policies generally known as austerity.

But in an interview, Mr. Rehn, 51, described himself as a "doctrinaire agnostic in terms of economic policy" who has read and found much of value in the writings of the British economist John Maynard Keynes, whose name is synonymous with the idea of economic stimulus in times of crisis.”

 

(emphasis added)

The NYT's Krugman fan club must be breathing a sigh of relief at this revelation. The austerity enforcer is a Keynesian after all! We are not surprised that Rehn finds “much of value in the writings of the British economist” there are barely any bureaucrats/politicians in the world who don't. After all, Keynes provided them post facto with the intellectual justifications for their disastrous interventionist policies in the 1930s, which have been used to defend interventionism ever since.

 

 

 

 

 

 

Why They Are All Good Keynesians

As Keynes noted quite openly in the foreword to the German edition of his 'General Theory':

 

“The theory of aggregated production, which is the point of the following book, nevertheless can be much easier adapted to the conditions of a totalitarian state [eines totalen Staates] than the theory of production and distribution of a given production put forth under conditions of free competition and a large degree of laissez-faire. This is one of the reasons that justifies the fact that I call my theory a general theory. Since it is based on fewer hypotheses than the orthodox theory, it can accommodate itself all the easier to a wider field of varying conditions. Although I have, after all, worked it out with a view to the conditions prevailing in the Anglo-Saxon countries where a large degree of laissez-faire still prevails, nevertheless it remains applicable to situations in which state management is more pronounced. For the theory of psychological laws which bring consumption and saving into relationship with each other, the influence of loan expenditures on prices, and real wages, the role played by the rate of interest—all these basic ideas also remain under such conditions necessary parts of our plan of thought.”

 

(emphasis added)

Keynes correctly remarked that the Anglo-Saxon tradition of economic and political liberalism (in the classical sense) had never taken root in Germany. It was supported by many in Germany in the 1840s to 1870s, but increasingly suppressed and superseded by mercantilist and socialist ideas, which were ultimately adopted and brought to their logical conclusion by German nationalism. By the time the 'General Theory' was published in Germany, the Nazi dictatorship and its Zwangswirtschaft (literally: 'coerced economy') were already fully established. Liberal ideas had been completely eradicated in Germany. 

Ironically, the hoary inflationist ideas of the chartalists (and their preeminent theorist Georg Friedrich Knapp), which Keynes supported and heartily recommended, had already been fully implemented during the early years of the Weimar Republic and brought utter economic ruin to Germany. And still the Germans were willing receptacles for the witchcraft clothed in pseudo-scientific jargon that Keynes peddled.

No government wants to relinquish the ability to inflate money and credit and the ability to spend more than it takes in. Almost every government remains convinced of the correctness of mercantilistic doctrines (a trade surplus is 'good', imports are generally bad and must be suppressed), in spite of the lip service given to free trade. It is only the pressure from industry groups that keeps the commitment to free trade intact; it nevertheless goes against the grain of what politicians and bureaucrats generally believe, as is proved day in day out by a plethora of evidence. Protectionism remains a 'populist' policy. It remains popular because most people don't realize how injurious it is to their own interests. Lastly, no government wants to admit that an unhampered free market economy would be better suited to the goals it officially wants to attain than various forms of central economic planning and interventionism. After all, if not for interventionism, there would not be much for governments to do. Their current bloated size could not possibly be justified in a true free market economy.

In fact, there would be no job for someone like Olli Rehn. An unhampered free market economy obviously would have little use for a 'monetary and economic affairs' commissar. His job after all is to hamper it. Therefore we do not doubt for a second that he means it when he says that he sees 'much of value' in what Keynes wrote.

As regards his role as the enforcer of austerity commitments: let us not forget that it was the financial markets that forced governments to think about reducing their spending and reviving the limits of the Maastricht treaty. They would never have done it without such pressure.

 


 

Olli

EU monetary and economic affairs commissar Olli Rehn: Don't worry mates, I'm a Keynesian too.

(Photo credit: AP/Yves Logghe)

 


 

 

 

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