Keynesian? Really?


Posted on : 9/08/2011 12:00:00 PM | By : Dann | In : , , , , , ,

Nick Gillespie over at Reason makes the salient point that current federal spending is not really what John Maynard Keynes had in mind when he suggested that government spending in a down cycle might spur growth.

But Whalen isn't simply dumping on Keynesianism, he's bent on pointing out that even its latter-day adherents are straying far from their master's theory. And in this, he's surely correct. 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.
Nick quotes Mike Whalen in an article posted at The Washington Times.  Mike suggests...

If the federal government announced a real road map to fiscal soundness, the impact would be truly stimulating. If American businesses and consumers saw that Washington was really cutting, not just reducing future increases, there would be tremendous relief and an increase in confidence across the country. Job creators would sing “hallelujah”; they would get off their wallets, start hiring, and then you’d see that Keynesian multiplier kick in.
Which is a point that the current Administration and their supporters keep passing over as if it did not exist.

A big part of the problem with the sluggish economy is that business owners can see current government spending, and future spending obligations as being capable of turning a sour economy into a really dismal economy.  Greco-Japanese dismal.

When they are convinced that their sidelined capital could be safely invested with the reasonable expectation of making a profit in the bargain, then they will begin investing.

All this talk of raising taxes on "the rich" and passing behemoth federal programs does nothing more than reinforce the idea that they are better off sitting on their cash.

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