Project for Philosophical Evaluations of the Economy |
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Keynes and the Slow Job Growth
Dialog with the Alter Ego on the lackluster recovery, first drafted on July 9, published on
July 14, 2011
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Question by Alter Ego of Noah denkt™ (AE): Back in 2009, Noah denkt™ argued that the economy would
rebound much faster from the 2008 crash than most experts anticipated at the time. Where are we on this?
Answer by Noah denkt™ (Nd): Well, it seems to us as if the financial markets have come along much better than
most experts (Krugman, Stiglitz) expected since then. It is also true, however, that the situation in the job market
continues to be pretty dismal and that it very much looks as if it will stay like this for quite some time to come.
AE: Why is that?
Nd: In our mind, there are two reasons for this: First, there is a lack of confidence in the overall economy which
stands in the way of a more solid entrepreneurial push. And second there is the fact, that highly developed
economies simply do not create the massive number of good paying jobs that previous industrial societies were
used to. So it is not at all surprising that we will see more and more jobless recoveries as time goes by.
AE: Okay, let’s focus on your lack of confidence theory first. Why does it take so long for a sustained optimism to
develop?.
Nd: Well, to us it is clear that this is the flip side of the counter-cyclical, Keynesian measures that governments all
over the world have adopted in order to cushion the devastating effects which the 2008 crash has brought along.
After all, it’s only natural that pain killers may do a good job in killing pain, but that they do not help a lot when it
comes to restoring energy and confidence afterwards.
AE: Can you elaborate on this a little further?
Nd: Sure. You just have to look at the current debt crisis in order to understand where the connection between
the Keynesian approach and the current malaise is. Obviously, it is due to the prop-up measures that
governments, particularly in Europe, have enacted that public finances there have come so much under siege
these days. But there is also a psychological explanation that needs to be looked at. Because it is equally true to
argue that the cushioning interventions of governments do not allow people to face their existential angst head
on. In other words, there is a lot of social yuck (general distrust, deception, despondency and disaffection) that
was generated by the exuberance of the boom years which hasn’t been able to clean itself out just because the
counter-cyclical measures of government made it impossible do that. So, it’s the lingering residue of shock and
awe which makes it difficult for people now to find a new conviction into the power of their own capabilities.
AE: In other words, an unhampered, free-flowing crash would have created a better basis for a quick recovery
than the tranquilizing approach of governments allowed for?
Nd: That’s what we believe.
AE: But would such a free fall not have resulted in an Armageddon-like scenario for all of us? Would such havoc
not have caused massive unemployment and incredible poverty? And would that in turn not have brought about a
complete collapse of democracy itself?
Nd: Perhaps and perhaps not. We simply don’t know what would have happened if such a hands-off crisis
management had taken place.
AE: But is it truly feasible to expect that governments take unforeseeable risks here? Is it not their moral
obligation to minimize risk and pain as much as possible?
Nd: Of course, it’s fair and legitimate to take this stance. But if you adopt such a view, you should not complaign
afterwards that the ensuing recovery is taking too long. After all, you can’t have it both ways.
AE: What’s wrong with hoping and demanding that things happen in a socially benign manner?
Nd: Well, you shouldn’t confuse “benign” with “convenient” here. Don’t forget that pain is a necessary ingredient
of life. And so you simply have to accept your fair share of pain if you want to draw the right conclusions from it.
AE: We simply fail to see why it is so important to expose yourself to extra hardship?
Nd: Just try to look at it this way: All self healing obviously is about energy, belief and hope. And to trust in your
own instincts, your own possibilities, your own talents you have to feel as if you can rely on the clarity of your
interpretations and perceptions. If you have a lingering doubt however, that your vision may be blurred by the
effects of the painkillers you have taken earlier then you simply can’t develop the resilience and the force to turn
things around. There is just no way around this.
AE. Okay. Be that as it may. Let’s focus instead on the second point you have mentioned above according to
which we will see more and more jobless recoveries in the future. Are you sure about that?
Nd: Well, there will probably be scenarios where the statistical unemployment rate comes down to pre-crash
levels. That won’t mean, however, that the jobs which are being created in such a bull market are going to be as
well paying as they perhaps should be. The issue here simply is that the age of labor-intensive production is
pretty much over for the more developed economies. So they have to find a new model to maintain their level of
prosperity.
AE: And what is this model?
Nd: In our mind, it is more entrepreneurs, more pioneers and more capitalistic existentialism.
AE: And all that has in deed a better chance to come about than your hands-off crash management theory has us
believe?
Nd: Well, let’s wait and see.
Dialog with the Alter Ego on the lackluster recovery, first drafted on July 9, published on
July 14, 2011
-----------------------------------------------------------------------------------------------------------------------
Question by Alter Ego of Noah denkt™ (AE): Back in 2009, Noah denkt™ argued that the economy would
rebound much faster from the 2008 crash than most experts anticipated at the time. Where are we on this?
Answer by Noah denkt™ (Nd): Well, it seems to us as if the financial markets have come along much better than
most experts (Krugman, Stiglitz) expected since then. It is also true, however, that the situation in the job market
continues to be pretty dismal and that it very much looks as if it will stay like this for quite some time to come.
AE: Why is that?
Nd: In our mind, there are two reasons for this: First, there is a lack of confidence in the overall economy which
stands in the way of a more solid entrepreneurial push. And second there is the fact, that highly developed
economies simply do not create the massive number of good paying jobs that previous industrial societies were
used to. So it is not at all surprising that we will see more and more jobless recoveries as time goes by.
AE: Okay, let’s focus on your lack of confidence theory first. Why does it take so long for a sustained optimism to
develop?.
Nd: Well, to us it is clear that this is the flip side of the counter-cyclical, Keynesian measures that governments all
over the world have adopted in order to cushion the devastating effects which the 2008 crash has brought along.
After all, it’s only natural that pain killers may do a good job in killing pain, but that they do not help a lot when it
comes to restoring energy and confidence afterwards.
AE: Can you elaborate on this a little further?
Nd: Sure. You just have to look at the current debt crisis in order to understand where the connection between
the Keynesian approach and the current malaise is. Obviously, it is due to the prop-up measures that
governments, particularly in Europe, have enacted that public finances there have come so much under siege
these days. But there is also a psychological explanation that needs to be looked at. Because it is equally true to
argue that the cushioning interventions of governments do not allow people to face their existential angst head
on. In other words, there is a lot of social yuck (general distrust, deception, despondency and disaffection) that
was generated by the exuberance of the boom years which hasn’t been able to clean itself out just because the
counter-cyclical measures of government made it impossible do that. So, it’s the lingering residue of shock and
awe which makes it difficult for people now to find a new conviction into the power of their own capabilities.
AE: In other words, an unhampered, free-flowing crash would have created a better basis for a quick recovery
than the tranquilizing approach of governments allowed for?
Nd: That’s what we believe.
AE: But would such a free fall not have resulted in an Armageddon-like scenario for all of us? Would such havoc
not have caused massive unemployment and incredible poverty? And would that in turn not have brought about a
complete collapse of democracy itself?
Nd: Perhaps and perhaps not. We simply don’t know what would have happened if such a hands-off crisis
management had taken place.
AE: But is it truly feasible to expect that governments take unforeseeable risks here? Is it not their moral
obligation to minimize risk and pain as much as possible?
Nd: Of course, it’s fair and legitimate to take this stance. But if you adopt such a view, you should not complaign
afterwards that the ensuing recovery is taking too long. After all, you can’t have it both ways.
AE: What’s wrong with hoping and demanding that things happen in a socially benign manner?
Nd: Well, you shouldn’t confuse “benign” with “convenient” here. Don’t forget that pain is a necessary ingredient
of life. And so you simply have to accept your fair share of pain if you want to draw the right conclusions from it.
AE: We simply fail to see why it is so important to expose yourself to extra hardship?
Nd: Just try to look at it this way: All self healing obviously is about energy, belief and hope. And to trust in your
own instincts, your own possibilities, your own talents you have to feel as if you can rely on the clarity of your
interpretations and perceptions. If you have a lingering doubt however, that your vision may be blurred by the
effects of the painkillers you have taken earlier then you simply can’t develop the resilience and the force to turn
things around. There is just no way around this.
AE. Okay. Be that as it may. Let’s focus instead on the second point you have mentioned above according to
which we will see more and more jobless recoveries in the future. Are you sure about that?
Nd: Well, there will probably be scenarios where the statistical unemployment rate comes down to pre-crash
levels. That won’t mean, however, that the jobs which are being created in such a bull market are going to be as
well paying as they perhaps should be. The issue here simply is that the age of labor-intensive production is
pretty much over for the more developed economies. So they have to find a new model to maintain their level of
prosperity.
AE: And what is this model?
Nd: In our mind, it is more entrepreneurs, more pioneers and more capitalistic existentialism.
AE: And all that has in deed a better chance to come about than your hands-off crash management theory has us
believe?
Nd: Well, let’s wait and see.
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| Keywords: the wisdom of Keynes, the feasibility of government interventions, adjusting the Keynesian theory, reevaluation of the Keynesian theory, the success of Keynes, the wisdom of counter-cyclical intervention, the limits of Keynesian theory, the flip-side of Keynes |