Book Review: The Failure of the "New Economics": An Analysis of the Keynesian Fallacies

Summary

In 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

00:00

📚 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.

05:00

📖 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.

10:03

🤔 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.

15:04

🍸 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.

Keywords

💡Keynesian Economics

Keynesian Economics refers to the economic theories proposed by John Maynard Keynes, focusing on total spending in the economy (aggregate demand) and its effects on output and inflation. In the video, the speaker discusses Keynesian Economics critically, particularly how Keynes equates saving and investing and views saving as detrimental to economic growth. This theory supports the idea of government intervention during economic downturns, which the speaker associates with the Great Depression era policies of FDR.

💡The Great Depression

The Great Depression was a severe worldwide economic downturn that took place during the 1930s. In the video, the speaker ties the discussion of Keynesian Economics to this period, noting that proponents believe Keynesian approaches could have ended the depression sooner if FDR had pushed further into socialist policies. The book being reviewed critiques such economic beliefs.

💡Savings

Savings refers to the money left after an individual's expenses have been paid. In the video, the speaker contrasts this with investing, explaining how Keynes conflates the two terms, which leads to confusion. According to the speaker, Keynesian Economics undermines the value of savings, promoting spending down to zero as a way to boost the economy.

💡Investing

Investing involves allocating resources, usually money, to a project or undertaking in hopes of generating returns. The video explains how Keynes differentiated between savings (bad) and investing (good), yet the speaker criticizes this by pointing out that investing can't happen without savings, revealing what they see as a flaw in Keynes' logic.

💡Involuntary Unemployment

Involuntary unemployment occurs when workers lose jobs through no fault of their own, such as layoffs. The speaker references this concept to explain how Keynes introduced the term to describe unemployment caused by factors beyond the individual's control. However, the video argues that this concept is redundant because unemployment is either voluntary or involuntary.

💡Frictional Unemployment

Frictional unemployment refers to temporary unemployment that occurs when people are between jobs. In the video, the speaker criticizes Keynes for introducing unnecessary new terms like 'involuntary unemployment,' arguing that frictional unemployment already covers this, as it can be either voluntary or involuntary depending on the circumstances.

💡Henry Hazlitt

Henry Hazlitt was an economist and journalist who wrote extensively on free-market economics. In the video, the speaker reviews Hazlitt's book 'The Failure of the New Economics,' which critiques Keynes' theories chapter by chapter. Hazlitt argues that Keynes' ideas are misguided, often using direct quotes to refute Keynes' claims with detailed analysis.

💡Mercantilism

Mercantilism was an economic theory from the 15th to 18th centuries that focused on building a nation's wealth by maximizing exports and limiting imports. The speaker highlights that Keynes advocated a return to this outdated system, which led to wars and economic stagnation in the past. Hazlitt's critique of Keynes suggests that such a return would be disastrous for modern economies.

💡Cocktail: Secret Satire

The 'Secret Satire' cocktail, a mixture of bourbon, Italian wine, and other ingredients, is introduced in the video as a playful addition. Its name symbolizes the speaker's theory that Keynes' work may have been intended as satire, poking fun at socialist economic ideas that his followers misunderstood and took too seriously.

💡Wage Freeze

A wage freeze occurs when wages are held constant without increases, regardless of inflation or economic conditions. The speaker discusses how wage freezes during the Great Depression, under President Hoover, worsened economic conditions by preventing wages from adjusting naturally to market forces. The unions’ refusal to accept lower wages during this time is also criticized.

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