How dead is Keynes? Very.

Eric Alterman hits the nail right on the head right here. Just as E. Cary Brown concluded about New Deal fiscal policy in the 1930s, the problem wasn’t that Keynesian fiscal stimulus was tried and found wanting, it’s that it wasn’t tried. Or was barely tried. In the 1930s the federal deficits were too small, were largely offset by budget cutting at the state and local level, and were reversed by a misguided attempt at budget balancing in 1936-37. Sound familiar? A key difference between then and now, however, is that Pres. Roosevelt and the Democratic Congresses of the 1930s believed in direct government job creation. The New Deal added an average of 3.5 million workers per year to the federal payroll. Pres. Obama was under great political pressure to keep that number at zero, and to hope that job creation would come from tax cuts (not promising, since much of that money gets saved or spent on imports) and government contracts (also not promising, since profit-maximizing contractors try to economize on labor costs).

For the last few quarters the government has actually been cutting spending and as a result its contribution to GDP growth has actually been negative. Yes, that’s from too little government, not too much.

Alas, this famous passage by Keynes no longer seems to be true:

‘The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas.’

One could argue that Keynesian economics gave way to another academic branch of economics, like monetarism or new classical economics, but I see little in recent political or policy debates to suggest that either of those schools is being consulted. What about supply-side economics, you ask? It’s not really an academic school of economics, more a fig leaf for certain vested interests. Consider for, example former Reagan budget director David Stockman’s famous admission that the Kemp-Roth/Reagan “supply side” tax cuts were really just a Trojan Horse for cutting taxes on the rich.

Speaking of Reagan, his declaration thirty years ago that “government is the problem” seems to have become the  guiding light for economic policy-making in America. Score one for “the power of vested interests.”

Advertisements

Tags: , , , , , , , ,

One Response to “How dead is Keynes? Very.”

  1. Mark Eanes Says:

    The government IS the problem, just not in the way many politicians seem to wish it is. Capitalists will always strive to do what they do best and it is up to the those in charge of our well-being to reign in that behavior when necessary. Whether or not special interests guide the hand of our leadership with a gun to their heads is no excuse. I realize that corruption has it’s hooks almost everywhere these days, and it will be a tough job to reverse it, but ultimately it is up us as voters to fix the problem. Of course, it doesn’t help when a loud minority of them actually agree with bad policy.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: