At long last, Keynesian nonsense is recognized for the nonsense that it is. The New York Times reports In Britain, Keynesians Fall Out of Favor
In Britain, George Osborne, chancellor of the Exchequer, delivered a speech on Wednesday that would have made Keynes — who himself worked in the British Treasury — blanch. He argued forcefully that Britons, despite stumbling growth and negligible bank lending, must accept a rise in the retirement age to 66 from 65 and $130 billion in spending cuts that would eliminate nearly 500,000 public sector jobs and hit pensioners, the poor, the military and the middle classes because of what he insisted was the overwhelming need to reduce the country’s huge budget deficit.
In Ireland, where the economy is suffering through its third consecutive year of economic slump, Keynes is doing no better. Devastated by a historic property crash and banking bust, the Irish government is preparing another round of spending cuts and tax increases.
Combined with what Dublin has already imposed, the cuts could add up to as much as 14 percent of Ireland’s gross domestic product, an extraordinary amount for a modern industrial country. Ireland’s budget deficit reached 32 percent of total economic output this year.
Indeed, across Europe, where the threat of a double-dip recession remains palpable, what is most surprising is not simply that governments from Germany to Greece are slashing public outlays but that the debate hinges more on how fast to do so rather than whether such substantial cuts are the right thing to do under the current circumstances.
“Everything Keynes established about the primacy of maintaining demand at a steady pace is gone,” Brad DeLong, a liberal economist and blogger at the University of California, Berkeley, said mournfully.
Along with other noted liberal economists like Paul Krugman and Joseph Stiglitz, Mr. DeLong has long argued for more stimulus spending in the United States and abroad to lift growth, even if deficits rise temporarily as a consequence.
Every day I ask myself how allegedly brilliant economists cannot see that continuing down the current path will lead to a situation similar to what happened in Greece.
It is impossible to spend one’s way out of a mess when the problem is unsustainable spending.
None of these Keynesian fools ever address the question as to what happens when the stimulus is cut off. None of them can see that Japan has proven in spades that neither Keynesian nor Monetarist solutions did anything for Japan but increase debt.
More government spending cannot possibly work when the problem is too much government spending in the first place.
Finally let’s address Brad DeLong’s statement “Everything Keynes established about the primacy of maintaining demand at a steady pace is gone.”
To that I say Thank God!
The idea that governments or central banks can maintain demand at a steady pace is sheer idiocy. We have the dot-com bubble, the housing bubble, and the debt collapse to prove it.
Mike “Mish” Shedlock
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