[Guest post by Aaron Worthing; if you have tips, please send them here. Or by Twitter @AaronWorthing.]
Interesting argument from a man whose theories are pretty diametrically opposed to my own:
I think John Maynard Keynes would be horrified at the slavish adherence to this simplistic strategy by so many policymakers and economic thinkers, as his theory was much more complex. This thinking might be correct under circumstances other than those in which we find ourselves. If the ratio of our national debt to gross domestic product was low – say 25 percent – and the federal government had run surpluses before the downturn, this college freshman-level Keynesian analysis would have great weight. Put another way, if Uncle Sam were a rock-solid financial entity with low debt to value and he had judiciously used debt for capital improvements that were accretive in value, as the biggest dog on the porch, a stimulus might work.
But with a national debt of more than $14 trillion and unfunded, future “off the books” debt of Social Security and Medicare combined at $104 trillion in present value, according to the Dallas Federal Reserve, Uncle Sam ain’t the man he used to be. This in turn makes American businesses that are sitting on a pile of cash focus on deleveraging. The American consumer is doing the same. In fact, from where I sit, it appears as though everyone except Uncle Sam is working like mad to strengthen his balance sheets. The legitimate fear across the country is that Washington’s refusal to join our common-sense parade will result in higher taxes, more regulations, more inflation and Japanese-style stagflation. In other words, Washington’s attempts at stimulus through spending are having the opposite effect. Businesses and consumers stay hunkered down.
And do read the whole thing. It’s interesting stuff, but I think Whalen misses the significance of Keynes. Keynes wasn’t followed because he was brilliant or right, but because it gave politicians the permission they were looking for to spend. The idea isn’t to actually help so much as to look like you are helping. If Keynes wasn’t the one to give the intellectual stamp of approval to spending, they would have found someone else.
At least that is how I see it.
[Posted and authored by Aaron Worthing.]