Book Review: The Failure of the "New Economics": An Analysis of the Keynesian Fallacies
Summary
TLDRIn this video, Katrina, a book enthusiast, reviews 'The Failure of the New Economics' by Henry Hazlitt, which critiques John Maynard Keynes' economic theories. Katrina delves into how Hazlitt systematically debunks Keynes' ideas, highlighting the confusion between savings and investing, the concept of involuntary unemployment, and Keynes' advocacy for mercantilism. Throughout the review, she mixes in a cocktail recipe called 'Secret Satire,' humorously connecting it to the book's content. Katrina also questions whether Keynes' work was meant to be taken seriously or as satire, leaving viewers with thought-provoking insights.
Takeaways
- 📚 The host Katrina reviews books, giving synopses and personal opinions on them.
- 📉 Last week’s book praised Keynesian economics and suggested that FDR's deeper implementation of it could have ended the Great Depression by 1933.
- 📖 This week’s book, 'The Failure of the New Economics' by Henry Hazlitt, thoroughly debunks Keynesian economics.
- 🥃 The accompanying cocktail for the review is called 'Secret Satire,' made with bourbon, Italian aperitif wine (Campari), and simple syrup.
- 💡 Hazlitt critically analyzes Keynes' 'The General Theory of Employment, Interest, and Money,' highlighting its flaws and confusing logic.
- 💰 Hazlitt points out Keynes' contradictory views on savings and investment, clarifying that savings are essential for investment.
- 🔍 Hazlitt addresses the concept of unemployment, noting that Keynes introduces unnecessary complexity by creating a new category of 'involuntary unemployment.'
- 📜 Hazlitt's critique references several economists to support his arguments against Keynes' theories.
- 🕵️♂️ Hazlitt speculates that Keynes might have intended his work as satire, misunderstood by his followers.
- 🔄 The review suggests that Keynes advocated for a return to mercantilism, a pre-Adam Smith economic theory that led to many European wars.
Q & A
What is the purpose of the YouTube channel 'Loki's Library'?
-'Loki's Library' is a YouTube channel where the host, Katrina, reads through various books from her library and provides a synopsis along with her personal opinions and analysis. The channel is aimed at helping viewers decide what books to read next.
What was the main theme of the book discussed in the previous week's episode?
-The previous week's episode discussed a book about Keynesian economics, specifically focusing on the belief that if FDR had further embraced Keynesian socialism, the Great Depression would have ended sooner.
What book is being reviewed in the current episode?
-In this episode, Katrina reviews 'The Failure of the 'New Economics': An Analysis of the Keynesian Fallacies' by Henry Hazlitt, which critiques and debunks Keynesian economic theories.
What is the main argument of Henry Hazlitt’s book, according to Katrina?
-Hazlitt’s book argues that Keynesian economics contains numerous fallacies. Hazlitt goes chapter by chapter through Keynes' 'The General Theory of Employment, Interest and Money,' highlighting where Keynes went wrong, and how basic economic terms like savings and investing are misunderstood or misrepresented in Keynesian theory.
What are some of the misconceptions about savings and investing in Keynesian theory as per Hazlitt?
-According to Hazlitt, Keynes simultaneously treats savings and investing as the same thing while also claiming that savings are bad and investing is good. Hazlitt points out that these terms have distinct meanings: savings is the surplus money left after expenses, while investing is the allocation of resources to generate returns. Keynesian theory blurs this distinction, leading to confusion.
What economic concept introduced by Keynes does Hazlitt refute in his book?
-Hazlitt refutes the concept of 'involuntary unemployment' introduced by Keynes, arguing that all unemployment is either voluntary or involuntary. Hazlitt believes Keynes needlessly complicates the matter by suggesting a third category that doesn't exist.
What are some criticisms Hazlitt has about Keynes’ writing style?
-Hazlitt criticizes Keynes for introducing unnecessary complexity and confusion into basic economic concepts. He includes large sections of Keynes' original text to show that Keynes’ work is often unclear, full of typos, and misleading, which makes it difficult to read and comprehend.
What does Katrina say about the historical accuracy of claims related to the Great Depression in the book?
-Katrina points out that Hazlitt debunks the commonly held belief that the Great Depression started with the U.S. stock market crash. Hazlitt argues that the depression began earlier in Great Britain and that the condition of unemployment in the U.S. was prevalent long before the market crash.
What role does union behavior play in Hazlitt's analysis of the Great Depression?
-Hazlitt criticizes both government wage freezes and union behavior during the Great Depression. He argues that wage freezes and unions' refusal to accept lower wages prolonged the economic downturn, worsening unemployment and inflation.
Why did Katrina choose the cocktail 'Secret Satire' for this episode?
-Katrina named the cocktail 'Secret Satire' because Hazlitt suggests that Keynes might have written his theories as a satire, not to be taken literally. This idea is explored in Hazlitt’s book, where he questions whether Keynes was being serious or intentionally ironic in his economic proposals.
Outlines
📚 Welcome to Loki's Library
Katrina introduces herself as the librarian of Loki's Library, where she reviews books from her vast collection. She encourages viewers to subscribe, like, share, and engage with her videos, especially if they are unsure about what to read next. The previous week's book focused on Keynesian economics during the Great Depression and the notion that FDR could have ended the Depression earlier by adopting more socialist policies. This week's book, *The Failure of the 'New Economics'* by Henry Hazlitt, thoroughly debunks those Keynesian beliefs. Katrina also introduces a cocktail called 'Secret Satire' which she will explain at the end of the video.
📖 Hazlitt's Critique of Keynesian Economics
Katrina dives into Hazlitt's thorough dissection of Keynes' *General Theory of Employment, Interest, and Money*. Hazlitt critiques Keynes for misunderstanding basic economic terms such as savings and investment. He points out that Keynes often conflates the two, leading to contradictory conclusions about their roles in the economy. Katrina explains savings as the surplus of funds after consumer spending, while investing involves allocating resources with the expectation of generating profits. Hazlitt’s work highlights Keynes' confusing logic and misconceptions, especially his belief that savings are harmful while investing is beneficial. Katrina humorously notes Bush’s post-9/11 call to shop as a modern reflection of Keynesian thinking.
🤔 The Misleading Concept of Unemployment
Hazlitt refutes Keynes' introduction of 'involuntary unemployment,' arguing that unemployment is either voluntary (e.g., quitting a job) or involuntary (e.g., being laid off). Katrina explains that Keynes unnecessarily complicates the concept by introducing new, vague terminology, which Hazlitt attempts to clarify. Hazlitt meticulously breaks down Keynes' arguments, exposing their flaws and showing how Keynes muddied otherwise simple concepts in economics, much to the detriment of clarity.
🍸 A Satirical Drink for Keynes' Economic Theories
Katrina mixes the cocktail, 'Secret Satire,' while continuing to discuss Hazlitt's critical review of Keynes' work. Hazlitt backs his arguments with references to prominent economists, pointing out that Keynes often contradicted well-established economic principles. Katrina notes that Hazlitt felt somewhat guilty for writing the book after Keynes' death, as Keynes had no opportunity to respond. However, the disarray of Keynes' economic theories demanded a rebuttal. The cocktail serves as a symbol of the satirical undertone Hazlitt perceived in Keynes' work, raising questions about whether Keynes may have been mocking his own ideas.
🔍 The Medieval Roots of Keynes' Theories
Katrina reveals that Keynes' economic theories, despite being celebrated as modern innovations, were actually rooted in mercantilism—a medieval school of thought that led to many European wars. Hazlitt critiques Keynes for advocating a return to mercantilist policies, which contradict the free-market principles established by economists like Adam Smith. Katrina emphasizes that such policies contributed to conflict and economic stagnation, making Keynes' ideas both outdated and dangerous.
🎭 Was Keynes Joking All Along?
In the closing analysis, Katrina reflects on Hazlitt’s suggestion that Keynes' *General Theory* may have been a grand satire. Hazlitt notes that Keynes often wrote with a playful tone, possibly intending his work to be a joke that was misunderstood by his followers. Katrina ponders the idea that Keynes may have been a satirical genius, deliberately creating confusing theories as a form of intellectual humor. The 'Secret Satire' cocktail is named in honor of this notion, encapsulating the ambiguity and irony that Hazlitt believes defines Keynes’ legacy.
Mindmap
Keywords
💡Keynesian Economics
💡The Great Depression
💡Savings
💡Investing
💡Involuntary Unemployment
💡Frictional Unemployment
💡Henry Hazlitt
💡Mercantilism
💡Cocktail: Secret Satire
💡Wage Freeze
Highlights
Introduction to the channel and its purpose: Katrina reviews books and provides her thoughts, encouraging viewers to subscribe and engage.
Discussion of last week's book on Keynesian economics and the belief that more socialism could have ended the Great Depression earlier.
Introduction to this week's book, 'The Failure of the New Economics' by Henry Hazlitt, which aims to debunk Keynesian economics.
Katrina introduces the accompanying cocktail, 'Secret Satire,' which ties into the satirical nature of the book.
Hazlitt's monumental effort to read and critique John Maynard Keynes's 'The General Theory of Employment, Interest, and Money,' identifying its flaws.
Keynes's confusing treatment of the concepts of savings and investing, and Hazlitt's effort to clarify these terms.
Critique of Keynes's concept of involuntary unemployment and Hazlitt's argument that all unemployment is either voluntary or involuntary.
Hazlitt's detailed chapter-by-chapter refutation of Keynes's work, using extensive citations and references from other economists.
Introduction of mercantilism and Keynes's surprising advocacy for a return to this outdated economic theory.
Katrina's insight on how Keynes's ideas could have influenced postmodernist thought, particularly in philosophy.
Katrina speculates on whether Keynes intended his work to be taken seriously or if it was meant as a satire.
Hazlitt's suggestion that Keynes might have been using satire, and the possibility that his followers missed the joke.
Final reflection on the book, with Katrina expressing a preference to believe Keynes was a satirical genius rather than a flawed economist.
Katrina's closing message, encouraging viewers to subscribe and stay tuned for future content.
Transcripts
hello hello welcome back to Loki's
librari and if you are new here welcome
I am your librarian Katrina and this is
where I am reading through the enormous
library books that you see behind me and
then I give you a quick synopsis and
tell you what I think about them so if
you like books just aren't sure what to
read next hit that subscribe button like
and share my videos and let me know what
you think in the
comments now last week's book and kind
of this whole month talking about the
Great Depression economics things that
happened there last week's book was all
of Twitter over how great keine
economics are and the firm belief that
if FDR had gone further down the road
towards KY and socialism then the Great
Depression would have been stopped in
1933 when FDR took over this week's book
The failure of the quote new economics
and Analysis of the Kian fallacies by
Henry
Haslett uh thoroughly debunks that
belief and the accompanying cocktail is
called secret satire the reason for
which I will include at the end of this
review it is 40 milliliters of bourbon
10 Mill of poan 15 m of Italian appara
wine and 10 m of simple syrup I think
it's pronounced po po 10 it might also
be pin or poin there was a couple of
different pronunciations online it's an
Irish
Lor
that let's see what is it what is
poan triple
distilled and pop copper Stills that the
malted barley triple distilled in Copper
Pot Stills and cut with Irish Spring
Water
okay let's do this let me let me
start I don't wanted to like tide it
out are you okay so we start with the
bourbon here now let me start by saying
that Henry Haslet undertook an
absolutely herculian effort to read
through John mayard King's book the
general theory of employment interest in
money and attempting to
untangle this mess the king put out
there and it is a hot goddamn mess um
Haslet goes chapter by chapter where's
my Mill markings on this stupid
thing he goes chapter by chapter through
kean's book locating everything that
keen's got wrong some things that keen's
actually got right and my God typos
typos everywhere that's the wrong right
to use in that situation uh everything
that keen's got right and something that
ke almost gets if he would just
understand some basic terms of economics
terms like savings which seems pretty
straightforward and investing which
maybe not as straightforward the average
American but ke seemed to simultaneously
believe that they are both the exact
same thing and that savings is bad while
investing is good um I myself was very
confused by this logic uh let me see if
I can you know let's just so we're all
clear let's let's go to investopedia.com
all right so we know what what the these
terms actually mean savings refers to
the money that a person has left over
after they subtra subtract their
consumer spending from their disposable
income over a given period of time and
consumer spending means everything from
paying for housing because you're
consuming the residence you're living in
to food purchases the wants that you
need the wants you have like television
and the needs you have like food right
that's all consumers spending
and then whatever is left is is your
savings right it's money that you have
left over so savings therefore
represents a net surplus of funds for an
individual or household after all
expenses and obligations have been paid
that's what savings is that's the
recognized acknowledged meaning of the
word savings by economists pretty much
everywhere um investing broadly is
putting money to work for a period of
time in some sort of project or
undertaking in order to generate
positive returns I.E profits that exceed
the amount of the initial investment it
is the act of allocating resources
usually Capital I.E money with the
expectation of generating an income
profit or gain so investing is where
most people actually make their money
it's not from
savings uh savings are bad as far as ke
is concerned and everybody should be
spending themselves down to zero to do
your part for the
economy which um if you doubt that that
is alive and well as ethos just go back
to 911 when Bush said we should all go
shopping so that the terrorists don't
win that's basically what keyan
economics is go spend all of your
money the Italian operati wine can be
anything that qualifies as such Campari
is what I had on hand so I went with
Campari for this
one now let's see here clearly saving
and investing are not the same thing but
keing seems to treat them as
interchangeable except for when he you
know says that savings are bad and
investing is good but you won't have
anything to invest if you don't have
savings he seems to skip that logical
step uh he introduces terms that make no
earthly sense for example this is a
quote from the book according to kean's
classical Theory allows only for two
possibilities frictional unemployment
and voluntary unemployment and ke's that
introduces the idea of involuntary
unemployment except as Haslet points out
all unemployment is either voluntary or
involuntary frictional can be voluntary
or involuntary examples of which might
be okay involuntary someone is
terminated maybe you got fired for
something or maybe the business you're
working for shuts down that's
involuntary
unemployment voluntary unemployment
would be you quit all right or your
family is relocating so you have to
leave your job and you're going to be
unemployed while you look for a new one
at your new location that would be an
example of voluntary
unemployment but there's no third
level of unemployment however much
Haslet would like to make it seem there
is there is
not
so those are just some of the very muddy
waters I don't know what that was that
um Keen has introduced into the world of
economics
and and ke goes out of the way to muddy
those Waters as much as possible around
very basic terms and Haslet does
everything he can to un muddy the waters
which is really hard if you've ever
tried basically all you can do is wait
for the you know turbulence to die down
and uh has that held nothing back in his
attempt he he did a pretty decent job in
debunking everything Keen says uh he
does say right at the beginning that he
feels kind of bad writing a book like
this after keen's death not that it
matters I I think that keing was dead
before Haslet became like really into
the economic scene but I might be wrong
on my time line but um he felt bad about
that because ke gets no opportunity to
rebutt what data Haslet provides but
after rooting through keen's work I mean
he literally could not not write the
reputation that he did cuz kean's work
is so bad and confusing and misleading
about everything simple syrup about 10
mlit this is a stud cocktail so let me
stir this I did the thing again where I
left the lid to strain this out upstairs
and I was going to have to pour very
carefully this is technically supposed
to be poured into a highball glass I
don't have a highball glass or I do but
I think it's dirty so carefully pour
this in here a secret satire cocktail so
chapter by chapter he shuts Keane's work
down uh including citations and
references from economists from John
Lock through Ludwig Van mesus Fa hyek l
Albert Han Benjamin
Anderson um p I mean basically anybody
any reputable Economist that has written
articles refuting one ASP aspect or
another of keyan economic thought he
locates it adds the chunks that are
relevant to the specific thought he's in
the middle of debunking and explains why
ke is
wrong and he doesn't like misquote
keen's he literally takes huge chunks of
keen's text and says this is the page
it's on his book this is what it says
word for word exact duplication this is
why he's wrong and was it was a
Monumental task to write and to read
okay look Joan look is kind of the
exception here lock look whatever
because he predated kees by a couple of
hundred years the only reason L comes up
into comes into play is there's like one
point on which he and Keane seemed to
agree but as Haslet points out L when he
was writing did not have the advantage
of some of the great economic thinkers
that came after him that refuted the
point he was making which is that
interest rates are purely a monetary
phenomenon they are not there's a lot
that goes into to interest rates not
just money H well that is an interesting
flavor Pro flavor profile one of the
interesting points that stood out to me
and I tagged it specifically is that in
the last week's book the author Robert S
Maan made the declarative statement that
the Great Depression started in America
with the stock market crash and um that
was conclusively proven wrong the this
is a direct quote from the book the
condition of comparatively stabilized
unemployment existed in the United
States from about 1931 to 1939 it began
sooner than that in Great Britain from
about
1925 so if unemployment was one of the
metrics of the Great Depression that was
a global phenomenon then we have some
not just that but the wild rampant
inflation in Germany in the 1920s was
also a massive part of that so in both
cases depression actually in all cases
Depression was exacerbated by Frozen
wages uh it turns out Hoover placing a
wage freeze on people was the absolute
worst possible thing he could have done
the other side of that coin were the
unions refusing to accept lower wages um
this was a two-party fault here the
government for freezing the wages the
unions for allowing the freeze to stand
and not being willing to accept lower
wages temporarily to pull the General
market out of a slump um there's a lot
more to it than that but that's a very
rough like dummy down version of it now
additionally and I do not I did not know
this and I do not know if this is still
true because this book was written in
1958 so I don't know how Union contracts
have changed in the last 70 years but
when this book Was Written Union
contracts included a bit where union
wages adjusted with inflation so as the
dollar you know as inflation occurs
union wages rise to match that that's
actually feeding inflation it's not
helping anything so at least now again I
don't know if that's still true it's
been 70 years since this book was
written that may have changed some if
that's the case if if if it hasn't
changed though then that's certainly
isn't helping everything that's going on
these days because that wage lock
encourages a Perpetual state of
inflation and prices never
stabilize we are seeing that now which
is makes me why why I kind of wonder if
that's still true uh this book was a bit
of a slug to get through not because
Haslet is unclear he he is Crystal Clear
in his
explanations but because he has to
include those large tracks of kean's
original of kean's original text right
because otherwise people say oh you're
misquoting him you're taking them out of
cont context well he he leaves as
everything as contextually in place as
he can and it is Agony to try and read
through like my eyes would gloss over
and I imagine this is probably true of
most people who read it their eyes gloss
over and then they think oh this guy
must be really smart because I don't
understand what he's saying or maybe
he's just maybe he doesn't know what
he's saying either and so he's trying to
make it sound like he's smarter than he
actually is that that is also a
possibility that never seems to occur to
people I mean I I actually developed a
theory of my own while reading this book
but it's more about philosophy than
economics I I think that Jean Paul sart
the uh you know founding father of
post-modernist thought probably read
keen's general theory and thought that's
it if I write a confusing amount of
this ISS absolutely nothing but
uses a lot of words people will think
I'm super smart and canonize me and uh
followed kean's lead into writing a
bunch of that would get his
name immortalized for writing a bunch of
confusing it's very
roundabout the uh final uh puzzle piece
that kind of made my
eyes go big and my jaw hit the floor is
not so much that kenian thought has
become the poster child for Marxist
socialism although it's certainly been
used to say hey yes this could all work
um is that what keing has given credit
for his Grand contribution to modern
economics is positively medieval all
right and I mean that literally that
that's why it's the failure of the new
economics right that's in quotation
marks literal sense he he Advocates a
return to mercantilism which was the
economic school of thought pre Adam
Smith I roughly you know 15th 16th
century up until the 18th century
mercantilism was the name of the game
and uh Smith wrote about lazy Affair in
the 18th century so mercantilism ruled
the day before that so all through the
you know late Medieval ages late Middle
Ages led to many of Europe's Wars I mean
like literally all the wars from the
fall of Rome up until America Embrace
Smith's La Fair were ultimately the
result of
mercantilism so what is mercantilism so
returning to investopedia.com we get
mercantilism was based on the principle
that the world's wealth was static and
consequently governments had to regulate
trade to build their wealth and National
Power many European nations are
attempted to accumulate the largest
possible share of that wealth by
maximizing their exports and limiting
their Imports via tariffs so he
advocated
actively for a return to a system led to
lots of war and death which flies in the
face of another famous economist
Frederick bastiat when Goods cross
borders armies don't if you're trading
with somebody you're less likely to go
in and try and steal their or tax
them into into submission and Oblivion
before I close out the reason that I
went with the secret satire
cocktail for this one is that there is
some debate if towards the end of keen's
life did he recant his general theory
and and he didn't not quite um he he
made some noises like maybe he was going
to but died before he did now throughout
failure of the new economics Haslet says
that he can't tell if kees is joking or
being intentionally obtuse like multiple
quotes he's like I can't tell if this
guy is serious about what he's saying or
if he's being deliberately obtuse is he
joking is he being satirical is he being
tongue and cheek and
um at the end of his book at the end of
his discourse on K's book has says and
this is a direct quote ke was a
brilliant man much of what he wrote he
wrote with tongue and cheek for the
pleasure of paradox to
epor I'm going to mispronounce this is
French aat labazi in the spirit of wild
Shaw and the Bloomsbury Circle perhaps
the whole of the general theory was
intended as a huge 400 page joke and
kees was appalled to find his disciples
who took it all literally wit and satire
are dangerous weapons when not used in
the service of good sense end of quote I
kind of wonder that about that and I
think Haslet wondered about that too
what of keen's writing was purely
intended a satire Allah the great
titanium McGrath Oscar wild George
Bernard Shaw and Gad sad right what if
he meant to
Satie the this great socialist school of
thought and the Lemmings missed the joke
and took it all way too far hence the
cocktail secret
satire um it's secret and I'm kind of
choosing to believe that that that ke
was a satirical genius and not an
economic and that uh all the
political Lemmings and wnab be Economist
who worshiped the ground he walked upon
just didn't get the
joke because to believe otherwise is to
cry and that's it for this week if you
liked what you saw don't forget to
subscribe I'll see you guys next Sunday
bye
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