Stupid Arguments: Framing in Keynesianism

When a Libertarian claims you are framing in Keynesianism, nine time out of ten you have won the argument and they do not know what they are talking about:

I was explaining that the character of the 1920-1921 Recession (something Libertarians love to cite) was very different from the Great Depression and Great Recession. The 1920-1921 Recession was a period of price adjustments, as opposed to a recession induced by a financial crisis or characterized by underconsumption:

The 1920-21 deflation contains another striking feature. Not only was it sharp, it was large relative to the accompanying decline in real product. The ratio of the percentage decline in the GNP deflator for 1920-21 to the percentage decline in real GNP is 2.6 using the Department of Commerce figures, 3.7 using the Balke and Gordon data, and 6.3 using the Romer data. By contrast, during 1929-30, the first year of the Great Depression, the GNP deflator declined by 2.7 percent and real GNP by 9.4 percent, for a ratio of 0.3. The ratios of the percentage decline in GNP prices to the percentage decline in real GNP for 1930-31, 1931-32, 1932-33, and 1937- 38, the other Great Depression years in which real GNP declined, were 1.0, 0.9, 1.2, and 0.3, respectively, all well below the 1920-21 figures.

Deflation during the 1920-1921 Recession was not just a product in a fall of aggregate demand, but also a positive supply shock. In this case it was caused by a rapid increase in the supply of foreign agricultural commodities combined with an increase in shipping, which were previously stymied by World War I. When international shipping recovered, a flood of commodities hit the market causing their prices to plummet. The effects of deflationary expectations should also be considered:

A supplementary explanation, and a persuasive one, is that the aggregate supply curve was increased during 1920 by deflationary expectations. Prices had run up sharply during 1914-20, increasing by 115 percent, according to Department of Commerce estimates. Previous major wars had been accompanied by large inflations and followed by sharp deflations, facts which were well known from the history books if not firsthand.

Even Wikipedia, a fairly balanced source, describes the recession as one of price adjustment. 

It is clear that the 1920-21 Recession is fundamentally different than the Great Depression and Great Recession. The latter cases are in fact characterized by falls in aggregate demand, financial collapse, and debt deflation, while the former is not.

So with this is mind, I don’t understand how I am engaging in “Keynesianism framing”? I’m describing the effects and causes of deflation during the 1920-1921 Recession using historical facts and basic economic theory. There isn’t really anything “Keynesian” about this.

Of course that doesn’t mean Libertarians don’t have a point when they bring up framing issues. The best example I can think of is a Keynesian response to the broken window fallacy, which is that Bastiat assumes full employment and ignores idle resources. A Libertarian might dispute the legitimacy of these concepts, so here I understand the framing argument.

However, our friend Jared brought up the framing issue when it didn’t really apply and he seems to be using it as a misguided debate tactic. This sort of stuff annoys me to no end.

1. Vernon, J. R. “The 1920-21 Deflation: The Role Of Aggregate Supply.” Economic Inquiry 29.3 (1991): 572-80. Print.

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1 Comment

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One response to “Stupid Arguments: Framing in Keynesianism

  1. Pingback: Thomas Sowell as an enigma | The Curious Leftist

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