Penguins, although snappy dressers, are not the brightest of birds. They have nonetheless grasped one important fact, vital to penguin life: jumping into the ocean is dangerous.
Being in the ocean is dangerous to an extent but once you are down in the deep blue, you can see what’s around you, looking out for sharks, leopard seals, killer whales and what you can see, you have some chance of escaping. When you’re jumping in, at least when you’re jumping in alone, the surface of the water can conceal all kinds of dangers, dangers that can gobble you down whole before you can react. Of course, if there are other penguins already in the water, and they don’t see anything, they’re just cheerfully paddling around, it’s probably safe.
Over the generations, penguins have evolved a simple rule: don’t be the first penguin into the water.
Of course, this rule is inconsistent with actual penguin life-style: they brood on land and they feed in the water, so at some point they have to dive into the water, which means some penguin has to be the first one in.
As a result of this contradiction, penguins will gather by the thousands on the edge of an ice floe, each wanting to be an Early Bird, getting the proverbial worm, a fish in reality, but each fearing to be the first penguin, and thus becoming the Worm to some Early Killer Whale. Eventually, these congregations are broken up when the sheer weight of the crowd forces some unlucky bird near the front off the edge and into the water. The first penguin is either eaten (sating the predator’s appetite) or not (demonstrating that there is no predator locally at all) and all the thousands of other penguins rush to get into the sea (perhaps trying to avoid become that other proverbial avian by-product, the Rotten Egg).
And here’s why I say I say penguins are dumb: somebody has to go first, there’s no sense waiting around for hours.
For example, instead of milling about on the ice, freezing their — well, whatever penguins have to freeze off — off, they could pick one of their number at random and toss him in. Or they could incentivize (perhaps with a promise of a several minutes of exclusive fishing time), a small group of brave and hungry penguins to volunteer to jump in simultaneously. Or, given a long-enough shoreline, they could all hold hands (uh, wings) and jump in together.
An economic recession is something like that. Every lender and investor and consumer would be better off if other lenders and investors and consumers would, well, lend and invest and consume, but individually, each one of them is better off not taking the plunge, but hanging back, hoarding their cash, waiting for someone else foolhardy enough to become the First Penguin.
In his first inaugural speech, Franklin Roosevelt famously said, “first of all, let me assert my firm belief that the only thing we have to fear is fear itself.” He was lying of course. He couldn’t know that the policies he would put in place were part of a horrifying chain of events that would leave much of the world in smoking ruins, but he was too smart not to know that things were very, very bad and on track to get worse.
As with all convincing lies, though, there was a germ of truth. If everyone, or nearly everyone, had suddenly succumbed to the delusion that the Depression was over, it would have, in large part, been over.
This was the key insight of the economist John Maynard Keynes: in a recession, individuals make decisions out of perfectly reasonable caution that have the collective effect of deepening and prolonging the recession. If everyone ceased to fear, then everyone would have little or no reason to fear.
But Keynes had a better solution than just exhorting everyone to c’mon and jump in. He was going to throw everybody. More specifically, he advised that the government take affirmative steps to take the place of private action. Keynes, and the policy that became known as Keynesianism, said that in bad times, the government should borrow or print money and use that money to lend to business, to hire employees, and to purchase goods — in short, to perform all the economic activity that was lacking in the private sector during a recession. If we won’t buy cars, the government will take our tax money and buy tanks. If we won’t buy stock, the government will take our tax money and buy car companies. One way or another, we’re going into the water.
Keynes’s ideas were very popular with FDR, and with every US president since and with most foreign leaders.
But the reason that Keynesianism is popular with politicians is also the reason it doesn’t work in practice.
Politicians are rarely thrust involuntarily into power. No one wakes up and finds himself president through no fault of his own. The average politician has to bite and claw and lie and steal and betray friends and make nice with enemies and generally do absolutely anything it takes to get to a position of power — and the politician who won’t finds himself bitten and clawed and eventually stepped over by those who will. The man who ascends to the presidency or any high office does so because he really wants, craves, power.
Keynesianism gives an excuse for exercising that power. Want to pay off your buddies in the union? Buy a car company and let the union run it, it’s stimulus! Need donations from Wall Street? Bail out a huge insurance company. Worried about the Iowa caucuses? Pour more money into farm subsidies! It’s all “stimulus”!
You’ll notice that there is no connection between the goals of Keynesianism and goals of the politicians implementing Keynesianism. The politicians have no incentive to get it right — in particular, there’s no incentive to stop the stimulus during good times. To continue (and to stretch) the penguin simile, it’s as if old Baron Keynes were patrolling the edge of the glacier, not only pushing hungry penguins into the water but preventing the full ones from getting back on the ice to breed.
Defenders of the real Keynes and real Keynesianism could protest that what politicians do — seize on any excuse to spend, spend, spend — is pseudo-Keynesianism at best, the grimy arithmetic of electoral politics dressed up as the subtle mathematics of economics. They’re probably right, just as William Stidger was probably right when he wrote, “Christianity has not failed, for Christianity has nowhere been tried”, but I’m not sure it matters.
Someone — actually, it was a historian named Alexander Tytler — is supposed to have said, “A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury.” Countries in the grip of pseudo-Keynesianism (which include, at last count, all of them) have accelerated the process by telling the voters that voting themselves those gifts isn’t an act of greed but purest good sense.
Well, the disastrous pseudo-Keynesianism of the last few years may be a blessing in disguise and convince the American electorate that, whether Keynesianism is too subtle to ever carry out correctly or just not a good idea, it eventually makes more sense to live within our means.