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Religious worship of the multiplier can very quickly devolve into a way to justify dishonesty in the market. I wished Keynesians would recognize this. Think of how such reasoning might go (from the standpoint of a businessman, no friend you should note, of capitalism):

Businessman: “Gee, I have a product that some people like. If I can get away with charging more than it is really worth to some customers, I can really make a killing.”

Conscience: “But that’s wrong.”

Businessman: “Maybe it is. But in a recession, folks are not spending their money. It is just sitting under mattresses, and it is pretty costless to pry some of it out of there. I once learned of something about ditch-digging. I never read it, but I heard it once or twice.”

Conscience: “What does ditch digging have to do with ripping your customers off?”

Businessman: “Oh, it shouldn’t, except when we are returning to depression economics, like now.”

Conscience: “What do you mean? Isn’t honesty and integrity always a good thing?”

Businessman: “Well, but necessity intervenes sometimes. You see, now if I charge a little extra for my product (no one would willingly pay for it, so I have to pawn off some shoddy stuff on them and make them think it is good), that can do some economic good. And if customers could sniff out the shoddy stuff, we could ask the government for some special favors, such as having consumers be forced to buy our product.”

Conscience: “Well, we know it’s morally wrong to force people to buy your stuff, but doesn’t that even violate the quaint little Constitution too?”

Businessman: “Not in 21st century America. We’ve long since misinterpreted and massacred Gibbons v. Ogden and Knight v. US, and we’re into the realm of NLRB vs. Jones, US v. Darby, Wickard v. Filburn!”

Conscience: “Oh, I see. But don’t you feel bad about obtaining special privileges?”

Businessman: “I don’t have to! You see, when we are in depression economics, each dollar of spending by someone turns into more than $1 in new wealth! So I am not even getting special privileges. These special privileges can stimulate the economy in much the same was that during depression economic times we can increase regulations, break windows and dig ditches!”

Conscience (receding from the scene): “Something just doesn’t feel right ….”

Businessman: “So, for those people that are spending money during a recession, it’s a good thing to extract even more from them, which will in turn increase the incomes of others even more, which will enable others to start purchasing. And by forcing some people to consume when they’d rather not, they will actually be richer for it. No need to worry.”

Conscience: “So you mean to tell me that it’s OK to defraud people, so long as we are in a demand-induced recession?”

At which point I think the modern Keynesian would jump in a call me a wiener for making such a stupid analogy. But is it? If people are not spending, then wouldn’t New Keynesian economists support fraud in order to get people spending again? Haven’t we heard that anything that increases spending be desirable at this time? Haven’t we heard that the “ordinary rules of classical economics” are to be ignored and thrown out? Remember, what is part of that old stupid classical economic theory? It’s treating each other honestly, and ensuring feedback between producers and consumers and within each side of the market. Who needs that? It’s outdated.

And if the New Keynesians decide to say, “well, it’s wrong to defraud customers, even if we are in a deep demand induced recession,” then isn’t the cat out of the bag? What makes it wrong? After all, we are told that digging unproductive ditches is OK, and extorting resources from the productive class is OK during this time.

One Response to “Keynesianism, Honest Profits and Natural Law”

  1. Harry says:

    Save this dialogue for one or two of your next books.

    No flattery intended, but it reminded me of Bastiat.

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