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How Obama Got Keynes Wrong   February 5th, 2010
I said it a year ago, now economists are saying it....       

 
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It's fun being proven right with the passage of time. A year ago I wrote that our deficit spending, done in the name of Keynesian theory, was not in line with what Keynes approved of. Now an influential economist is saying pretty much the same thing.

A year ago I wrote:

This comes back to the fact that even Keynes thought that deficit spending should be counter-cyclical with the business cycle: When the economy is contracting excessively, the government should try to stimulate it with deficit spending. When the economy is expanding, the government should try to moderate the growth with government surpluses (raising taxes or reducing government spending); this moderates the booming economy and also serves the purpose of paying off the debt that was generated from when the government was engaging in deficit spending. But we haven't done the "surplus" half of that. Even if we assume that Keynesian theory is correct, it is foolish to believe we can constantly engage in deficit spending and then engage in even bigger deficit spending during a recession--even Keynes did not suggest that.


Today an article was published that says essentially the same thing:

Allan Meltzer of Carnegie Mellon is one of the most influential monetarists of the past 50 years. He has served in the Department of the Treasury under President Kennedy and on the Council of Economic Advisors during the Reagan Administration. He also authored the book, Keynes's Monetary Theory: A Different Interpretation.

While the Obama team is laying out huge sums of money, Meltzer says it's neglecting a key part of Keynes' plan: You can't run up a debt without a way to cover it.

Today, deficits are getting bigger and bigger with no plan to significantly lower them. Keynes understood what the current administration doesn't understand that the proper policy in a democracy recognizes that today's increase in debt must be paid in the future.


Indeed, what the Obama Administration is doing can't be called Keynesian. It can only be called suicide. Which is probably why there's now talk of lowering America's credit rating.

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