(and yes, I know you prefer your new blog name Pat. Just a bit of fun on my part!)
I just recently made this comment on Pat’s post “Taking the Name of Lord Keynes in Vain” (be sure to read it and the posts he references therein or this won’t make sense):
Based on your article before, I’d say he was more a “useful idiot”. He didn’t have a clue how socialist his ideas were, and what they would lead to, even when Hayek made him stare them right in the face. Unfortunately, it is all to easy for the Keynesians to say that this recession was caused by people not listening to them (except under Clinton, when their was a boom and a surplus and higher taxes, which is precisely Keynes’ recipe for boom times). Because, although Supply Side was not followed under any President during the period (they all had deficits, thanks to Democrat Congresses, or wimpy Republicans in Bush’s case,(Clinton is another story, with sometime Republican Congress and boom time revenue increase, he was able to spend more than ever and still get a surplus, with the help of some tax increases) Keynes wasn’t followed exactly either. As someone who intuitively understands at least microeconomics, I find Keynesian ideas absurd. Money only has value when it is real, and spending money you don’t have therefore will only work as long as people believe that the Government will be able to back up its fake money with real repayment at some point. Well, let’s say that, if and when the economy recovers, the Keynesian government wants to pay off those debts (presumably this is what Keynes thought should happen, as he suggested then cutting spending and raising taxes) it must increase its revenue and/or decrease spending to achieve a surplus to pay of those debts. Assuming (naively) that government really can distribute money effectively and reverse a recession (more likely, it would crowd out private spending) and again naively assuming that spending will actually be cut when conditions improve, then by Keynes own logic that government is better at handling spending than the private sector, his ideology is one of being perpetually trapped sharp, chaotic turmoil. Markets would boom and bust like crazy and deprive investors of any sense of security, greatly discouraging investment, impeding growth, leading ultimately to permanent recession. With more realistic assumptions-that poor distribution of money by government won’t help the economy and that government spend will continue in recovery periods, higher taxes will take money out of the private sector and weaken its ability to achieve continued growth. When an inevitable recession occurs, government will spend still more. The result of this cycle is periodic increases in the size of government and its control over wealth, and the loss of freedom and self determination that implies, and eventually a permanent recession. The Government, in both cases, will never fully pay off its debts. The result is that the currency it produces will be devalued, resulting in stagflation. Keynesian economics is not sustainable!
Exactly Andrew. You said: “Money only has value when it is real” Yep, the real “voodoo economics” is not Reaganism but Keynesianism.
I should add one more thought. I always thought it was Nixon who said we were all Keynesians now, not Milton Friedman!