Across the Great Divide

Whether Robbie Robertson was talking about crossing a gender gap or just the Rockies, I care not; I'm talking about banding together Keynes and the Classicals.  I have never seen or heard about any writer who clearly lays out the difference between Keynesians and...non-Keynesians...in the way I think about it.  So, I'm going to offer an informal take, an inchoate rant on their differences and see if I can get a useful reaction in the comments.

To me, the whole debate is really about one fundamental distinction, but I am not sure I can put an exact, understandable name to that distinction.  But here are three distinctions that I can name and are close to what I am talking about.  Moving from the general to the specific, Keynesianism vs. non-Keynesianism, these distinctions are:

• the seen vs. the unseen,
• accounting cost vs. economic cost, and
• aggregate measures vs. disaggregated revealed preference.

The elements I associate with Keynesian thought revolve around economic phenomena which are commonly discussed, generally tangible, and often quantifiable.  These phenomena include the "unemployment" and "output" that so concerned Keynes in his reactions to the Depression.  Now, I come not to bury Keynes but to praise him; I think the classicals were generally concerned with the same phenomena, and his analysis of such phenomena is I think generally superior to theirs.  But to my eyes -- and I am not a voracious reader by any means, so please offer evidence to the contrary if you have it -- Keynes and Keynesians, so focused as they were on the commonly-discussed, the generally-tangible, and the often-quantifiable, were on a track only roughly aligned with what people really care about.  I don't know anyone whose primary goal in life is to be "employed" or to maximize his "output"; meanwhile, I know a lot of people who are highly interested in a little thing called love, and everyone could use more time on break.  Keynes, foot a-stompin' on the neck of the bogeyman Unemployment, never seems interested in helping anyone maximize leisure, let alone marital bliss. 

So while it's nice to know that the people in one's geographic area are largely employed and cranking out stuff, most persons care more about whether they personally are able to achieve their individual goals.  However, the General Theory was a bit short on dealing with life goals as conceptualized by real people (and much, much shorter on spinning the occasional humorous anecdote to keep it lively).  Having one's pay-stub-recorded income increase 3% year-over-year is nice, but 10% less income and 25% less stress may be better; Keynesian analysis of Y, or even W/P, only waves its hands at this tradeoff.  Looking at macroeconomy-level data makes matters even worse, as aggregate statistics will always struggle to capture the essence of improvement -- does 3% higher GDP and 0.5% lower leisure time per capita represent improvement over last year, or doesn't it?  Or does such a question even make sense?  We lack the data to compare this year's GDP to what this year's GDP would have been if we'd gone in on Saturdays, much less whether we even wanted to work weekends.  All we know is that those statistics are a (lousy) summarization of the day-to-day choices (from a universe of alternatives) that 300 million people made over two years' time.

The anti-Keynesians miss the point too, however.  The classicals didn't see any place for "demand" in determining "output", but Keynes was absolutely correct:  it matters how much stuff we want, vis-a-vis non-stuff desires.  If people decide to put less effort into hugging and more into widgets for export, by golly, GDP is gonna go up.  It seems like even now much of the opposition to Keynes comes from this naive place where demand can't possibly matter for output, because if something hasn't been "produced" it can't be "consumed", ergo, all that matters for output is supply.  But if we're trying to figure out what causes Gross Domestic Product to be at a particular level, then it matters how much people want the things that make up Gross Domestic Product, which I'm here to tell you does not encompass all human desires.  (Oh, I'm sorry, I have to assume that it's "correlated" with them, else I may be put on probation down at the econ frat.)

In summary, this is what I've got:  Keynesianism is useful for explaining why we see the national accounting statistics we see, because shifts away from demand for whatever's not part of "output" and into demand for "output" matter.  And, really, hooray for explaining national accounting statistics better.  Unfortunately, as the numbers show, no one fell in love with and got married to a national accounting statistic last year.