Friday, May 10, 2013

Future Generations, Government, and Prosperity

-- Posted by Neil H. Buchanan

In the alternate weeks during which I write a column on Verdict, my usual pattern is to write an associated post here on Dorf on Law on the same Thursday, and then to write a post the next day on a completely unrelated subject.  This week, however, I will follow up yesterday's Verdict column and Dorf on Law post -- both of which discussed the reaction to Niall Ferguson's inane attack on John Maynard Keynes -- with yet another post on the same subject.  Ferguson's comments were truly stupid, but they were stupid in a particularly inspired way.  They are the gift that perversely keeps on giving.

For those who do not want to plow through my two earlier essays, a quick summary: Ferguson (a historian at Harvard who is a star in the Foxiverse for attacking Obama, Krugman, etc.) said that Keynes did not care about future generations because he was, (a) gay, and (b) childless.  Ferguson has issued an apology of a sort, but he -- and many other conservatives -- continue to believe that Keynesian economics is based on the selfishness of current generations, who heedlessly pile government debt on the backs of our children and grandchildren.  This, they claim, is what Keynes must have meant when he issued the diabolical statement: "In the long run, we are all dead."  Why care about a future in which one cannot picture oneself (or, apparently, one's genetic issue)?

In my Verdict column, I described how Keynesian economics is very much oriented toward improving the well-being of both current and future generations, in a way that conservative economics is not.  In my post yesterday on Dorf on Law, I took a mock-serious look at the prejudices underlying the idea that gay and/or childless people are selfish and unconcerned about future generations.  Among other things, I asked for a pardon because -- even though I am openly childless -- I have devoted my career to teaching young people, and to creating and propagating knowledge for the benefit of future generations.  I could, after all, have been the father of ten children, but spent my career as a lawyer for coal companies, helping my clients destroy the environment in which my children and grandchildren would be struggling to breathe.  I await the judgment of the Court of Future Generations.

Today, returning to a more serious mode, I want to add two further issues to the discussion.  First, I want to think more systematically about the illogic of the conservative attack on Keynes's "... we're all dead" line.  As anyone who has actually looked at the original comment in context knows, Keynes was responding to the assertion during the 1930's that the government should do nothing in response to the suffering caused by the Great Depression, because "in the long run, the economy will return to full employment."  Keynes responded that this was a lazy argument from his opponents, because it boiled down to the statement that, "after the storm passes, the sea will be calm."  As the kids would say: "No duh!"

What that analogy does not capture, however, is the additional power of Keynes's theoretical approach, which takes seriously the step-by-step (path dependent) nature of history.  Allowing the economy to stagnate for years on end -- in the immortally disgusting words of Andrew Mellon, who advised Herbert Hoover to "liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate… it will purge the rottenness out of the system." -- is not a neutral matter.  Unemployed people become harder to re-employ as time passes.  Businesses do not engage in investments that will enhance the future prosperity of the economy, because the path from here to there is not profitable enough to make it worth it, when there are not enough customers (because people do not have jobs) to buy the businesses' goods and services.

While we wait for the long run, families are destroyed, as the stresses of long-term unemployment lead to suicides, murders, spousal and child abuse, drug and alcohol abuse, and so on.  Bad economic prospects discourage young people from marrying and starting families.  Governments (if they follow the bad advice of anti-Keynesian economists) allow all this to happen, and make matters worse by allowing the economy's public investments (schools, roads, electrical grids, ports, and so on) to decay.

Mellon's vision of a refreshing, cleansing storm is thus completely inapt.  We get to the long run by experiencing a series of short runs, and what we do during each short run affects the future path.  This is so obvious that the anti-Keynesians must be making a conscious effort to ignore it.  Acting as if the "production function" (to use the econ-geek term) of the future economy is unaffected by the path of the economy might make the analysis cleaner mathematically, but it is clearly wrong.

A possibly interesting analogy along these lines occurred to me, as I was thinking about Ferguson's public blundering.  In Christian theology, the equivalent of "the long run" is eternal salvation.  That, we are told, is the promise that God makes to all who truly believe in Him.  This promise, however, immediately raises two related problems: (1) If there is a promise of heavenly bliss after one's life on earth ends, why should people not speed along the process, actively choosing to join God as soon as possible? and (2) If all it takes to get into Heaven is to take Jesus truly into one's heart, why not do whatever one wants during life and then take Jesus into one's heart immediately before death?

Obviously, different denominations (and different theologians within various denominations) have addressed these basic questions for centuries, reaching various and contradictory conclusions.  The point of all of the responses that have been offered, however, is that the path matters.  And non-religious ethicists are similarly concerned with the content of the journey, and with the actions and choices made along the way, not just with the end point (either death, or life after death).  It is truly bizarre to imagine anyone arguing that what happens along the way (on any journey) is simply irrelevant, but that is what the argument to which Keynes was responding actually says.

That is not to say that government policymakers are incapable of making bad choices along the path.  Saying that government can make things better does not mean that anything it does will do the trick.  Which brings me to the second additional issue for today's discussion: Will the choice to have the government respond actively to an economic downturn result in a larger government sector in the long run, which will suck up economic resources in a way that reduces long-run living standards, or that will harm future generations in some other way?

One aspect of this issue is captured by Paul Krugman's recent discussion of "Naive Fiscal Cynicism," in which he considers the lack of evidence behind the idea that Keynesian responses to economic catastrophe "never go away."  The claim from the "naive fiscal cynics," after all, is that once a government bureaucracy gets going, it grows and grows and becomes committed to its own continued leech-like existence.  The problem is that the evidence simply does not back up that belief.  Neither the New Deal programs, nor the Obama stimulus spending programs (as minimal as they were), became permanent fixtures of the U.S. government.  They were temporary -- too temporary, in fact -- and certainly not the ever-growing Leviathan-like monsters of dystopian fantasy.

There is, however, a different aspect of the story about the possible growth of the government sector.  If we did not see the federal government's role in the economy grow due to a path-dependent accumulation of powers in the post-Depression era, then why is the federal government so much bigger today than it was in 1932?

The answer is that there really is a role for government that is not tied to the economy's short-run health, which we finally took seriously in the last three generations.  That is the idea behind all of my advocacy of increased public investment.  We need to improve education, infrastructure, and so on, continuously and at all times, to increase long-run living standards.  Without doing so, we might not all be dead in the long run, but our children and grandchildren will certainly be poorer than they would otherwise be.

For the anti-Keynesians whose real objection is to government itself, this presents two possibilities.  First, they can claim that the category of "productive public investments" is the empty set.  This, however, requires them to deny the insights of Adam Smith himself (to say nothing of the overwhelming weight of the evidence), who readily acknowledged that there are public goods, and that government is the only entity that is capable of providing those goods in appropriate amounts.  We can have healthy debates about which goods should be provided, and how much should be spent; but that is very much a Keynesian conversation.  One can be in favor of relatively large or small amounts of ongoing federal investment spending, based on the evidence, without being deeply committed to Big Government or Small Government (whatever that might mean).

Short of contradicting Smith, what is an anti-government ideologue's other choice?  He can admit that the government can increase future living standards, but he can insist that such increases come at too high a price.  For those who believe that government is per se bad, it might be necessary to pass up the material improvements from government action, to preserve private freedom.

I find that argument utterly unconvincing, of course.  I do, however, understand the sequence of logic.  In the "childlessness and lack of concern for future generations" discussion, however, it is important to point out what this anti-government argument also implies: People today are determined to pass up opportunities that could increase future living standards, in favor of what they view as the higher principle of personal (and business) freedom.  They are thus saying that they are willing to reduce the living standards of not only their own children and grandchildren, but of the future generations of other people as well.  That is not an inherently immoral choice, depending upon how one thinks about the various tradeoffs, but it is certainly no less arrogant a choice than the anti-Keynesians accuse Keynesians of making.  Telling me that the children of my nieces and nephews must live poorer lives so that the government is never allowed to tell them to buy broccoli strikes me as a rather aggressively selfish choice -- at least as selfish as my telling them that their children can inherit some debt, in exchange for higher future living standards.

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