Indispensable Economics Keynes: Alive and Well in Conservative Circles

May 15, 2009

I have never listened to the Glenn Beck radio show, but I have enjoyed watching his television show, first on CNN Headline News, and, more recently, on Fox News Channel. I also agree with almost everything he says on that show, and I am impressed with his guests, especially, but not exclusively, the economists. However, today he blew it!

Glenn has been recommending the book Animal Spirits by two economists, Robert J. Shiller and George Akerlof. Now, Glenn has been complaining for months, ever since the original bailout during the Bush administration, about excessive government spending, and has been properly championing the idea that the free market can get us out of this economic mess. Since the Obama administration took over, Glenn has also ratcheted up his criticism of government spending, and the Federal Reserve’s printing of money, which economists call creation of credit ex nihilo, i.e., out of nothing.

So, what is with Animal Spirits? In the interest of full disclosure, I have not read the book, but now I do not have to. Shiller and Akerlof were on the Glenn Beck television program today. In his book The General Theory of Employment, Interest and Money (1936, p. 161), Keynes tells us that almost all of our economic activities are not a result of studying a situation, and estimating the probabilities of success or failure, but merely "animal spirits," by which he means "a spontaneous urge to action rather than to inaction." This is akin to what former Federal Reserve Chairman Greenspan called "irrational exuberance." According to what Shiller and Akerlof said on the show, our current economic problems are caused exactly by these animal spirits, which make people make business decisions based on emotional factors such as "confidence" or "trust." In addition to this, according to them, the only remedy to this "animal spirits" situation is, wait for it . . . fiscal policy (i.e., government deficit spending) and monetary policy (i.e., creation of credit ex nihlo by the Federal Reserve).

What nonsense! To make things worse, Glenn Beck, who has been complaining for months about government deficit spending and the Federal Reserve’s printing of money, thought that this was a great idea and a great book, recommending it to all his viewers.

The truth is that economics is a science and we know exactly what has caused the economic crisis we are in—government deficit spending and creation of credit ex nihilo by the Federal Reserve. (I have written about this in other articles in this blog.) These activities send false signals to entrepreneurs and other business people regarding prices and costs, and they make bad decisions. The fact that Freddie and Fannie were in the government’s pocket made things even worse, as well as the Community Reinvestment Act, which threatened banks with penalties if they did not lend to minority potential borrowers even if they were unqualified.

This whole scenario was predicted long ago by Ludwig von Mises in his Theory of Money and Credit, which was originally published in German in 1912, and also, more recently by Jesus Huerta de Soto, in Money, Bank Credit and Economic Cycles, originally published in Spanish in 1998, long before the current crisis erupted. It is a shock that Glenn Beck, a fierce opponent of government tampering with the economy, has now become the Dr. Frankenstein of the resuscitation of Keynes!

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