Thursday, February 05, 2009
This op-ed piece by former House majority leader Dick Armey is worth a look if for no other reason than its title contains the name of one of the most influential members of the Austrian School of economics - Freidrich Hayek.
Washington Could Use Less Keynes and More HayekDoes it matter?
"In the long run, we are all dead," John Maynard Keynes once quipped. An influential British economist, Keynes used the line to dodge the problematic long-term implications of his policy proposals. His analysis of the Great Depression redefined economics in the 1930s and asserted that increased government spending during a downturn could revive the economy.
President Barack Obama and congressional Democrats (very few of whom likely have read Keynes's 1936 book "The General Theory of Employment, Interest and Money") have dug up the dead economist's convenient justification for deficit spending in defense of their bloated stimulus legislation. But none ask the most important question: Was Keynes right?
Nearly all of Congress is looking more closely at the next election than to the U.S. budget deficit or the Fed's balance sheet.
Until the shouts of "Do something to save my job" are drowned out by those calling for fiscal prudence and a plan that's viable over the long-term, nothing is likely to change.
Government spending is, according to Keynes's construct, a key component in determining aggregate demand, so more spending, even to resod the Capitol Mall or distribute free contraception, drives the economy in the short run.Future generations? They don't vote (yet). It's future elections that are important.
A father of public choice economics, Nobel laureate James Buchanan, argues that the great flaw in Keynesianism is that it ignores the obvious, self-interested incentives of government actors implementing fiscal policy and creates intellectual cover for what would otherwise be viewed as self-serving and irresponsible behavior by politicians. It is also very difficult to turn off the spigot in better economic times, and Keynes blithely ignored the long-term effects of financing an expanded deficit.
It's clear why Keynes's popularity endures in Congress. Intellectual cover for a spending spree will always be appreciated there. But it's harder to see any justification for the perverse form of fiscal child abuse that heaps massive debts on future generations.
Our monetary system + our government + Keynesian economics = long run disaster
Keynes was certainly right in that, in the long run we are all dead.