Patterico's Pontifications


Mike Whalen: Even Keynes Himself Would Not Have Approved of More Stimulus

Filed under: General — Aaron Worthing @ 9:51 am

[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.]

15 Responses to “Mike Whalen: Even Keynes Himself Would Not Have Approved of More Stimulus”

  1. Good take, AW.
    The pols always cite Keynes when they need to “stimulate” the economy out of whatever doldrum that concerns them; but they never cut back spending once the economy recovers and bank the surplus, they just keep the “baseline” climbing, which results in states such as CA (and others) having built-in structural deficits that are impossible to surmount.

    “Nothing is more permanent than a temporary Government program.”

    Another Drew - Restore the Republic / Obama Sucks! (eb769c)

  2. FBI agents armed with search warrants descended this morning on bankrupt solar company Solynrda this morning.

    The investigation comes after a request by the Department of Energy’s inspector general, FBI spokesman Peter Lee told NBC Bay Area News.

    FBI finds “barn door” ajar.

    A. Weiner (d1c681)

  3. Does Obama need a plan to announce tonight?
    He could do worse (and has) than this one…

    Who in the GOP will pick up on this?

    Another Drew - Restore the Republic / Obama Sucks! (eb769c)

  4. There is a black cloud hanging over this country.

    daleyrocks (bf33e9)

  5. daley, consider yourself denounced.

    Another Drew - Restore the Republic / Obama Sucks! (eb769c)

  6. Greetings:

    Keynesian economics = Zombie economics.

    11B40 (99b01e)

  7. AD – I get denounced for talking about a black cloud of uncertainty? You must be a socialist swine!

    daleyrocks (bf33e9)

  8. AD – the temporary one-time stimulus has become part of the budget baseline.

    JD (cae88c)

  9. Hey, I resemble that remark.
    Not just a socialist swine, a totalitarian socialist swine who wants to see your papers!
    You know that the word “black” cannot be mentioned in any criticism of Teh Won, in any context, in any manner.
    Do you want the bozos at PMSNBC to have The Vapors?
    Yeh, I know, Rhetorical.

    Another Drew - Restore the Republic / Obama Sucks! (eb769c)

  10. JD, it is what Progressives do to ensure the sustainability of their base; which is why the Budgeting Act of ’74 needs to be repealed, in its entirety.

    Another Drew - Restore the Republic / Obama Sucks! (eb769c)

  11. There is something to Keynes, but not what he or his adherents think.

    Given that recessions occur because people get scared and cut back production and consumption, and given Newton’s law that people will stay scared unless and until something happens to change their thinking, the value of a stimulus program (Keynes or otherwise) is that government spending takes the place of private spending that isn’t taking place and provides some assurance that the world is not going to end. Once people calm down, our innate optimism takes over and we get back to growing the economy. In fact, the initial big boost in output is more attributable to the reversal of over-negative thinking than it is to the ‘stimulative’ effect of any government program (and this jump is what Keynesians mistakenly attribute to the stimulus itself) . Thus, the stimulus doesn’t generate growth in of itself, it keeps the economy from falling into a self-fulfilling depression. A worthy goal, but not the magic growth machine liberals like to imagine.

    And once the economy is stabilized, more stimulus spending only backfires as the economy not only realizes that it isn’t permanent but also that it has some negative consequences of its own (like the impact on the deficit).

    steve (369bc6)

  12. You people really are idiots

    Catskillls (70e272)

  13. No, its Krugman who is the idiot. He thinks he can trade off on his reputation for vacuous editorials like that one you linked.

    SPQR (26be8b)

  14. SPQR – Yelverton is a clown. A demonic midget clown, just like his rage-filled hero-Ito Klugman.

    JD (318f81)

  15. Catskills is Krugmans boyfriend.

    DohBiden (d54602)

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