Posted on 05/07/2012 10:22:04 AM PDT by LucianOfSamasota
There’s an internal contradiction in the way that Keynesian-oriented economists and policymakers address the federal budget situation. I’ve noticed it over and over. A passage in a Washington Post op-ed today by Mohamed El-Erian of Pimco captures it perfectly:
[T]he U.S. fiscal situation requires a carefully designed and well-timed overhaul to make government finances more efficient and fairer—among other things, combining immediate stimulus with a credible set of medium-term tax and entitlement reforms and a sustainable effort to reduce the deficit over time.
El-Erian seems to want more deficit-fueled “stimulus” now, combined with a “credible” plan that would reduce the deficit later on. We hear similar things from administration economists and centrist and liberal budget experts all the time.
(Excerpt) Read more at downsizinggovernment.org ...
There are no contradictions is Keynesian economic policy.
It is 100% consistent—consistently wrong.
You are completely right about what is labeled “Keynesian economic policy” today. Keynes himself wouldn’t support it. First, Keynes would have diagnosed the problem. If the root of the problem is too much debt and too much spending — the cure is not more spending. Second, Keynes called for debts to be repaid, during the upswings in the economy. He even advocated acquiring surpluses, to pay for the counter-cyclic spending, during the dips.
It is 100% consistent—consistently wrong.
The trouble with today’s Keynesians is that they have never read Keynes and do not understand his theory on simulative spending.
Keynes assumed entering a recession from a balanced budget. Then government would spend money to stimulate the private sector (using deficit spending if necessary). Then after a short term increase in simulative spending the government would return to a balanced budget (a return to previous spending levels).
For the modern Keynesians there is never enough simulative spending by government and never a return to sane spending levels nor is there ever an excessive amount of government spending.
For the modern Keynesian any talk of a balanced budget is mean and probably racist political extremism.
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