Keynes, Uncertainty, and the Foolishness of Prediction

Robert Skidelsky makes an important observation about Keynes and the long run (boldface mine):

In an essay on the conservative philosopher Edmund Burke, Keynes translated this moral principle of individual behavior into the political principle of prudence:

“Burke ever held, and held rightly, that it can seldom be right . . . to sacrifice a present benefit for a doubtful advantage in the future. . . . It is therefore the happiness of our own contemporaries that is our main concern; we should be very chary of sacrificing large numbers of people for the sake of a contingent end, however advantageous that may appear. . . . We can never know enough to make the chance worth taking. . . . There is this further consideration . . . it is not sufficient that the state of affairs which we seek to promote should be better than the state of affairs which preceded it; it must be sufficiently better to make up for the evils of the transition.”

This is the bedrock of Keynesian economics. So Ferguson was quite right to say that Keynes discounted the future — but it was not because of homosexuality, it was because of uncertainty. Keynes would have rejected the claim of today’s austerity champions that short-term pain, in the form of budget cuts, is the price we need to pay for long-term economic growth. The pain is real, he would say, while the benefit is conjecture.

Actually, “conjecture” is too kind. It’s bullshit, as Digby and I have described.

It’s less uncertainty and more pointless cruelty.

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2 Responses to Keynes, Uncertainty, and the Foolishness of Prediction

  1. Min says:

    Keynes’s “A Treatise on Probability” is a very good treatment of Bayesian probability. Having read that in my youth, I could anticipate Keynes’s argument: “We can never know enough to make the chance worth taking.”

    I wrote this note to plug the book. 🙂

  2. I’m insufficiently familiar with Keynes to put this quotation in context, but taken at face value, that logic leads to some interesting conclusions. If the “happiness of our own contemporaries” is all that matters, then we should accept no economic pain while trying to forestall climate change, which is after all just a conjecture. Ditto for any environmental regulation without immediate impact that has any impact on the bottom line. Anyone over 30 should actively oppose any public spending on education or children’s health so we can spend the money on ourselves. And of course, all basic research is a waste, as iit may not lead to anything useful after all, and even if it does, the payoff won’t come until an uncertain future.
    In this sense the modern GOP seems to be adopting Keynes’s argument in every arena except the fiscal one.

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