Friday, December 30, 2011

Celebrating Keynes

The artificer of modern democratic fiscal policy, John Keynes is regarded as either an economic genius or economic tyrant of the modern era. Paul Krugman explains how our current global crisis has brought forth new evidence to prove Keynes's policies true (again).

The idea that Keynes had was that cutting spending during a recession (AKA austerity measures) does not help the problem of the recession. In fact, it can make it worse. The logic is that the driving force behind getting out of a slump is to add jobs, start people buying again to increase demand, which then leads to more jobs. In the end, the government's spending helps to buoy consumers through the hardest times until this cycle can get going. Then, once a boom has been well-established, then the government can peel back on the spending.

The interesting thing about Keynesian economics is that it is like kryptonite to many conservatives, because it focuses on increasing the spending of government, something they are dead set against all the time (I find it odd that this is their single solution to every problem we have ever faced. Ever). They call it crazy, say it's a failure, and try to produce evidence that contradicts it. The problem is, there isn't much. They will tote the original stimulus package, but any Keynesian economist will tell you it was doomed to fail because it was too small. Critics will point to Ireland and Greece as being examples of successful austerity, even though both have failed.

The problem is, facts don't lie, and whether you like something or not does not change whether it is true. Keynesian policies have more evidence to support them than discredit them, and vastly more evidence of success than strict austerity. To point out a bit of irony, some of the evidence for Keynesian economics comes from Reagan. Reagan, the deified poster boy for modern conservative economics, raised taxes during a recession, which helped end the recession.

So, how do we relate Keynesian economics to our current situation. Therein lies the difficulty. When the discussion is predominantly about deficits and not jobs, about cutting spending instead of bulking up industry, then it's next to impossible to bring up policies like this. But this is the starting point of recovery. The government can spend, creating the demand, which leads to jobs. From there, its a cycle as those who start working get more money, which they use to buy, which raises demand, which brings it all full circle. The only way to start that from its current stagnation is with the government.

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