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Keynesianism’s Collapse

If it ever worked (highly doubtful), it is now invariably abused.

by
Tom Blumer

Bio

August 26, 2011 - 12:15 am
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A New York Times item earlier this month about steps President Barack Obama might be considering to turn around America’s moribund economy caught my attention more for what it didn’t say than what it did, specifically in the following sentence:

A wide range of economists say the administration should call for a new round of stimulus spending, as prescribed by mainstream economic theory, to create jobs and promote growth. It is clear that the House would never pass such a plan.

Times reporters Binyamin Appelbaum and Helene Cooper oddly never revealed that this “mainstream economic theory” subscribed to by “a wide range of economists” goes by a specific name: Keynesianism.

What a remarkable change from just a couple of years ago, when the Times routinely invoked the late English economist and his principles. A ridiculously biased and badly-in-need-of-updating Wikipedia entry on Keynes describes 2008-2009 as the “Keynesian resurgence.” Serendipitously, on the last day of that two-year period, I was asking, “Economic Rebound? What Economic Rebound?” I’m still asking.

Far less than two years after the “resurgence,” odious Times columnist Paul Krugman demonstrated the utter bankruptcy of current Keynesian thought. In a televised CNN discussion on August 12, he suggested an out-of-this-world idea:

If we discovered that space aliens were planning to attack and we needed a massive buildup to counter the space alien threat and really inflation and budget deficits took secondary place to that, this slump would be over in 18 months.

This really should not have been surprising. Days after the September 11, 2001, terrorist attacks, Krugman wrote:

Ghastly as it may seem to say this, the terror attack — like the original day of infamy, which brought an end to the Great Depression — could even do some economic good.

You read that right. Keynes’s leading U.S. apologist admitted that nearly a decade of Keynesianism applied to the U.S. economy failed to end the Great Depression. In fact, unemployment during the 1930s until the onset of World War II was never less than 12%. In Krugman’s warped view, Keynesianism has never really been tried, because no one has ever spent enough to give the theory a fair test.

But surely there is a basis for believing that Keynesian approaches should and sometimes actually do work, right? After all, it was “the dominant view in the economics profession for at least the next forty years” after the Depression.

The fundamental problem with Keynesianism is, with rare exceptions, essentially the same as as the one with most generals’ battle plans, as expressed by Colin Powell: “No battle plan survives contact with the enemy.” Similarly, with perhaps the rarest of exceptions long, long ago, no Keynesian economic plan has ever survived contact with the government attempting to execute it. Governments have seriously abused Keynes’s original assertions, and have become so big and corrupt themselves that they are functionally incapable of successfully carrying out any attempted “Keynesian” stimulus which might theoretically work.

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