16 September 2011 ~ 1 Comentario

Keynes and corruption

por Carlos Alberto Montaner*


(FIRMAS PRESS) We are friends, so I asked him directly:“Why did you allow the army brass to steal 10 percent of the defense budgets during your administration?” We were dining. This conversation occurred several years ago. It was off-the-record. There was no hostility in my words, just curiosity. The former president took a deep breath and answered with a mixture of honesty and melancholy: “Because if I had tried to prevent it, they would have kicked me in the behind.” He didn’t say “behind,” of course.

Corruption was the way to maintain a certain institutional stability. Nobody was shocked. It was the norm, not the exception. And it happened more or less the same in the rest of the state structure. Almost all the functionaries who had access to an official budget kept a percentage or raised the prices of services to the public in cahoots with some favorite private entrepreneur who paid them a bribe. That was the social contract: the political and economical ruling classes split a substantial part of the revenues. In exchange for that unholy matrimony, peace reigned.

This is not surprising. Three fourths of the world’s states ” have worked this way for thousands of years. I have said this before: Douglass North, the great historian of the economy, 1993 Nobel Prize winner, and two colleagues described it admirably in A Conceptual Framework for Interpreting Recorded Human History. He calls them “limited-access societies.”In them, the alliance of the political and economical powers picks the winners, splits the booty and distributes the crumbs among the rest.

What is noteworthy is the appearance, for the past two centuries, of some states guided by the law, competition and meritocracy that morally condemn and prosecute illicit enrichment, peculation and collusion between the public sector and the private entrepreneurs intent on fleecing the taxpayers. Those societies, according to North’s aseptic nomenclature, are of the “open access” variety. In them, the best triumph, following the rules and engaging in competition, which doesn’t make them perfect but more hospitable to progress and prosperity.

That is why, among other reasons, Keynesianism works worst in the limited-access nations. To John Maynard Keynes, famous British economist and great functionary, we owe the dangerous and widespread conjecture that governments, through the modulation of public spending, increasing it(almost always) or reducing it (almost never), can fight unemployment, promote growth and control inflation permanently.

That proposition, endorsed by the 20th-Century’s most influential economist, became the best excuse to exponentially bloat state budgets. What more could a dishonest ruler, surrounded by collaborators and accomplices who abusely profited from every transaction they conducted, want than to place all those criminal activities under an intellectual cloak of scientific legitimacy? The higher public spending rose, the wider the state’s perimeter grew, the more fitting its administration looked to Keynesian modernity.

But the central idea of Keynesianism – the government as the great pusher of the economic buttons to avoid cycles of recession – did not take into account the psychological nature of the honest politicians and functionaries. They do not steal the resources because they have some professional ethics, but they usually spend them according to their electoral needs.

If a Congressman or a regional governor perceives that a public investment in his district will favor his political future, he will likely sponsor it, even if it doesn’t make much sense for most citizens. There is simply no common good, only decisions that benefit some people, and those who make the decisions have their own personal interests at heart.” 

When Keynes in the 1930s, after the worldwide Depression was unleashed in the United States in1929, began to formulate his theories, this one seemed like a reasonable proposition. Time and experience have not confirmed his predictions. It is not good for nations that respect the law. It is terrible for the others.


One Response to “Keynes and corruption”

  1. Scott Zwartz 28 November 2013 at 6:10 pm Permalink

    This article evidences a significant lack of understanding of everything Keynes wrote.

    For Keynes, corruption is one of the worse evils because corruption always destroys the Price System. For any economy to function efficiently, the true value of goods and services must be reflected in their prices and thus any situation where the price departs from value is harmful.

    This fact leads to the area where Keynes and Lord Acton overlap. “Power tends to corrupt and absolute power corrupts absolutely.” (1887)

    When the government allows powerful business to dominate the government and to steal wealth, corruption becomes worse and worse since more wealthy leads to more power which leads to more corruption. The results are a Supreme Court which rules that the right of the wealthy to deceive and mislead is an inalienable right on which the State may not infringe. As the Supreme Court said, ‘All men, those who sleep under bridges, and those who’s surnames have the appendage Inc., are equally free to express themselves in the public form. Citizens United, US Supreme Court

    The worst possible thing por Los Corruptadoes en Estados Unidos would be for the nation to follow Keynesian economics. Rather than free enterprise or a mixed economy, they prefer the Keynesian free world of Obama and the tea baggers.

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