Opinion

Was Keynes a Keynesian?

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Frank Hill
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      Frank Hill

      Frank Hill has served as chief of staff to former Congressman Alex McMillan (R-N.C.), House Budget Committee staff, Commission on Entitlement and Tax Reform staff, and as chief of staff to former Sen. Elizabeth Dole (R-N.C.). He is currently the director of The Institute for the Public Trust in Charlotte, NC.

Would John Maynard Keynes himself even agree with the perpetual deficit-spending that has been going on for the past 40 years in America?

After all, it was his revolutionary economic ideas that America turned to in the 1930s to try to get out of the Great Depression.  Since his signature masterpiece, ‘The General Theory of Employment, Interest and Money’ was published in 1936, six years into the Great Depression, he must have been using the transatlantic phone lines a lot to convince the incoming FDR administration in 1933 to put his ideas into action.

And FDR certainly took Mr. Keynes at his word.

It is my opinion that if his theories had worked as planned, the US would have emerged from the Great Depression perhaps in a few years, three or four at most. Anytime it takes 10 years of massive government spending to “get out” of a recession, I believe that perhaps something else probably could have done it better and quicker.

Do you want to duplicate our parents and grandparents’ decade-long Depression-era struggles as we try to emerge from this nasty “recent unpleasantness” we are still working through?

However, based on some recent reading and re-reading of Sir Keynes’ writings, I have come to the conclusion that Mr. Keynes might be getting a bad rap nowadays.  It seems as if even he would have to be uncomfortable at the very least with being tagged as the “main reason” why we have run annual deficits for 47 of the past 50 years.

For one thing, he was an amazingly astute and wealthy investor who famously was able to “anticipate what other investors would be anticipating” and made a personal fortune. He also worked with renowned “value investor” Benjamin Graham during the latter part of his life. He did not want to obliterate the private sector with heavy-handed government control as some in Washington seem to believe nowadays. He didn’t mind “intervening” in times of crises or “steering” the economy when possible even though I think it is very difficult to do that in a monstrous, $14 trillion economy like America’s.

But here is the real shocker.  John Maynard Keynes advocated that during boom times, taxes should be raised and/or government spending should be reduced primarily to avoid inflation explosions like the one America had in the late 1970s under Jimmy Carter (want another one of those nasty episodes as well?).  Such inflation-prevention actions by the government would also have the salutary effect of limiting the growth of the national debt.

In other words, John Maynard Keynes supported policies that would aim governments towards balanced budgets after a period of deficit-spending.

Hard to believe.  But those old-school guys apparently just presumed that any respectable nation and their duly-elected leaders would not take complete leave of their senses and overspend until they couldn’t borrow and overspend any more.

Guess what?  They were wrong.  Sir Keynes, wherever you are, take a close look at Greece, Portugal, Italy, Ireland, Spain and right up there with them, the good old U.S. of A, circa 2000-2010.

  • rainmaker1145

    Baron Keynes was a big-time deficit spending advocate long before he published the book. He was the brain behind the economic policies that worked so well for Germany when it was the Weimar Republic.

  • sawdustking

    “…we promise to raise taxes on everyone and cut spending enough when the economy recovers to balance the budget before we leave office.”

    Therein lies the true failure of Keynesian economics.

    The benefits are a facade anyway because the only source of money for the government to spend is the private sector. Borrowing money takes investment capital away from private enterprise and hands it to the government. Any growth in government spending is offset by reduced spending/investment in the private sector.

  • sumwatt

    I guess we can call modern economic policy neo-Keynesianism. Keynes wasn’t an idiot and he knew full well the ramifications of his policies. His greatest suffering, shared by his followers of varying degrees, is that they believe that these fundamental knowledge problems can be successfully managed from the top down. This always puts top-down-management in a reactionary position and mostly reacting to the consequences of their own policies or the policies pushed by legislators.

    • http://www.facebook.com/people/Frank-Hill/1549451105 Frank Hill

      all current economic/political thinkers are neo-Keynesians then.

      they honestly believe that all you gotta do is jump-start the economy, create jobs, increase wealth (all good things) and then ‘we will out-run the growth of spending especially in entitlements’ (which is impossible when the fed government is growing at a 8% annual clip)

      I heard it with my own ears from leaders whom you would be stunned to hear their names. “out-run spending’, ‘out-run entitlement spending growth’

      I even heard one very prominent leader assert out loud in public with his own two lips and vocal chords: “If we lowered capital gains taxes, we could eliminate abortion in America!’

      C’mon…..tax policy is only supposed to raise the funds we need to pay for the programs a majority in Congress passes and the President signs into law.

      period

  • http://www.facebook.com/people/Frank-Hill/1549451105 Frank Hill

    I think you just described Mr. Keynes policies. He did not say it had to be all infrastructure projects and it could be in the form of tax cuts since they do the same thing…inject resources into the economy as a stimulus to spark growth.

    But the key problem is our inability to control explosive spending. We act like we are on a collective crack cocaine-induced spending spree and we have been for the past 40 years.

    Stop us before we spend again!

  • mikeyg

    An amateur solution to economics:
    During economic stress relax tax policies to give incentive for growth growth. During periods of growth, incremental taxation should be used as a valve to curb or stabilize explosive growth. The main reason for these steps is to preserve resources as one would do on a rainy day. Selfish economic policies throws all sanity to the wind. Progressive spending should have a leash, albeit a short one, to help reign in excessive irresponsibilities.

    Keynesian economics is an old outdated policy that should be discard to the round file of history.