The Waterloo of Keynesianism (Military and Domestic)
By David Beito • Sunday February 22, 2009 2:38 PM PDT • 6 Comments
Note: In part, this post is an answer to a query by Mark Hatlie.
This following is an excerpt of a post at the blog of Historians Against the War. Comments are welcome:
While it is perilous for any historian to predict the future, we may well be headed for the Waterloo of Keynesianism (both military and domestic) and that is a good thing.
Crudely put, Keynesianism (so named for the British economist John Maynard Keynes) is the theory that government’s can speed long-term recovery by running high deficits so as to stimulate aggregate demand or investment. It is the entire basis of Obama’s stimulus plan. To some extent, Keynesian ideas were the basis of Bush’s massive bailout and big spending policies, most especially his now forgotten “stimulus checks.”
The popularity of the Keynesian theory is something a puzzle (at least to me). Few ideas more defy ordinary common sense. Taken in today’s context, it seems akin to telling an individual who has recklessly run up a hundred thousand dollar credit card debt to spend even more on fixing a driveway or garage (infrastructure). For some reason, such advice (which would be considered utter lunacy when applied to individuals) is widely accepted as the best method of economic recovery when taken by governments.
Read the rest here.
Tags: Budget and Tax Policy, Economics 
“The popularity of the Keynesian theory is something a puzzle.” Indeed, yes. Why a theory that gives pretty much carte-blanche to governments/politicians to do what they like best—spend other people’s money—should be so enduringly popular amongst governments and politicians (to the extent that most of them seem blissfully unaware there is any other kind of economic theory) is indeed a complete mystery.
Marco Polo | Feb 22, 2009 | Reply
I agree with Marco. It seems quite simple to me. Like socialism, communism, and fascism, it’s one of those ideas that will never die out. At one time or another, they’ve all provided would-be rulers the “scientific” proof of why they should be in charge.
RickC | Feb 23, 2009 | Reply
Even if one forgets the standard Austrian critiques of Keynesianism and applied a more broad based skepticism against all schools of economics, there is little to recommend Keynesian stimuli.
In the absence of detailed and reliable projections stating just how much ‘stimulus’ we require to achieve x amount of recovery, we are being asked to fund a trillion dollar experiment with highly uncertain results. Indeed if we ‘overshoot’ the stimulus even Keynesians tell us it would do damage. Why can’t they us ‘how much stimulus is too much?’.
Then we have the problem of reverse rules. We are supposed to follow one set of economic rules in ‘normal’ times and another in depressed times.
We are apparently supposed to throw rules about fiscal prudence and oversight out the window at the first sign of an economic downturn. Regardless of whether or not Keynesian stimuli work, this is an incredibly risky course to steer when your boat is a political system already overloaded with graft, special interest, lobbying, log rolling and pork barrels. Do Keynesians really believe zebras will change their stripes because the herd is in trouble?
Tim | Feb 24, 2009 | Reply
I do not find the popularity of Keynesianism to be a puzzle at all. Snake oil salesmen have always been successful. Keynesianism also appeals to the narcissism often attending the educated elite. It goes thusly: because we all were so good at school, we are good at everything. We are the ones who should direct the economy, and this man’s book agrees with our view of our appropriate role. Plus he’s attractive and sounds impressive.
People who are good at school do not often realize how much of that ability is nothing more than the ability to retain and regurgitate lines from a book or a lecture. Graduate students and monks are more alike than not. Both recite what they have been taught and pass it on to the next generation. A few grow beyond the rote activities into true wisdom. Monks, however, are blessed enough to lead private lives in their monasteries. Academics pulled from their academies turn out to be poorly equipped for the job of creatively responding to the fluctuations of life in the world of free enterprise. Likely, monks would do no better.
Those fellows who hooked a gentleman’s C because they could not or would not commit to mastering the academic material often turn out to be the best performers in the world of free enterprise.
Bradford Young | Feb 24, 2009 | Reply
Stop going so deep. Remember Occam’s razor. At its roots, Keynes believed that this theory provides recovery because making money out of thin air does not cause inflation UNTIL that money is already in circulation (which is true). As such, the government would have already spent the money getting the benefit of the un-inflated purchasing power of the new money long before it looses it’s purchasing power. Thus the politicians are able to do ‘great and grand’ things without having to earn the money with which to do it.
Granted, it screws all of the rest of us who don’t own government printing presses, but find me a politician beyond rep. Paul who ever cared about such things. It is human nature to want as much free stuff as one can get, and the boys in power have the ability to give it to themselves whenever they want. Anyone really wonder why they would? No mystery there.
The only question that remains is why so many of our fellow citizens continue to sit back and believe that they are not getting screwed. And that is answered this way; with all of the money that they want at the push of a button, our government can buy an awful lot of propaganda, keeping the common sense truth from surfacing until it’s too late. Thus, no mystery there either.
joe4liberty | Feb 24, 2009 | Reply
The Dolans, a radio financial advising couple state on their website that the stimulus means more than 50% of workers will no longer pay federal taxes (assuming they get Earned Income Tax Credit, we pay them). So now we have the retired, the disabled, vets, police, teachers, firemen, and government workers all taking and less than 50% of workers not paying.
Why isn’t that taxation without representation? 50+1% and we are their indentured servants.
Nydra K | Feb 24, 2009 | Reply