One of the great mysteries of the Internet -- right after Hitler or cats (or Hitler cats) -- is why the Internet hates John Maynard Keynes so much.
When Foolish fund manager Bill Mann innocently pointed out Keynes' awesome value investing track record -- which has nothing to do with Keynes' macro theory -- the comments quickly devolve into name-calling Keynesian economics. Mann's experience has not been unique. I find this animosity especially puzzling given that the Keynesians have done, as far as I can tell, the most accurate job of describing the crisis we currently face.
I believe the animosity is due to five sources:
1. The Internet has a straw-man vision of Keynes
There seems to be a perception on the Internet that Keynes was a "tax and spend liberal" who believed in unlimited deficit spending all the time. This isn't really correct. Keynes argued in favor of government spending during recessions, but thought that deficits should be paid off during boom times. Perpetual deficits were never a part of the Keynesian agenda (though some politicians have interpreted it that way).
Similarly, Keynes was skeptical that you could really do much with monetary policy when in a "liquidity trap," i.e., when interest rates approach zero but yet corporations and individuals sit on cash. So I don't think it's correct to ascribe quantitative easing to him. It is true, however, that Keynes was a fan of fiat money and thought gold a "barbarous relic."
Furthermore, if one reads Keynes, it's clear that he doesn't want to destroy capitalism and impose some Marxist hegemonic government. Being trained in the classical model, Keynes had great respect for it, but at the same time he realized that during recessions the government should become the customer of last resort, i.e., spend when no one else would. This is a modification of classical thought, not a wholesale rejection of free-market capitalism.
To those of you who have actually read Keynes, but still have some objections -- I'm thinking John Cochrane or Greg Mankiw -- your criticism is likely of the more measured sort and you are not really the subject of this piece.
2. The Internet wants to ascribe meaning to suffering
One of the implications of Keynesian Economics is that suffering during recessions is largely self-imposed and can be fixed. Hence Paul Krugman's outrage in his book End This Depression Now!
Since people do suffer during recessions, I think there is a tendency to want to say that it wasn't all for naught, when Keynesianism says it largely is.
3. The Internet loves to punish
As a corollary to the above, we want to believe that the pain of recession is serving a purpose in punishing the wrongdoers: All those foolish people who bought homes they couldn't afford should get what's coming to them. General Motors (NYSE: GM) shouldn't have been bailed out when it made bad business decisions. Those greedy bankers who made foolish loans should experience damnation and hellfire. Justice should be served. In Peter Schiff's lingo, "We need a day of reckoning."
This "economics as morality tale," however, often runs contrary to our self-interest. As Warren Buffett pointed out, without TARP we probably would all be up a creek. As much as people (including Krugman) love to hate on Citigroup (NYSE: C) or Goldman Sachs (NYSE: GS), they do serve a purpose to our economy that would be hard to replicate. The alternative to TARP would, I think, have been a full-scale nationalization of the banks, and I have a feeling the libertarian sect wouldn't be too happy with that, either.
But still, we insist on punishing even when it's contrary to our well-being. This isn't surprising.
Behavior economists have run real-life tests of what is known as the "Ultimatum Game": In this game there are two players. One of the players is given $100 and asked to split it between him (or her) and the other player. The player can take $99 and give $1 to the other player, split it 50/50, give it all to the other player, or anything in between. But there is a catch -- the second player must approve of the deal, or neither player gets anything.
It's in the best interest of the second player to take whatever offer the first player offers. Even if the first player only offers $1 to the second player, the second should still take the deal and be $1 richer. It should not matter to the second player that the first player is taking $99 for himself, because to reject the deal would be to opt to receive nothing instead of $1.
But of course, when economists test this out, that's not how people behave in the real world. They'll reject the $1 deal in order to punish the first player, even though it's against their own self-interest.
4. The Internet thinks debt is a four-letter word
Well, strictly speaking, debt is a four-letter word. But you know what I'm talking about.
There is, I think, a puritanical impulse against debt. Our moms and dads told us that debt is bad. So when Keynesians tell us that the government needs to go deep into debt to revive the economy, it seems contrary to what mommy and daddy taught us.
The fact is debt can be bad. Excessive leverage was no doubt a major problem for Citigroup, Goldman Sachs, Bank Of America (NYSE: BAC), et al. It also, no doubt, helped get automakers and homeowners into trouble. And carrying high-interest credit debt -- the kind your mom and dad were likely thinking of -- is almost never a good thing.
But it's important to realize that what may be good or bad for an individual person or company may not be good for the economy as a whole. This is the basic idea behind Keynes' "paradox of thrift." It may be good for an individual to be thrifty and save, but if everyone does it, we'll all be poorer (because there will be less economic activity), and there will ironically be less to save.
In the same way, deleveraging may be good for Citigroup or your Uncle Cletus, but if everyone tries to do it at the same time we run into problems. To paraphrase Warren Buffett, if everyone is trying to get liquid then someone else needs to lever up. And the only entity powerful enough to handle that is Uncle Sam.
And finally...
5. The Internet fetishizes the natural
I think this is most encompassing objection. The Internet seems to fetishize the natural, and view things that are "artificial" with great suspicion. You can see it in the popularity of "natural" health sites and blogs, homeopathy, vaccine denialism, the rage for banning circumcision and all-natural attachment parenting, and finally the suspicion surrounding fiat money.
Keynesian, by design, involves a lot of artifice. It involves fiat money, it involves government-imposed stimulus, "manipulation by the Fed," and it involves admitting that the all-natural free markets sometime need artificial growth hormones.
This has not been lost on the goldbug sect. Peter Schiff throws around the word "artificial" when describing government action to save economy (he says we should just "Let it all implode"). Jim Grant -- who I have great respect for -- likens our economy to the fake canvas sky in The Truman Show.
This anti-artificial streak in the Internet and against elite institutions has led it squarely into the arms of gold and the Gold ETF (NYSE: GLD) -- something Keynes despised. The goldbugs return the sentiment.
But I think they forget that there is much that is artificial that we rely on to fix problems, including WD-40, duct tape, the police, white lies, and life-saving medicine.
We trust our bodies to cure themselves most of the time, but not all of the time. The same should be true with our economy.
