Questioning Keynes

Since I have been reading the Antifragile book by Taleb lately, I have been wondering what he would say about Keynes’ economic theory.

I found a 2010 CNN article Questioning Keynes.

“Keynes was too smart to make a mistake — the problem is we live in a different environment,” said Nassim Taleb, author of The Black Swan, which looks at the impacts of improbable events. Taleb added that with debt levels as high and problematic as they are in parts of Europe and the United States, accurate forecasting on indicators such as unemployment rates become more crucial.

One of the parts of the “different environment” may be that the economic collapse came after the Republican administrations had run a vicious anti-Keynesian policy of running up huge deficits at exactly the point in the economy when Keynesian theory said you should be paying down the debt.  Doesn’t anybody remember the mantra, “You know how to spend your money better than the government does”? This was used to justify giving the surplus back to the tax payers rather than using it to pay down the debt incurred by the taxpayers.  The policy of giving taxes back to the tax payer lasted long after the surplus became a deficit.  The economy had gotten so used to huge deficits during boom times, that the size of the deficit that was needed to make a difference during the recession became unbelievably huge.

Maybe Keynes’ prediction error was in not predicting that fools like Reagan, Bush, and Bush would come along to so perfectly mistime the policies that he was advocating.  Of course Taleb was not saying that Keynes mispredicted, but what Taleb said did trigger my thought in the previous sentence.

See, RichardH, I don’t always agree with Taleb either.

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