The Keynesians Aren’t Really Keynesians

We’re told by proponents of Obama’s spending in the name of stimulating the economy policies is based firmly in the economic traditions of John Maynard Keynes. Except, what Obama and his fellow Democrats are doing would be objectionable even to Keynes himself:

As Allen Meltzer has argued, Keynes was against the very sort of large structural deficits that characterize contemporary federal budgets and policy, believing instead that deficits should be “temporary and self-liquidating.” And Keynes believed that any sort of counter-cyclical spending by government should be directed toward increasing private investment, not simply spending current and future tax dollars on public works projects.

Or, to put it another way: If the federal government had a strong track record of responsible spending, it would mean one thing if it went into hock for a short period of time to goose the economy (again, whether this would work is open to question). It means something totally different when a government that spent all of the 21st century piling on debt and new, long-term entitlement programs responds to an economic downturn first by creating yet another gargantuan entitlement (Obamacare) and taking on even more debt in the here-and-now.

We can debate about whether or not Keynesian economics work, I suppose, but one thing that should be beyond debate is the folly of running up huge amounts of long-term debt.

Rob Port is the editor of In 2011 he was a finalist for the Watch Dog of the Year from the Sam Adams Alliance and winner of the Americans For Prosperity Award for Online Excellence. In 2013 the Washington Post named SAB one of the nation's top state-based political blogs, and named Rob one of the state's best political reporters.

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  • flamemeister

    “I find myself more and more relying for a solution of our problems on
    the invisible hand which I tried to eject from economic thinking twenty
    years ago.”—John Maynard Keynes

  • robert108

    There is no doubt that Keynesianism won’t work; the record proves that.  To port’s credit, Keynes prescribed govt spending to shorten the time of economic contraction, not as a long term economic strategy.

  • Mike Adamson

    No surprise that the politicians love the deficit spending part of Keynes but ignore the part about surpluses in good times. The practical question to be answered today though is who is going to spend if the government doesn’t? Nobody I suppose which means we have a cleansing economic downturn to look forward to…yay!

    • robert108

      All spending is not equal, economically.  It is an error to assume all spending is equal.

      • Mike Adamson

        Right you are. Another error is the belief that a cut in government spending will boost private sector spending.

        • Bat One

          Mike,  Perhaps… but in the current instance, with trillions in capital admittedly sitting on the sidelines, I think its pretty clear that those in control of all that money are simply waiting for the government to get out of the way of the private sector, and a sensible reduction in the size and scope and cost of government is certainly at the top of the list.

          Besides, even if a reduction in federal spending did not lead to an immediate increase in private sector spending, that’s hardly a reason to continue with Obama’s reckless profligacy, is it?

          • Mike Adamson

            Wasting money is never right but neither is stepping out of the way and allowing a repeat of the Great Depression. Clearly the debt must be reduced but it has to play out in a gradual fashion lest the social and economic costs of debt reduction cripple the economy and create social upheaval. Unemployed workers don’t buy much stuff after all.

          • Bat One

            … but neither is stepping out of the way and allowing a repeat of the Great Depression. 

            I don’t recall seeing any sort of proof that reducing federal government spending will lead to “a repeat of the Great Depression.”  Perhaps you have something salient to offer in support of that contention?

            As for “social upheaval” I’ve never been much in favor of basing policy decisions on the threat of violence by those who essentially live off the productivity of others.

          • Mike Adamson

            Perhaps my comment was a tad hyperbolic but I haven’t read anything that suggests that we won’t fall into  severe recession as government spending is withdrawn from the economy. The sense I get is that those who are most adamant about reducing the debt are prepared to see several years of hardship and adjustment if that is what it takes to balance the books. I understand that logic and I’m even sympathetic in a theoretical way but when it comes to real life I don’t believe it to be practical or desirable. The debt must be reduced but in such a way that the sacrifice is shared reasonably and with the minimum disruption possible.

             I think its pretty clear that those in control of all that money are simply waiting for the government to get out of the way of the private sector

            I’d be interested in any evidence you have to support this statement.

          • robert108

            The Great Depression was caused by an aggressive govt trying to manipulate outcomes in the marketplace, after destroying the faith in the free market through propaganda.

          • robert108

             As far as your prediction of “hardship”, should we decide to become fiscally responsible, it comes from the liberal belief that govt is the source of prosperity, when the truth is that big govt is the effect of prosperity, not the cause. The real effect of cutting govt spending is to reduce the bubbles produced by govt spending, and to make the economy stronger.

        • robert108

          False dichotomy.  A cut in govt spending reduces the overhead costs in the economy, which is always good for business.  Read up on “crowding out”.
          The reason to cut govt spending to the Constitutional minimum is to stop the misdirection of capital.
          The real impediment to economic growth, on a direct basis, is govt regulation designed to manage outcomes.
          One of the meanings of “free” in free market is the freedom to arrive at any outcome.  Viagra, for instance, was originally developed as a blood pressure medication.  If regulations had prohibited its use for anything else, a multibillion dollar industry would not have happened.

          • Mike Adamson

            I agree that the private sector is much better at allocating capital than is the government but what do you do when broader measures of unemployment are pushing 20%, consumers remain burdened with too much debt and are reluctant to spend, businesses are reluctant to hire because the consumers are reluctant to spend, your imports are still much higher than your exports…do you see what I’m getting at? Who’s going to keep the economic machine going today? 

            The economy has never featured such a high proportion of government transfers to total spending as it does today. The “growth” in the last decade was fueled largely by flipping properties and mortgage refinancing. The manufacturing sector has been whittled down to a fragment of its former state and millions of lost jobs ain’t ever coming back. Capitalism is dynamic and encourages innovation and I don’t discount the possibilities of new inventions and processes to replace what has disappeared but what keeps the show going til then?

            To me the choice is rather simple…either government spends so that the economy retains a pulse or it pursues austerity and picks up the pieces after the depression/recession/whatever has run its course. Please note that I’m not arguing that government is better than the private sector nor that government doesn’t waste a lot of money nor that government doesn’t make spending decisions based on decidedly uneconomic grounds…all of that is true. I just want to know what the practical, real life alternative is today.

  • Jimmy_Wildcat

    This sort of “Keynesian” economics has been constantly cited by politicians for decades. Keynes believed in short term spending and tax cuts to bolster economic growth, but never supported a sustainted structural deficit.

    Politicians are generally only worried about the next election cycle. The kind of realignment needed requires a long term perspective that is willing to make bold changes to the federal expenditures and revenue. Probably not going to happen though….with either party.

    • JustRuss

      So we need a permanent dictatorship which can plan long term like the socialists who were ever so patient over the last 70 years.

      I am not arguing with you, I am totally being sarcastic, but you can see how a troll would turn it around xP

      • Jimmy_Wildcat

        Authentic, meaningful political participation of the electorate is the best solution. So many “grassroots” groups get hijacked by special interests, so I’m a bit skeptical of such groups.

        But public involvement is the only way a representative democracy can work.

        Realistically, the realignment needed will be a response to a real crisis that threatens the very existence of this nation.