Keynes was, incredibly, right about the future. He was wrong about how we’d be spending it.

May 10, 2013

John Maynard Keynes was right about the future. But he was wrong about how we’d be spending it.

“In the long run,” Keynes famously wrote, ”we are all dead.” I rate that claim true. But it actually has little to do with Keynes’s views on the subject.


Lord John Maynard Keynes, head of the British delegation to the International Monetary Conference, left, and Edward Drozniak, governor of the National Bank of Poland, at an IMC session in Savannah, Ga., in 1946. (JR - AP)

Keynes was criticizing his colleagues in the economics profession who minimized the import of deep recessions -- and what governments could do to prevent and shorten them -- by promising that wounded economies, if given enough time, eventually return to health. “Economists set themselves too easy, too useless a task if, in tempestuous seasons, they can only tell us that when the storm is long past the ocean is flat again,” he continued.

Keynes, however, was deeply interested in the future -- even the part that would happen after he was dead. In 1930, he wrote a slim tract titled “Economic Possibilities for our Grandchildren.” What he got wrong is interesting. What he got right is remarkable.

Consider the context. The Industrial Revolution -- and the millennia of economic stagnation that preceded it -- was a relatively fresh memory. The new economy, in which technological innovation raised living standards with remarkable regularity, was trapped in the throes of the Great Depression. And here came Keynes, promising that “the standard of life in progressive countries one hundred years hence will be between four and eight times as high as it is today.”

Keynes was right. From 1930 to 2011, real per capita GDP in the U.S -- that’s the size of our economy after adjusting for inflation and dividing by the population -- rose sixfold. “Would any economist today, even with the benefit of training in frontier growth theory, try to make serious economic projections 100 years out?” asked UCLA economist Lee Ohanian in "Revisiting Keynes." “Very unlikely, but Keynes did, and did so remarkably well — in all honesty, much too well — given the available theory and the existing economic conditions when he was writing.”

If this growth came to pass, Keynes said, humanity would have solved, or be quite near to solving, “the economic problem” that had bedeviled every single generation before us. We would have enough. Perhaps not as much as we wanted to have, or as much as we could have, but enough to survive.

This was, Keynes recognized, a reality for which we were ill-prepared. “We have been expressly evolved by nature -- with all our impulses and deepest instincts -- for the purpose of solving the economic problem,” he wrote. “If the economic problem is solved, mankind will be deprived of its traditional purpose.”

The question Keynes set out to solve was how humanity would adapt to a world of abundance. “He saw two options,” explains Nobel Prize-winning economist Joseph Stiglitz. “One was that we could consume ever more goods. Or we could enjoy more leisure. What worried Keynes was that when you looked at how people in the British upper classes spent their leisure, he was not overly enthralled with what he saw.”

By and large, we have chosen door number one. That would have devastated Keynes, who hoped that in a post-scarcity world, “the love of money as a possession -- as distinguished from the love of money as a means to the enjoyments and realities of life -- will be recognised for what it is, a somewhat disgusting morbidity, one of those semi-criminal, semi-pathological propensities which one hands over with a shudder to the specialists in mental disease.”

In this, Keynes was insufficiently committed to his own analysis. He hoped that solving the economic problem would return us to our true nature and that people would “once more value ends above means and prefer the good to the useful.” But he had it right the first time. Humanity's true nature evolved around the economic problem and, with the economic problem solved, it has simply applied itself to a simulacrum of the economic problem.

In the United States, the economic problem that organizes many of our lives is not that we don’t have enough. It’s that we don’t have quite as much as those who have more. That’s an economic problem that, almost by definition, can never be solved. It’s an economic problem that assures we will never lose our purpose.

It is also an economic problem most of us choose for ourselves. But not all of us. In last week’s Sunday Business section, Kelly Johnson interviewed Mister Money Mustache, a young retiree who lives happily with his wife and child and devotes himself to family, leisure and, occasionally, carpentry. He considers today’s middle-class life “an exploding volcano of wastefulness” and lives on $25,000 annually. His life is proof that Keynes was right about what we could do. His rarity is proof that he was wrong about what we would do.

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Brad Plumer · May 10, 2013