Author John Cassidy, in the October 10, 2011 issue of the New Yorker magazine (which happens to be the annual “money” issue), wrote a though-provoking article on John Maynard Keynes and his economic philosophy as it relates to the current world-wide financial recession. Much of the article, titled “The Demand Doctor“, posits (as far as I can tell) that Keynes was right in his argument that government spending creates demand and thereby boosts the economy out of recession.
As I’ve posted, I’m worried about how to start a law firm in this economy and the uncertain risks of being an entrepreneur. I remember learning about Mr. Keynes as an undergraduate, but my level of knowledge is foggy at best. I have noticed, however, that his name and ideas show up in my intellectual reading pursuits in an eerily frequent fashion.
This makes me wonder: Is Keynes simply a easy target for writers and economic neophytes? Or, is he truly a revolutionary though-leader whose theories should be continuously revisited? These are question I do have easy answers to. Perhaps more important is what can Mr. Keynes and his economic philosophy can teach me about being an astute capitalist who aims to start a law firm in an economy that is at a historic low.
Keynes argues that the government must spend and possibly cut taxes so that people like you and me will, in turn, spend. The spending then boosts the economy, creates jobs, encourages lending, etc, etc. Mr. Cassidy, quoting author Sylvia Nasar, summarizes the Keynsian position well:
What made the General Theory so radical was Keynes’s proof that it was possible for a free market economy to settle into states in which workers and machines remained idle for prolonged periods of time . . . The only way to revive business confidence and get the private sector spending again was by cutting taxes and letting business and individuals keep more of their income so they could spend it. Or, better yet, having the government spend more money directly , since that would guarantee that 100 percent of it would be spent rather than saved. If the private sector couldn’t or wouldn’t spend, the government would have to do it. For Keynes, the government had to be prepared to act as the spender of last resort, just as the central bank acted as the lender of last resort.
Keynes argued that (at a basic level) a large entity (the government) needs to spend in order to help the national economy grow – or at least not stagnate. I find this basic premise interesting because my first instinct is to cut my spending and save, save, save when things start getting rough financially. Apparently, as the author writes, former President Harry Truman had a similar reaction to Keynes’s ideas, stating that:
“Nobody can ever convince me that Government can spend a dollar that it’s not got,” he told Leon Keyserling, a Keynsian economist who chaired his Council of Economic Advisers. “I’m just a country boy.”
In many ways, I echo President Truman’s sentiment. I’m also somewhat of a country boy. How can I justify spending more of my family’s hard earned money on investing in an entrepreneurial venture like starting a law firm? Would it not be wiser to simply look for and obtain a job doing some form of legal work and thereby garner a steady salary? Clearly, if the only goal is to make money and provide for my family, then starting a law firm is not a wise decision in the short-term.
The New Yorker piece also discusses the myriad of objections that Mr. Keynes’s ideas have received since he first published his seminal work “The General Theory of Employment, Interest, and Money” in 1936. Many of the objection boil down to a fundamental disagreement that government cannot spend dollars when the government does not have dollars to spend.
With this understanding firmly in my mind about Keynes’s thought on stimulating a national economy, I believe that I can make a connection with starting and building a law firm. In my mind, this sort of thought process is a akin to return-on-investment (ROI). I have noticed that many law firm guru’s and other lawyers marketing blogs have discussed the importance of ROI. I am not going to try to discuss the minutia of ROI as it relates to specific instances of law firm marketing. My point here is only to share the excellent article by Mr. Cassidy in the New Yorker and to posit that starting a law firm (or any business for that matter) is akin to using Keynsian economic philosophy to stimulate the economy.
I also realize that starting a law firm is more individualistic – it benefits me and my family but not the national or world as a whole. Perhaps my leanings should be more socialist and less capitalist. I don’t think so. In addition to his academic career, he was also a privileged capitalist. Mr. Cassidy quotes Keynes:
If I am going to pursue sectional interest at all, I shall pursue my own . . . [t]he Class war will find me on the side of the educated bourgeoisie.
I identify with Keynes’s sentiment. Starting a law firm and being capitalist in a down economy is not necessarily a bad idea or a strictly individualistic endevour. The world needs spending and it needs entrepreneurs right now. Whether or not you agree with Keynses’s economic philosophy, it is hard to argue with that fact.
I don’t mean to say that the journey will be easy or frought with risk. It is and it will be. Failure is also a reality. But, I also believe in the maxim that nothing ventured is nothing gained. As Mr. Cassidy concludes in his article:
It calls not merely for the management of risk but for something politically and intellectually far more demanding: the acknowledgement of uncertainty.
