Customer Reviews

Where Keynes Went Wrong: And Why World Governments Keep Creating Inflation, Bubbles, and Busts

5 star:		(21)
4 star:		(8)
3 star:		(3)
2 star:		(1)
1 star:		(7)

 

 

The first section What Keynes Really Said consists of short excerpts from Keynes' own books, mostly The General Theory. Lewis sets out to provide the reader with a fair and unbiased understanding of Keynes' views. Going back to the source is a worthwhile endeavor because most people know what they know through a macro textbook using a second or third-generation graphical synthesis of Keynes' idea, or through media buzzwords such as "stimulus" and "consumer confidence".

The second section, Why Keynes Was Wrong mirrors the structure of the first section. In the table of contents, the two sections are lined up in vertical columns. For example, a section in the first part called Spend More, Save Less, and Grow Wealthy is lined up against a section in the second part called Spend More, Save Less, and Grow Poorer.

There are several main themes in book. One is that most of Keynes key doctrines are paradoxical. The most well-known example is the paradox of thrift: saving is good for the individual but if everyone tries to save, then it drives the economy downwards into a bust. Another example is "unemployment equilibrium". In each case, Lewis provides simple, logical arguments against Keynes's paradoxes. The book could be characterized as a defense of common sense against obscurantism and muddle-headedness.

Keynes' reliance on paradox brings to mind what philosopher Michael Levin calls "the skim milk fallacy", which he describes as follows: "According to this paradigm, science always shows that things are the reverse of how they seem. Deep scrutiny of virtually any phenomenon will reveal that everyday convictions about it are wrong. In fact, taking things at face value betrays naiveté, while readiness to debunk is the mark of the sophisticate, what David Riesman called an 'inside dopester.'"

Another theme is Keynes' reliance on his own opinion without any supporting facts. Lewis gives many examples of how Keynes moves through a point in his reasoning that cannot be decided on purely theoretical grounds by recourse to pure opinion without any empirical support. Lewis in some cases cites subsequent empirical studies that contradicts Keynes' opinions (and in other cases, Lewis provides a common sense argument against Keynes' opinion). Where some empirical work existed at the time, Keynes would dismiss with no supporting evidence if he needed things to go in the opposite direction in order to arrive at the result he wanted.

This book fills a missing niche in the literature: a debunking of Keynes for the general reader. I believe that this book would also be useful as a supplement in a macro course. But its most important contribution in my view is that it demystifies Keynes. The ideas in The General Theory form the foundation of modern macro-economics, which is the basis for the modern practice of central banking and pretty much all monetary policy around the world. What I mean by the mystification of Keynes is that, because his theories are so long-established and deeply embedded in academic economics, government, and the public consciousness, it is difficult not to think that there must be something really deep and profound there. Upon reading Lewis' book, it is somewhat shocking to see how weak his arguments are and how poorly they stand up to any kind of logical examination.

I don't believe that any of the people who have thus far written negative reviews for this book have actually read the book; I very much enjoyed it. "Where Keynes Went Wrong may be thought of as the book that [Henry] Hazlitt [Economics in One Lesson: The Shortest and Surest Way to Understand Basic Economics] initially planned to write, or at least something along similar lines. It does not follow Keynes page by page, but rather concentrates on a few key topics. It is meant to be understandable by almost anyone, whether or not a student of economics." The text in reference is John Maynard Keynes - The General Theory of Employment, Interest and Money. And while the great majority of Keynes quotes come from General Theory, Lewis also draws from contemporary news articles, correspondence's and acquaintances recollections.

I suppose the greatest compliment I can pay to this book is this: the title is very accurate. Hunter Lewis performs a great service for the general reader by explaining exactly why there are flaws in Keynes logic, where the flaws are specifically in his work and what the practical flaws are in Keynesian economics. In doing so, Lewis draws much support from preeminent economists Ludwig von Mises - Human Action: A Treatise on Economics and F. A. Hayek -The Road to Serfdom: Text and Documents--The Definitive Edition (The Collected Works of F. A. Hayek); with honorable mentions going to such men as Adam Smith - The Essential Adam Smith, J.S. Mill The Basic Writings of John Stuart Mill: On Liberty, the Subjection of Women and Utilitarianism and Murry Rothbard - Man, Economy and State A Treatise on Economic Principles (Volumes I & II) to name just a handfull.

In conclusion, I think this book is quite good and I highly recommend it. I would point the reader to another book (Ellen H. Brown: Web of Debt: The Shocking Truth About Our Money System and How We Can Break Free), which might give an interested reader a great history and grounding to much of what Hunter Lewis addresses in this book. Lastly, "It is also important to emphasize that the full Keynesian program of cheap money and large-scale government spending (along with occasional add-ons such as protectionism) remains to this day merely a hypothesis. Each time it has been applied, whether by the Roosevelt administration during the Depression, the Japanese government after the bubble of the late 1980's, or the second Bush administration (working with the Greenspan Fed) after the dot-com bubble, it has not produced the hoped for results. There are indeed good reasons to thing that is has caused the very problems it was meant to prevent or cure."

While I am myself a Democrat, and I gather that some reviewers thought the book bashed Obama and the Democrats,I thought Lewis's point is that government economic policies are generally based on Keynesianism, regardless of the party in power. In any case, for me the real value in this book is that Lewis uses Keynes's own words to show what Keynesian economics was really all about, in a way that is so much more readable than Keynes himself.

Lewis' work is easy to read and follow. Well organized into "five parts" (actually a Part Six is called "Envoi") which are aligned in the Contents section which shows visually how Lewis has arranged the chapters between Parts Two and Three; the sections of his work where Lewis contrasts what Keynes said and where he is off. The Endnotes section is also important to understanding Lewis' points since this is where he goes into more detail of certain topics (indicated by superscript letters). Reading these endnotes as they occur brings further insight into Lewis' narrative.

Most works take up one side or the other on economic philosophy. There is more written about Keynes or interpretations of Keynes. There are fewer books about what alternatives may be available to these policies. This is one of the few books, if any, written that compares point by point the differences between what Keynes wrote and counterpoints to his thoughts. As with Marx, who left an explanation of how socialism would work to those who followed, Keynes left much of just how his theories would work to those who followed. Even Keynes himself wasn't a complete Keynesian (as we know it today)! With this in mind, those who interpreted Keynes acting under what they thought where his percepts may not have produced the results Keynes would have desired.

What we do need to understand are the points and counterpoints of the arguments, made by the press, media, and some government officials. This is a good book to read. Especially for those who don't have much say about monetary or fiscal policy; but we have much at stake as participants in the economy that our elected officials (economists who influence them too) are arguing for or against

Found within the pages:

The interplay, often complex with unintended consequences between
- interest rates
- inflation
- taxes
- adding money to the economy (or taking it away) and why this increases prices
- Banks and money supply
- Consumption versus production
- Deflation and inflation
- Animal Spirits and Investor Expectations
... and much, much more ...

An explanation as to why the U.S. health care system has rising costs (supply limited by government interventions, while demand is encouraged through other government policies). Similarly, the U.S. higher education system's rising prices is a result of stimulating demand through loan and grant subsidies while the supply of higher education is relatively fixed (demand growing faster than supply).

He mentions the "paradox of thrift" - where it is virtuous for someone to be thrifty and save, however this is destructive for society as a whole when everyone is saving and not spending (what happens during economic busts).

The point is mentioned where there will always be a bottom decile of poor (a utopia is unrealistic); however, those within this decile are constantly changing so the poor are not the same people over time. In other words, there is a distinction between a statistical category of people, and flesh and blood human beings. The first remains fixed by definition, the later does not as some people outgrow the category's definition and others enter it over time.

Chapter 14 ties Lewis thoughts together with three industry's case studies, housing, drugs companies, and auto, surrounding the mid 2000's bubble and bust to show the impact of a " truly [a] Keynesian world, although not, one thinks, what Keynes himself expected from greater government control of the economy."

Of particular interest is Lewis' discussion in Chapter 16 on policy errors that keep wages, or other business expenses, higher than they would be if both prices and wages fall together (recession). Of note is this same tendency today to keep wages up in addition to adding other business costs such as health care while economy-wide prices fall. Result: stubborn and persistent unemployment since businesses don't have the profits to keep workers let alone hire additional ones.

What the subtitle should really say: What he said and didn't say, but many think he did (not a critique, but a statement as to what the book discusses).

Other works valuable works for a better understanding of the various issues:
The Great Inflation and Its Aftermath: The Past and Future of American Affluence by Robert J. Samuelson
The Ascent of Money: A Financial History of the World by Niall Ferguson
Money: Whence It Came, Where It Went by John Kenneth Galbraith
Origin of Wealth: Evolution, Complexity, and the Radical Remaking of Economics by Eric D. Beinhocker

For a read about perhaps why crisis can be cleansing ... and to a point Lewis makes, that some unemployment and non-home ownership is good - this allows the economy to progress, rather than get mired down and not be able to change. He also discusses how busts are needed for the cleansing function and to redirect investment toward future growth.
Pop! Why Bubbles Are Great For The Economy by Daniel Gross


Wealth Odyssey: The Essential Road Map For Your Financial Journey Where Is It You Are Really Trying To Go With Money?

I am very impressed with "Where Keynes Went Wrong." Lewis does a magnificent job of taking a complex, contentious subject and making it clear as day. He lets Keynes speak for himself, in context, which is invaluable: we don't have to wonder if Lewis is misconstruing an argument or a position, because Keynes's own words are there for us to read and assess independently.

What I found even more helpful, though, is the way Lewis critiques Keynes--sometimes boldly, sometimes with humor, but always with a sharp eye to where Keynesian policy has led us and what it has created. In scrutinizing Keynesian economics, Hunter Lewis offers a warning to governmental wrongheadedness, and suggests alternatives that could put the country on a better and more secure path financially.

I don't mean this to be as hyperbolic as it sounds, but I honestly think "Where Keynes Went Wrong" is one of those Important Books that you encounter only once in a very great while. Highly recommended.

This is an excellent book for those interested in macroeconomics, markets, politics, business, and the overall philosophies that interconnect them all. In other words, if you were interested enough to look at the reviews, then purchase the book. Hunter Lewis has done a masterful job of compiling information that all elected officials should be required to read, and information that would dramatically change politics around the world if voting citizens of the United States understood. The author's point - counterpoint style of refuting Keynes' "General Theory..." (and the policies that have evolved around his name) is somewhat duplicative throughout the book, and does detract from the general flow of the book; but it does accomplish the author's secondary goal of examining Keynsian theories in a logical manner. Hunter Lewis not only explains the risks Keynsian policies pose to economies, but also points that the effect of Keynsian policy (and the Government sponsored enterprises it creates) are even more dangerous for maintaining our democratic republic and liberty.

In Where Keynes Went Wrong Hunter Lewis pulls back the curtain on Keynes. This man, possibly the most influential man of the 20th Century was terribly wrong on point after economic point. Yet his policies are revered by the economic establishment.

If you want to understand why things (at least as of this writing) seem to be going so badly- read this very accessible book.

Lewis examines Keynes' own words and then gives the counter argument for each point. The author pulls Keynes apart in a rational and common sensical way and lays bare an economic philosophy that is deeply flawed at best, and a road to serfdom at worst.

In the months and years ahead, as America faces some of the greatest economic challenges it ever will, this book will serve as a good resource. I `m glad it's on my bookshelf!

Since I've never believed that money "created out of thin air" is the same as money generated by productive work, industry and investment, I've always been against Keynes, ever since my days at university (where my view was in a minority of about one.) Still, this book managed to shock me. Lewis does a fine job of making JMK accessible and in dissecting his main propositions, as advanced in "The General Theory of Employment, Interest and Money". But he also shows very clearly how the policies that have become dogma to most, if not all, G20 governments since WWII, are predicated on contradictory and irrational ex cathedra statements that cannot but lead to more bubbles and busts. Bernanke et al is busy creating the next one right now. Also very readable, for economists and non-economists alike. I finished it in three days."

No matter your economic and ideological predispositions, you owe it to yourself to read this book. It is written in an extremely simple and logical style (there is no need to obfuscate when you have truth and reason on your side). I have been swayed by the author's arguments, but even if you are not, you will have a much better understanding of the Austrian/free market perspective after reading this book. I can say that it actually restored my faith in a free market system.

It was government intervention--not a free market--that caused the ongoing financial crisis. You disagree? Great--the interplay of ideas is healthy and necessary! If you read and contemplate this book, you will understand what Lewis and the Austrian school of economics have to say on the matter. Then form your own conclusions with a clear conscience that you've approached the matter with an open mind. This is a well-written and well-reasoned treatise on an extremely important subject.

I've been waiting for this kind of book to appear since I first read The Failure of the New Economics by Henry Hazlitt(the book that inspired Lewis to write this this one). Hazlitt's work was phenomenal, but it wasn't easily approachable. Lewis has written a 'lighter' book that still makes the case convincingly.

Let me get the bad stuff out of the way first:
1) Economics is a science. This isn't exactly relevant to this book, but since Lewis brought it up on page 44, so will I. Lewis gives us a very confusing example to prove his point(that economics is not a science), but reveals his thoughts by finally saying:
"So, on the whole, it is much better to accept that economics is trying to sort out probabilities, not truths, and it most closely aligned with moral philosophy, also known as values."

Even if it dealt only with probabilities, why would it have anything to do with values? And there are truths in econonomics. We call them the laws of economics.

2) Andrew Jackson abolished the Second Bank of the United States, not the first one. The Federal Reserve is the third central bank, not the second one(p. 103).

3) Murray Rothbard's book is called America's Great Depression, not The Great Depression. Lewis got the name of Robbins' book correct, but messed up Rothbard(p. 106).

4) Lewis could be more convincing with his alternative theories. Mostly this book is a critique of Keynes, but sometimes Lewis tells the reader how economics actually works. He does an okayish job at it and I know what he was going after, but I'm sure some readers will find his analysis too superficial.

Good stuff:

This book is easy to read and if you have a weird sense of humor like me, it's actually fun. There is some repetition at times, which I found to be a good thing. Keynes rarely makes sense, so remembering his arguments after hearing them just once isn't that easy. What this book is really about is how Keynes was wrong, and Lewis does an outstanding job at shredding Keynes' arguments to pieces. Even though I've seen harsher criticisms of Keynes, this book doesn't pull its punches, but calmly and comprehensively explains all that was wrong with Keynes' ideas.

If you wish to know what Keynes said, I suggest starting with this. Hazlitt's longer critique is even better, but that book is a much heavier read.