Tuesday, January 3, 2012

Walking tightropes connecting skyscrapers unprotected...

So what if I said to you, "I'll give you a million dollars if you successfully walk a tightrope connecting two skyscrapers several hundred feet apart."? I suspect, unless you're a funambulist by trade, or terminally ill, you'd, without hesitation, decline. But what if I said "there'll be a safety net, just a few feet below, the whole way. And if you don't happen to make it across, I'll give you half a million just for the effort"?

Per the below excerpt from the book Animal Spirits, a captivating read written by two noteworthy econ professors, the Keynesian would have us believe that, without a law forbidding us from walking tightropes connecting skyscrapers unprotected, we'd indeed walk tightropes connecting skyscrapers unprotected. We in essence are ill-equipped, like infants near kitchen stoves, to act on our own behalf. We need government politicians to slap our tiny hands. To protect us from ourselves, from our "Animal Spirits"...

"Keynes' claim about how animal spirits drive the economy brings us to the role of government. His view of the government's role in the economy is very much like what we are told in the parenting advice books. On the one hand, they warn us not to be too authoritarian. The children will be superficially obedient, but when they become teenagers they will rebel. On the other hand, these books tell us not to be too permissive. In this case they have not been taught to set proper limits for themselves. The advice books then tell us that appropriate child rearing involves a middle road between these two extremes. The proper role of the parent is to set the limits so that the child does not overindulge her animal spirits. But those limits should also allow the child the independence to learn and to be creative. The role of the parent is to create a happy home, which gives the child freedom but also protects him from his animal spirits. This happy home corresponds to Keynes' position (and also our own) regarding the proper role of government."

So then, in the Keynesian's view, the overindulgence, the (for example) destructive risk-taking by financial institutions, which contributed substantially to the recent Great Recession, was not about comfort in believing that government had erected a safety net just a few feet below, but about government allowing access to the tightrope to begin with - essentially allowing animal spirits to go unchecked.

Hmm? I'm thinking different. I'm thinking the safety net's the problem. I'm thinking it's the politicians' animal spirits that need reigning in. I'm thinking, left to our own devices (no safety nets), we'll, as a society (with individuals making real-life [consequence-delivering] mistakes) weigh the risks and, generally speaking, make, with much greater frequency than our policymakers, intelligent grown up decisions.

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