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An essay that proposes a Keynes think-tank

By       Message Brian Coyle     Permalink
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Inspired by Rob Kall, here's an idea for a liberal think-tank:

Most think-tanks are conservative, though the biggest split down the middle. Few think-tanks are liberal; the ones on the left call themselves progressive, not plain vanilla liberal. Progressives attack right-wing ideas vigorously, and research detailed policy. But they don't embrace a prescriptive economic framework, preferring to redefine previous concepts ("smart government" replaces "big government").

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Conservative think-tanks often express a core economic belief, with breathless anxiety and slogans, not necessarily theory. But Freedman and Hayek provide frameworked ideas that trickle out to the public sphere. In the think-tank idea market, ideas that revere the market seem highly marketable.

The right recognizes idea value, and makes preemptive war on the liberal's best theoretical candidate: John Maynard Keynes. They attack Keynes because he's the most important, comprehensive, and politically prescient economic theorist in a hundred years. Keynes - not Keynesianism - is the best economist to center a liberal think-tank around.

Liberals ran amuck in the 1970s, partly because they misused Keynes as a handy label, perhaps from misunderstanding, since post-WWII macroeconomists egregiously distorted Keynes theory to fit neoclassic assumptions and mathematical functions. Keynesianism left a bad taste of stagflation, but a silver lining may be that today's thinkers will start with Keynes the original, not the synthetic version. Organic Keynes, not robotic Keynesianism.

What would Keynes-oriented think-tank look like? It might have four areas of special interest: wages, business cycles, consumption, and the impact of seniors.

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It would have a research focus on wages, but not over-emphasize minimum-wage politics. Instead, a Keynes think-tank reports on wage relations, wage interaction with personal credit, wage integration in households, and aggregate community wages, for example. Most important, the impact of wages on supply and demand expectations would put a spotlight on how it works as an economy's key variable.

The Keynes think-tank asserts that wage expectations (not expected income, which asset-holders muddy with tax obsession, for example) drives supply in big ways. This critical idea is not the whole of the matter, but sets the stage. Keynes never demands we worship demand. Instead, demand's expectation is key to supply, and supply-side business people have unique control, since they can predict wages as well as harvest them with sales.

The Keynes think-tank surveys business leader wage expectations (for employees, not their own compensation), and reports how leaders finesse their predictions with output plans. Today we hear about business "uncertainty", but a Keynes Tank can shift talk to business "expectations". Since it takes employees to work for wages, and "wage expectation" is a key variable, this brings workers, those pesky subjects, citizens, and wealth generators, back into the picture.

Companies do not have the luxury of patience: workers and creditors must get paid. Uncertainty implies business won't invest in wages or borrow, because they lack confidence. But business uncertainty is a function of different expectations, for example of future costs and sales. Conservative business owners complain new regulation will incur definite costs, indeed that seems to contradict a claim of uncertainty. But if regulation benefits aggregate regionally or nationally, the owner has a comparatively vague sense of their outcome. Thus his cost estimate wobbles over his benefit estimate.

If a business owner can estimate his own costs better than society's benefits, an outside organization like a think-tank may estimate the business's share of society's benefits better than its costs. Wages provide a statistical fulcrum that integrates regulatory benefits and costs; by presenting policy results in wage-based terms, the Keynes think-tank transitions debate away from reactionary instincts.

The important issue for the Keynes think-tank, then, is to identify how regulatory benefits aggregate through wages and integrate with business costs. The think-tank's job is to determine this at region, sector, or firm levels, depending on where political debate requires it.

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For example, Firm XYZ now offers 3500 employees health insurance. Examining new health care legislation, XYZ's owner doesn't see how he can offload employee costs onto it, nor sees the kind of rationing he knows would curb costs, though this he dare not speak. Since he doesn't like the current administration, the owner is willing to pay others to trumpet the legislation's probable costs.

Owner XYS will accept that if insurance premiums decrease he could raise wages; he knows these costs limit wage negotiations. He may resist any transmission of health insurance savings to his labor force, but that's his personality. He still appreciates that lower health costs aggregated nationally would generate revenue growth for his company (unless his firm is a health insurer).

Owner XYZ may remain a conservative, but his anti-regulatory instincts, voiced by the nominal politician he supports, are debatable, literally. If the Keynes think-tank empirically demonstrates that XYZ's market has a health insurance constraint, the think-tank can also predict XYZ revenue after new regulation. A business owner lacks precisely this ability to see beyond his particular workforce, peer network, creditor demands, and Type-A instincts. The Keynes think-tank doesn't attack these diffuse vectors as such. Instead it condenses wage benefits in terms that fit a balance sheet.

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I write books, run a small investment consultancy, and serve on a very small school district governing board. I worked for several years on development projects in West Africa, also researched an MS in the area. Started a Coop in Cote d'Ivoire, (more...)

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An essay that proposes a Keynes think-tank