Help! My Econ Professor Is a Keynesian

[Ben Bernanke]

Yep, although I'm not surprised. He's actually a nice guy, and I have gotten him to talk favorably about Austrian views like sound money before. He is not familiar with the Austrian school or business cycle theory, though he has said he has read Hayek and liked him. Ultimately though, he is an avowed follower of Keynes, and a huge believer in me....err Bernanke. I was hoping some of you could give me some talking points to bring up in class. We are now exclusively covering demand side economics and it is starting to drive me crazy, haha. I'm fairly educated on Austrian economics, having read Hayek, some Mises (and Mises.org!) and of course Ron Paul, but I would really like some outside help, particularly when it comes to all the equations and models that aren't really presented in Austrian thought.

Last class we talked about the Keynesian cross, and how this revolutionized economics. Next we will be talking about the IS-LM mode (IS stands for investment and saving, LM for money and liquidity), which builds on the Keynesian Cross. A major part of the lecture will be on monetary stimulus. For those of you more familiar with Keynesian theory than I, what would be some good non-argumentative questions to raise or points to bring up?

Oh I found this interesting...the guy who wrote the textbook, N. Gregory Mankiw, was Bush's former economic adviser and is now the the adviser to Mitt Romeny. So one more strike against Mittens.

 

[MJU1983]

Here's a tip: don't piss off your professor, suffer through his class and move-on.

This is a fun exchange:

 

[ClayTrainor]

Last class we talked about the Keynesian cross, and how this revolutionized economics. Next we will be talking about the IS-LM mode (IS stands for investment and saving, LM for money and liquidity), which builds on the Keynesian Cross. A major part of the lecture will be on monetary stimulus. For those of you more familiar with Keynesian theory than I, what would be some good non-argumentative questions to raise or points to bring up?

This is the first I've heard of the Keynesian Cross so I am of no use to ya yet, but I'm sure the folks at Mises.org are. FWIW, not sure if you've stumbled on this yet but I just did a search and found this article that may be of some use...

The Self-Defeat of the Keynesian Cross

Oh I found this interesting...the guy who wrote the textbook, N. Gregory Mankiw, was Bush's former economic adviser and is now the the adviser to Mitt Romeny. So one more strike against Mittens.

Haha, yea. I remember Romney mentioning Mankiw in his list of advisors in the last debate.

 

[Ben Bernanke]

Here's a tip: don't piss off your professor, suffer through his class and move-on.

This is a fun exchange:

Ah, I've watched that before. Very interesting indeed. And good tip, lol. I've definitely held back on my criticisms as I don't want to jeopardize my grade. He is friendly and open to discussion, and I have brought up Austrian thought. It's just sometimes very hard to do without basically flat out telling him he's dead wrong in front of class, which is NOT something I want to do. However I do think it is important that my peers hear the other side of the coin, which I try to show when I can.

This is the first I've heard of the Keynesian Cross so I am of no use to ya yet, but I'm sure the folks at Mises.org are. FWIW, not sure if you've stumbled on this yet but I just did a search and found this article that may be of some use...

The Self-Defeat of the Keynesian Cross



Haha, yea. I remember Romney mentioning Mankiw in his list of advisors in the last debate.

Thank you, that was a great article, very useful to what we are talking about.

 

[ababba]

The only assumptions in IS-LM are that investment depends negatively on interest rates, consumption is an increasing function of disposable income and money demand depends on the cost of holding money (nominal interest rate) and your transactions demand for currency (real GDP).

Its an amazing model for such simple assumptions that we would all agree to. Try to approach it without preconceived notions about whether it is correct or not. The critiques are much more subtle than you think.

 

[Ben Bernanke]

Thank you, good advice. Just by looking ahead, it seems as the IS-LM model will be used to justify monetary stimulus though, at least it is in the book. I will find out shortly.

 

[erowe1]

..

 

[Seraphim]

If one is a fan of Hayek, but an avowed follower of Keynes, one must have layer upon layer of cognitive dissonance rifling through ones brain.

It's almost as silly as saying you are a fan of Communism, but you are an unapologetic Capitalist.

 

[low preference guy]

If one is a fan of Hayek, but an avowed follower of Keynes, one must have layer upon layer of cognitive dissonance rifling through ones brain.

If you pick and choose it isn't so hard. Hoppe wrote a good article about Hayek's views, quoting from "The Road to Serfdom".

According to Hayek, government is "necessary" to fulfill the following tasks: not merely for "law enforcement" and "defense against external enemies" but "in an advanced society government ought to use its power of raising funds by taxation to provide a number of services which for various reasons cannot be provided, or cannot be provided adequately, by the market." (Because at all times an infinite number of goods and services exist that the market does not provide, Hayek hands government a blank check.)

Among these goods and services are "protection against violence, epidemics, or such natural forces as floods and avalanches, but also many of the amenities which make life in modern cities tolerable, most roads … the provision of standards of measure, and of many kinds of information ranging from land registers, maps and statistics to the certification of the quality of some goods or services offered in the market."

Additional government functions include "the assurance of a certain minimum income for everyone"; government should "distribute its expenditure over time in such a manner that it will step in when private investment flags"; it should finance schools and research as well as enforce "building regulations, pure food laws, the certification of certain professions, the restrictions on the sale of certain dangerous goods (such as arms, explosives, poisons and drugs), as well as some safety and health regulations for the processes of production; and the provision of such public institutions as theaters, sports grounds, etc."; and it should make use of the power of "eminent domain" to enhance the "public good."

Moreover, it generally holds that "there is some reason to believe that with the increase in general wealth and of the density of population, the share of all needs that can be satisfied only by collective action will continue to grow."

Further, government should implement an extensive system of compulsory insurance ("coercion intended to forestall greater coercion"), public, subsidized housing is a possible government task, and likewise "city planning" and "zoning" are considered appropriate government functions — provided that "the sum of the gains exceed the sum of the losses." And lastly, "the provision of amenities of or opportunities for recreation, or the preservation of natural beauty or of historical sites or scientific interest … Natural parks, nature-reservations, etc." are legitimate government tasks.

So I think that isn't too hard. Being a fan of Mises and Keynes though would be a lot harder.

 

[No Free Beer]

Hayek wasn't for a minimum wage...

 

[low preference guy]

Hayek wasn't for a minimum wage...

minimum income =\= minimum wage

 

[Diurdi]

My macroecon prof likes Thomas Sowell and Milton friedman. I guess I'm pretty lucky lol.

 

[enoch150]

If I was going to argue with someone who I was sure knew a lot more than me, I'd avoid challenging him directly on his strengths. I wouldn't discuss the correctness of Keynesian or Austrian economics, but rather the morality of them. You'd have to pick your moments. It's not something that could be done on any given class day.

 

[Steven Douglas]

If I was going to argue with someone who I was sure knew a lot more than me, I'd avoid challenging him directly on his strengths. I wouldn't discuss the correctness of Keynesian or Austrian economics, but rather the morality of them. You'd have to pick your moments. It's not something that could be done on any given class day.

Actually, an appeal to what he feels are his strengths could be a good thing. He could do exactly what he's doing here, only in reverse; tell the prof that he knows some Miseans who are attacking Keynesian Economics as we know it today (NOT Keynes), and ask for some tips on how to respond to them, or exploit their weaknesses. Now that could be interesting.

 

[Frederick B]

You'd have to pick your moments....

I learned this this lesson the hard way.

In elementary school I had a reading problem, the solution was reading small print like in world news magazines etc. Later in high school, I had an old professor who wanted to impress his students about his knowledge about little-known American history. Well, I answered almost all his trivia questions and added more information about them than he apparently new... soon he was not accepting my verbal answers in class, but seconds later he would say the same answer! also he started grading my written reports with D's.
My problem was: I didn't know when to stop, lacked compassion for him and had to drop the class.

Back on the subject:
Its fine to have a few decisions with your professor, never-never trap him into a corner.

 

[Travlyr]

Yep, although I'm not surprised. He's actually a nice guy, and I have gotten him to talk favorably about Austrian views like sound money before. He is not familiar with the Austrian school or business cycle theory, though he has said he has read Hayek and liked him. Ultimately though, he is an avowed follower of Keynes, and a huge believer in me....err Bernanke. I was hoping some of you could give me some talking points to bring up in class. We are now exclusively covering demand side economics and it is starting to drive me crazy, haha. I'm fairly educated on Austrian economics, having read Hayek, some Mises (and Mises.org!) and of course Ron Paul, but I would really like some outside help, particularly when it comes to all the equations and models that aren't really presented in Austrian thought.

Last class we talked about the Keynesian cross, and how this revolutionized economics. Next we will be talking about the IS-LM mode (IS stands for investment and saving, LM for money and liquidity), which builds on the Keynesian Cross. A major part of the lecture will be on monetary stimulus. For those of you more familiar with Keynesian theory than I, what would be some good non-argumentative questions to raise or points to bring up?

Oh I found this interesting...the guy who wrote the textbook, N. Gregory Mankiw, was Bush's former economic adviser and is now the the adviser to Mitt Romeny. So one more strike against Mittens.

Well Mr. Bernanke, I happen to firmly believe that Gary North is the Austrian Economist as evidenced by his work as he describes in the following debate, and that you could learn a great deal from Mr. North. Walter Block working for the State University must mix Austrian & Keynesian Economics because, although he considers himself an Austrian, Keynesian is what the State Institution mandates. Getting a degree in Keynesian Economics is 20th century indoctrination. Gary makes an excellent point in the debate that the Austrian market is growing rapidly now. Go to 29:43 to learn what you should say to your professor. Actually the entire debate is worth watching if you have the time.

Here's a tip: don't piss off your professor, suffer through his class and move-on.

This is a fun exchange:

 

[musicmax]

1. Identify another student in the class whom you believe thinks as you do.
2. Say "Hey man, you don't believe that Keynesian claptrap either, do you?"
3. When they express their agreement with you, tell them "I'm planning on questioning Professor Douchebag tomorrow; if he starts giving me a hard time will you back me up?"
4. Crush it.
5. If you don't have the stones to speak up in a silly little class, drop out of school and go live under a bridge. Seriously.

 

[mczerone]

Thank you, good advice. Just by looking ahead, it seems as the IS-LM model will be used to justify monetary stimulus though, at least it is in the book. I will find out shortly.

Ask "If you believe setting low interest rates helps the economy, why aren't you personally lending out all of your money at low or negative rates?"

If it's good enough for a policy prescription, it should be good enough for him personally, right?

 

[Seraphim]

This is a reliable means of debunking someone. Put your money where your mouth is. Simple.

Ask "If you believe setting low interest rates helps the economy, why aren't you personally lending out all of your money at low or negative rates?"

If it's good enough for a policy prescription, it should be good enough for him personally, right?

 

[ababba]

Ask "If you believe setting low interest rates helps the economy, why aren't you personally lending out all of your money at low or negative rates?"

If it's good enough for a policy prescription, it should be good enough for him personally, right?

This is one of the most incorrect things I've heard about economics in years. You hear these fallacies all the time, that anything good for public policy is good for an individual. Its a bad principle in general. Lets take taxes as an example. I might be perfectly willing to pay 25% of my income to the government in exchange for some goods and services if everyone else agrees to do the same thing, but not be willing to do it if nobody else contributes. This is just common sense. I might be willing to contribute 1/100 of the cost for a park but not pay for the entire park myself. There is nothing inconsistent about wanting the government to do something and not be willing to do it by yourself.

Now lets talk about the case of interest rates. The Fed doesn't just set interest rates. They change the money supply and interest rates adjust endogenously. What that means is that these are equilibrium real interest rates. People in the free market are willing to borrow and lend at these real interest rates. In a low interest rate environment, everyone that loans out money still chooses to loan that money out and the interest rate clears the market.

The professor shouldn't lend his money out at lower interest rates than he would like. He doesn't have to. There are people in the marketplace that voluntarily choose to do it. Obviously the benefit to the economy is distributed to the other 300 million people and he only gets a tiny fraction of it while bearing the entire cost of choosing to loan his money out at lower than he would like. Now if everyone else did it, he may think its a good idea. He may not think its a good idea. What people miss is that these models like IS-LM don't directly make policy recommendations, they just tell you what is likely to happen in response to a given policy.

Every modern Keynesian model would say that the Fed cannot control the average real interest rate, and can only control cyclical fluctuations in real interest rates. As a result, the concept of artificially low interest rates doesn't even make sense in these models.