I'm thoroughly enjoying Robert Skidelsky's biography of him. Seems to make perfect sense.

So what went wrong in the seventies- not just the oil shock, earlier too- and is it a problem for would-be fanboys like me?

How about early Mitterand? That doesn't sound very good. Is The Man at fault there too?

Yeah, on the liberal economist front, i've been having a go at reading some J.K. Galbraith. A book called 'American Capitalism'. It's all about how modern capitalism isn't about competition but the elimination of competition. It was written in 1952, but could have been written yesterday. He's really good, to be honest.

I'm not sure anything "went wrong" with Keynes. He set out a pretty coherent thesis of what to do when you have big problems in terms of aggregate demand and I think events of the 30s and 40s showed him to be largely right.

The problem is, not all economic problems are ones of aggregate demand. But governments acted as if they were (if all you have is a hammer, every problem looks like a nail, etc). So every time there was a problem, they opened up the spending taps. But if your basic problem is that you're not competitive, that's at best a short-term solution and possibly quite counterproductive.

I'm not 100% certain that what Mitterand did could be considered entirely Keynesian. Keynes was big on public spending; I'm not sure he was quite as keen on public ownership.

Yeah, Eliot Spitzer channels Galbraith on that one.

I always understood a major problem with Keynes' system was that it always needed the international finance system to properly work, and Nixon coming off gold in 71 to pay for Vietnam meant that part of the system unwound. Then, you've got the two oil shocks off the 70s which completely do for economies which were becoming more dependent on oil.

Both seem perfectly plausible candidates for blowing things up, but I've not understood how they led to what they led to.

Of course, the crisis was seized upon by thew Hayekians and monetarists who went on to be the useful idiot cheerleaders for inequality who create the modern world by dismantling the good old days.

NHH wrote:


That's one interpretation. Another is that in the long run, Keynesianism (or possibly faulty applications of Keynesianism) caused Bretton Woods to fail by encouraging inflation.

Keynes was a technocrat par excellence (if you'll pardon the expression). Though he believed in fixed exchange rates, he also believed that governments would be wise enough to adjust rates every once in awhile so that you didn't get major imbalances. The problem was that devaluations were never perceived as neutral, technocratic fixes; rather, they were perceived as national humiliations, so governments spent a lot of time and effort defending particular exchange rates rather than admit that they were suffering a lack of competitiveness. The UK went through that once or twice, I think.

Anyways, this aspect of Keynesianism assumed governments would be a lot more rational than they actually were. Are. Whatever.