Weekend Wars: Keynes vs. Himself
Names such as Hayek, Friedman and Keynes inevitably come up on this forum. We can discuss and debate them from all possible perspectives, but rarely do we have more than anecdotal evidence.
Over the past few years none has gained greater fame (some would argue, infamy this Bloomberg piece, however, John B. Taylor takes us all to task by actually putting forth a detailed analysis (in short form) of what Keynesian economics have done to the economy.
Without throwing my (admittedly) biased point of view into the debate, I encourage you guys to make this your Sunday reading assignment. Yes, there is not a lot that we do not already know here but I think it is still worth a read and a thought.
Just to play devil’s advocate, I will pose the following question:
Even if Keynesian economics are a detriment to our overall financial well being, are they really going to hurt us all that much in the long run? I am certainly part of a large group which believes so, but then why are they consistently applied in recent times of crisis? Remember, it may be easy to say that the Keynesian perspective is the ideological and intellectual property of one sect of Washingtonians, but they all are clinging to it like a fly to shit. No matter how much we want to polarize the argument, the powers that be love Keynes as of late.
Do they know something I don’t? If that is the case… what exactly do they know and what is the future going to look like after years (if not a whole decade) of stimulus?
Because elected officials are there for limited time period (2 to 6 years), they feel obligated to react rapidly to harsh situation like the recession we had 3 years ago.
Politicians "need" to show they are doing something, trying something. When the economy started to cooloff, Bush/Obama did not do a thing: did not send the $300-600 check ($100B), $700B bank bailout, mortgage deals (about $100B), stimulus, $800B, tax breaks $700B, and other unusual activities, well, maybe we would be better off now; maybe.
But for sure, people would get enraged, and would want the politicians heads. There are chances unemployment could have risen over 15%, who knows (it was 25%+ during the Great depression).
Keynesian tactics buy politicians time, and employment. By pouring money in a recession-price falling- they can borrow time and use the deflationary time before they head out of office, and start blaming the other group.
Its rather moot to wonder if a stimulus is going to affect us in the long term if the whole underlying premise of keynesian stimuli is shown to be ineffective.
I don't think most D.C. politicians subscribe to any type of economic theory for the same reasons that an economist would. Team blue simply has built an electorate base composed of groups that are dependent on government spending. Team red has an electorate composed of groups dependent on government spending and not taxing them for the government spending. Its only convenient to quote keynes when it allows you to pander to your base.
Though not a fan personally, its unfair to associate current US policy to Keynesian principles since the principles were only selectively applied...
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