The White House “economics” team and the Gargoyles on the Parapets of Liberalism like Paul Krugman have been beating the Keynesian drums for over two years now, screaming themselves red-faced for more stimulus every time the last one doesn't work.
A fundamental tenet of Keynesianism is that government should not raise taxes in an economic downturn. The illogical and intellectually incoherent left has now closed the circle of self-contradiction, demanding new taxes.
Does anyone really believes that removing $1.5 trillion from the economy will lower unemployment? Maynard Keynes certainly did not!
The Problem with Keynesianism is the Keynesians
Keynesians are wrong on just about everything, notes Daniel J. Mitchell, but Sir Maynard was not, and he was no communist demon. He was a brilliant man who answered the great economic questions of his time. He was not an advocate of an ever-expanding government, and he believed permanent debt was bad. Indeed, his government stimulus theory is predicated upon governments running up surpluses in the good times so they can then use it much like states use their rainy day funds in the bad times:
Keynes, for instance, was an early proponent of the Laffer Curve, writing that, “Nor should the argument seem strange that taxation may be so high as to defeat its object, and that, given sufficient time to gather the fruits, a reduction of taxation will run a better chance than an increase of balancing the budget.”Keynes on Hayek
Keynes also seemed to understand the importance of limiting the size of government. He wrote that, “25 percent taxation is about the limit of what is easily borne.” It’s not clear whether he was referring to marginal tax rates or the tax burden as a share of economic output, but in either case it obviously implies an upper limit to the size of government (especially since he did not believe in permanent deficits). (Mitchell)
Nicholas Wapshott writes that Keynes read Hayek's "The Road to Serfdom" while sailing across the Atlantic on the way to the Bretton Woods conference. Here is what he had to say to Hayek...
“The voyage has given me the chance to read your book properly,” he wrote. “In my opinion it is a grand book. We all have the greatest reason to be grateful to you for saying so well what needs so much to be said. You will not expect me to accept quite all the economic dicta in it. But morally and philosophically I find myself in agreement with virtually the whole of it; and not only in agreement with it, but in a deeply moved agreement.”(Keynes and Hayek: The Great Debate)Hayek agreed with some of Keynes' prescriptions in some narrow circumstances as well, hence his less than stellar reputation with Rothbardians and some Misesians.
So while we should continue to combat the tired and dangerous ideas of the neo-Keynesians, we should refrain from heaping obloquy upon their ideological father. It's not Keynes' fault that his disciples have defamed his reputation.
* - For the rare cogent and non-stupid liberal article discussing how Keynes would solve today's problems, please see What Would Keynes Do? It really is an excellent article. H/T to our liberal interlocutor Ducky.
