Keynes and Hayek and Cycles, Oh My!
Whether after a first glance or a penetrating analysis, the logic of both Keynes and Hayek
often will seem valid to me. But it has always been much more difficult to discern whether
or not their arguments are also sound because the factual bases of their premises remain so
In an economic environment at equilibrium, our default bias might rest with Hayek insofar
as his approach resonates with our commitment to subsidiarity principles? In far from
equilibrium environments, whether boom or bust or war time, even if we stipulated that
both Keynesian & Hayekian approaches would be equally efficacious in properly attenuating
demand, what we do know, a priori, is that their costs would differ vis a vis both who would
pay them and when they would be paid?
It is precisely in nonequilibrium environments (the complexity of which does not yield to
facile analyses, economic much less political), then, that we might best resort to Keynes in
redistributing these costs, both temporally, through monetary policy, and spatially
(demographically), through fiscal policy? smoothing out the rough edges? And we must
strive to do so prudently, mitigating any inherent moral hazards and perverse incentives, all
toward the end of preserving a healthy social infrastructure, which is indispensable to a
And I suggest this notwithstanding any virtue that may or may not lie in allowing Darwinian
market forces versus government interventions to choose all the winners and losers,
beyond any notion that genuine compassion can be coerced through revenue strategies. I
suggest this because, for example, hasn't there always been a broad consensus that a
progressive tax structure simply makes for good social hygiene? And cannot the same be
said for so-called entitlements, including social security and medicare? And certainly some
meaningful assistance, carefully targeted, is similarly prudent during our rough patches,
which can vary in duration and intensity, harming both culprits and innocent victims, alike,
dangerously fraying our social fabric?
The fact that we need government at all reveals that we are not angels, for neither a truly
compassionate conservatism nor an enlightened social liberalism would need to first mail its
largesse to the IRS from Wall Street or Rodeo Drive, if all were already, instead, sending it to
the United Way or similar NGOs? It is an enlightened self-interest, rather, that affirms the
government's role in providing such goods and services and relief, all toward the end of
maintaining domestic tranquility. The government's maintenance of this vital social
infrastructure is no less important to our national security than our financial, energy, utility
and transportation infrastructures or our military. Without them, we could fall into chaos
Also important to our national security is the government's fiscal soundness. And the sad
reality is that, as a government, we cannot always afford even what we need, so triage and
discipline become essential. This is not the same as saying, however, that, as a people, we
might not be able to afford it. But there is only so much that can be coerced before a
people, rightly or wrongly, would revolt, before a goose would fly away with its golden eggs,
before the capital markets would pitch their investment tents elsewhere.
Before a classical liberalism or modern libertarianism engages a social liberalism in a
political over against, it has first responded to an anarchist critique and opted for limited
government versus no government, but it has done so, presumably, for pragmatic reasons
and not ideological principles? So, surely the libertarian critique must already be in touch,
theoretically, with the pragmatic apologetics for both distributist and redistributist
strategies? as recommended - not only by a practical realism -but - by the socialization
impetus of subsidiarity principles, themselves, which state that, when all things are not
otherwise equal, a rugged individualism must yield to a higher level of human organization?
It's the "all things being equal" nuance that seems to escape today's libertarian impulse,
radicalizing limited government into an ideological absolute rather than recognizing it,
instead, for what it should be, merely a default strategic bias.
Common ground already exists for maintaining a progressive tax structure. Explore it
without charging one another with waging class warfare or protecting the rich.
Common ground already exists for temporary Keynesian strategies. Explore it without
charging one another with "tax & spend" or "give aways to the rich" or accusing the Federal
Reserve of near-treason. Meet already-identified, real infrastructure needs earlier than
planned in this exceptionally favorable labor cost and financing environment, but don't
imagine that "make-work" initiatives and government employment, in and of themselves,
are otherwise an effective use of idle human capital in the long run. Rescues should be
targeted at institutions with a national security significance (financial infrastructure and
credit pipelines) while markets are best left to sort out other industries (automobile?).
Common ground already exists for many of our already deeply-embedded Hayekian
insights, which advocate the efficacies of lightly-regulated free markets. Explore it without
disingenuously calling for government to "get out of the way" or demagogically blaming
unavoidable business cycles all on deregulation.
Common ground exists for maintaining a social safety net. Explore it without frightening its
recipients or substantively dismantling it.
Common ground exists for tax reform, precisely because the code IS ALREADY choosing
winners and losers. Reform it and make it neutral for businesses (without national security
significance) while preserving its otherwise progressive attributes for individuals.
Common ground already exists regarding the political parties and factions' willingness to
employ BIG GOVERNMENT: whether the social cons with their moral statist tendencies, the
Trotsky-cons with their neoconservative overseas ambitions and militarism, the tea party
with their loyalty to our Founders' words - well, except for the document that they wrote
which they imagine badly needs amending, the theo-cons with their desire to rewrite our
science textbooks and the social liberals with their designs on micro-managing the economic
order. It may be that the libertarians are the most faithful to our classical liberal principles in
their reluctance to deploy BIG GOVERNMENT anywhere, whether in social, economic or
foreign affairs, but they have also been our kooky-cons, because they treat limited
government as an absolute value rather than a strategic bias.
In closing: “Idealism is fine, but as it approaches reality, the costs become prohibitive.”
William F. Buckley