In The Long Run We’re All Dead

Niall Ferguson’s bizarre attack on John Maynard Keynes which he has now apologised for — claiming that Keynes’ lack of children led to him taking an irresponsible attitude to the long run — has prompted many apt responses regarding the fact that Keynes and his wife tried multiple times to have children, and that Keynes wrote many works that showed an acute thoughtfulness regarding the long run in essays such as Economic Possibilities For Our Grandchildren. 

But as soon as I heard Ferguson’s remarks, I re-read Keynes’ famous quote in full:

But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.

Keynes is actually saying the opposite of what Ferguson implied he was saying. Keynes is saying that economists who say that in the long run unemployment will fall and markets will move back toward equilibrium are making themselves useless. That unemployment will sooner-or-later fall is almost inevitable — eventually storms end, and rough seas become calm again.

But when unemployment has been high for years, and when the unemployed become so discouraged that they drop out of the labour force in vast numbers it is useless to merely quip that sooner or later markets will restore equilibrium. Having soaring unemployment, discouraged workers, rusting skills, dilapidated infrastructure, weak growth and idle capital now and potentially for years to come is a grossly and grotesquely irresponsible position. The effects of mass unemployment are damaging and lingering to families:

The stress of unemployment can lead to declines in individual and family well-being (Belle & Bullock, 2011). The burden of unemployment can also affect outcomes for children. The stress and depressive symptoms associated with job loss can negatively affect parenting practices such as increasing punitive and arbitrary punishment (McLoyd, 1998). As a result, children report more distress and depressive symptoms. Depression in children and adolescents is linked to multiple negative outcomes, including academic problems, substance abuse, high-risk sexual behavior, physical health problems, impaired social relationships and increased risk of suicide (Birmaher et al., 1996; Chen & Paterson, 2006; Le, Munoz, Ippen, & Stoddard, 2003; Verona & Javdani, 2011; Stolberg, Clark, & Bongar, 2002).

And damaging to wider communities:

Widespread unemployment in neighborhoods reduces resources, which may result in inadequate and low-quality housing, underfunded schools, restricted access to services and public transportation, and limited opportunities for employment, making it more difficult for people to return to work (Brisson, Roll, & East, 2009). Unemployed persons also report less neighborhood belonging than their employed counterparts, a finding with implications for neighborhood safety and community well-being (Steward et al., 2009).

Keynes’ point in the quote Ferguson was discussing was that economists should seek ways and means to minimise such damaging long-term effects. So whether or not we agree with Keynes’ philosophical and political conclusions, it is absolutely misleading to claim that “in the long run we’re all dead” was a call for hedonism or economic irresponsibility.

Any serious criticism of Keynes’ thought requires that critics have actually read and understood Keynes and not just absorbed second-hand caricatures of his ideas.

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26 thoughts on “In The Long Run We’re All Dead

  1. aziz

    on the 26th november 2012 max keiser did the westminster doc (which spooked the hell out of me) in your last post regarding “Chinese Treasury Contradictions” and your new post “In The Long Run We’re All Dead”

    Do you think we will see economic responsibility return, because its in china’s own interests surely (well everybody’s) something tells me it will or am i wrong? Will it fold (someone once said slow motion train crash) its the flash points that fear me with those Chinese Treasuries

    do you think the “very incompetent Gordon brown” should be hung for selling 400 tonnes of our gold at the bottom

      • aziz

        I mean law being enforced properly, those at the top brought down and prosecuted for there crimes against the populace, so many people have lost there homes, so many people have committed suicide, on and on and on, its not human, greed is not intelligent-its yield and only yield, for example an intelligent or intelligence would have known that manipulating gold and silver prices down in a psychological attempt would just allow them to buy more on the dip, bigger dip the better. These monsters are not intelligent, its psychopathic trait

        My regards

        • I don’t know. I worry that we are slowly falling into neofeudalism by way of accretion of power by rentiers. We shall see.

  2. If you study history, you will see the same patterns recur. This is because, that although each moment is unique, human nature does not change.

    Those who beneficiaries of the prevailing system [in this case the professional and governmental classes], are more than happy to serve the interests of the Elite, as has always been the case.

    Cycles are just that, and we will return to a more stable economic situation simply because this one is not sustainable. The interesting part is not that this is going to happen, but instead, observing the players and their interactions.

    Most people get completely caught up in their own situation and miss out on all the wild stuff going on everywhere. If nothing else, we do live in interesting times, and that’s not such a bad thing.

    • I thought your comment was excellent.

      human nature does not change.

      I had’nt thought of it like that, and im not very good at history :(

      I know a little in economics but no ware near the level of you pro’s, altho i do listern and learn. i not an egnorant type of person.

      Theres alot of scare mongering about and im trying to cut through to the truth, is it time to stock up and hide ?

      my regards

      • Be careful what you read. I have been following economic blogs since the internet was created and so many people make a living out of scaring people. It is like a scary headline. People like to read drama.

        My suggestion is to read Ben Bernanke’s work. Consider if his theory works in today’s world, as the 1920-30′s is a different period to now. Same as other major economists, Keynes, Mises and others which are regularly quoted in blogs. Economics can be a religion and if people read a “gotcha quote” they will parrot the views of their Messiah, without question.

        My only advice is look after your own financial interests, and when an investment goes parabolic, be prepared to move quickly out into cash. The crash faster than they rise!

      • Human nature does not change. That is a certainty. That is why computer algorithms were created, to scalp the money from people who adopt trading strategies.

        See this article. It equates GDP with stock prices. But note the trading formula. Don’t you think an algorithm can track this?

        Trading against computers is insanity these days. Buy and hold good companies with international exposure when there is blood in the streets. But remember other people ARE doing this too, so maybe you are paying too high a price for it.

        I have devoted my life to picking stocks and forecasting the economic future, and I still can’t predict it with certainty. But it is more fun and intellectually challenging, than simple casino or horse racing form.

        In the end I will be dead, but did I enjoy my life. YOU BET!

  3. Ferguson has the unfortunate situation of having a platform. He’s not the first to think such an idea, regardless of Keynes’ orientation. That he spoke it out publicly and tied the orientation to it is where he went wrong.
    But I think your defense of Keynes, maybe reveals the deeper problem. Keynes and his economist followers believe that through central planning, control and manipulation they can fix “problems” in the marketplace often brought about through their own central planning, control and manipulation. It isn’t just a matter that unemployment will improve in the long run or that some equilibrium will be achieved in the long run. Intervention by central planners cause that run to be a lot longer than if the market would just be allowed to work.
    Following Keynes results in worse effects to the unemployed, their children and grandchildren than rejecting his interventionism.

    • That’s just not true. Keynes actually discusses that the greatest asset of capitalism is that it is decentralization. He discusses this in Chapter 24(Concluding Notes) of The General Theory and in several of his other papers as well. What Keynes was fighting was this view that markets naturally equilibrate to this magical level. Keynes was trying to show that the instability of capitalism is endogenous to the system. Unfortunately, Keynes’ actual ideas were never taken up.

      If you actually read The General Theory, Keynes talks about possible negative ramifications of government intervention. In World War II, Keynes’ ideas were first used to control inflation, not to control unemployment. The war was funded through higher taxation and private savings rather than through printing money.

      There is no way Keynes would have liked the easy money that existed under Greenspan. Keynes understood the destabilizing nature of debt(take a look at The Economic Consequences of the Peace if you don’t believe me). Keynes knew that persistent deficits financed by money printing would lead to disaster(read The Economic Consequences of the Peace). Keynes absolutely despised inflation; he hated it.

      Keynes’ economics are rooted in his probability theory, which virtually no economists understand. Economists like Paul Davidson and Steve Keen are probably the closest to Keynes today, not Paul Krugman. You really need to read Keynes before you talk about him.

      • One question Suvy.

        Out of all the Economist’s works you have read, which one would apply to today’s world? Does reading their work, form unreasonable opinions on the economic policy of the day?

        If Economics is about human choices, then perhaps we should be studying Psychology,a nd learning how we think, as this has bigger ramifications on policy.

        For example. Does Ben Bernanke understand human nature? Does his policy actually create the “Wealth Effect”

        If correct, then higher stock prices and 401K balances equals increased consumption, preventing deflation. Exactly what today’s problem needs.

        This is how I approach economic question. Does the policy response equate to “manipulating” humans to perform the intended outcome?

        • I agree that economics is closer to psychology rather than something like physics. I would turn your last question around. I think policy responses to “manipulate humans” do produce the intended outcome, but those same responses create unintended consequences(like inflating asset prices).

          Let me use what the Fed has done in the past 30 years under Alan Greenspan as an example. They’ve been trying to inflate asset prices and drive up leverage to get out of recessions while simultaneously wiping out the fluctuations between employment and inflation. This was the intended policy goal, but it created some major, major downside consequences that Greenspan didn’t intend. I feel like Bernanke may be doing something very similar.

    • The “Committee” is all wise and knowing.

      Control freaks love to be on Committees, and they love to win votes/appointments at all costs. Including the truth.

    • Doug —

      You can be sympathetic to Keynes’ point here without endorsing centralisation and what Austrians typically define as “Keynesianism”. For example, my favourite solutions are mostly market-led — repealing some barriers to entry imposed by the state! Saying — let’s get rid of innovation-stifling regulation, let’s reform the minimum wage laws to remove hiring disincentives, etc is not saying “things will all be back to normal in the long run”

      (I am also sympathetic to infrastructure spending — so long as it’s things people actually want and not endless Chinese empty cities! — because I don’t see any alternative to government-created infrastructure at any point soon. This might make me “Keynesian” to some, but if we had a depression in an anarcho-capitalism system with market-created infrastructure, I would still endorse infrastructure spending in depressions — just as a function of the market, not of government, so this point is really separate from questions of centralisation).

      • Third Reich Keynesian pump priming. Airfields, autobahns, cheap cars for the masses, oh and military spending to ward of a strike from Russia.

        Kept a lot of Engineers, Scientists and manual workers very busy.

      • In the old days homosexuals married, and they just had poor sex lives with their wives.

        Homosexuality is genetic, and the sooner the Churches recognise that and people are allowed to marry, the sooner humans will recognise, that homosexuality is natural, but will die out or be less prevalent from lack of procreation.

        The irony of the Church.

        • “In the old days homosexuals married, and they just had poor sex lives with their wives.”

          Poorer than heterosexuals’ sex lives with their wives?

          Seems unlikely :).

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