Economics: Washington’s Keynesian Failure

Historical studies are enlivened by court intrigues, gossip and warfare. Language studies introduce students to rich literary traditions. The study of science or engineering offers the potential for practical discoveries. Even astrology-level “sciences” like political science and sociology offer entertaining trivialities.

Scottish historian Thomas Carlyle called economics “the dismal science.”

Indeed, economics may be the dullest of academic pursuits, nonetheless, its practitioners have had outsized impacts on history.

Witness the disservices done to John Maynard Keynes – and to America – by Keynes’ most ardent followers in economics and politics.

Keynes (1883-1946), a Cambridge-educated mathematician/statistician, British economist and macroeconomic theorist, revised classical theories of economics in the 1930s. His book, “General Theory of Employment, Interest and Money,” attempted to explain the Great Depression, propose strategies to end it and avoid future catastrophic economic events.

Keynes rejected the classical theory of supply and demand, writing that “aggregate” demand determines economic output. He advocated “priming the pump” – government intervention in markets and deficit spending – to smooth out economic cycles.

Economics is not an exact science, but, thanks to Keynes’ acolytes, some of its rules have become clear. By repeatedly violating both – and failing – Keynesians have proven that, though deficit spending may briefly and superficially improve GDP, government cannot spend a nation to prosperity, and that taxation does not promote prosperity.

For example, Congressional Budget Office post-“stimulus” figures inevitably show that massive spending reduces economic output in the long run, primarily through its contribution to government debt which diverts private capital from more productive activities.

Politicians employ Keynes’s “pump priming” theory as justification for using public funds to purchase votes, favorable publicity and campaign contributions. Then, enabled by the ignorance, indifference and greed of enough voters, they enthusiastically embrace deficit spending – and not just during recessions.

Spending is popular, but modern Keynesians ignore a complementary feature of Keynes’ deficit spending advocacy – his admonition to raise taxes during economic upswings in order to offset earlier deficits and pay down the accumulated debt. However, because of their political unpopularity, tax increases are seldom levied in prosperous times, so debt mounts along with the costs of servicing it, while spending continues.

Even in times of economic health, spendthrift politicians advocate deficit spending and market intrusions, but without Keynes’ corollary. Indeed, politicians have perverted Keynesian theory to justify tax increases at exactly the wrong time – during recessions and flat economies – thinking they can generate more tax receipts to support ever more Keynesian-style spending even when the private sector can least spare the assets.

Then, to “prove” the Keynesian hypothetical, spending must be repeated over and over, while ignoring Keynes’ admonition to retire debt.

Politicians advocate simultaneous deficit spending and tax policies with the blessings of modern Keynesian economists who have either lost sight of the full inventory of features in Keynes’ theories or are ideologically inclined to overlook them. To underpin their enthusiasm for large government, liberal economists distort Keynesianism, but their thinking, like Keynes’, lacks measured, positive, sustained empirical results.

In a 2009 book, “This Time It’s Different: Eight Centuries of Financial Folly,” economists Carmen Reinhart and Kenneth Rogoff reviewed hundreds of financial crises and concluded that the United States cannot avoid the negative outcome that has befallen every overly indebted nation.

In their words: “Highly leveraged economies, particularly those in which continual rollover of short-term debt is sustained only by confidence in relatively illiquid underlying assets, seldom survive forever, particularly if leverage continues to grow unchecked.”

“Leverage” is a financial term for borrowing or debt.

Ironically, one of Keynes’ primary goals was to avoid negative long-term economic consequences. Because too many empirical examples discredit Keynes, fiscal conservatives who oppose unnecessary debt and high taxes remain skeptical of Keynesian-style government intervention in markets.

Nonetheless, Washington Democrats are currently trying to coopt enough squishy congressional Republicans to raise the nation’s debt ceiling – again – and increase spending, even though America’s $31 trillion-plus sovereign debt already jeopardizes the nation’s long-term economic well-being..

Today’s “Keynesians” have replaced Keynes’ original speculations with “Keynesianism 2.0” – relentless deficit spending and debt accumulation that plunder the wealth and financial security of current and future generations – and are attempting to obscure their negative results by printing new, seemingly endless supplies of cheap, unsecured money.

Lord Keynes is dead, literally and figuratively. His followers have failed him – and they have failed America.

https://www.pottsmerc.com/2023/05/22/jerry-shenk-economics-washingtons-keynesian-failure/