Keynesianism: Perverse Form of Fiscal Child Abuse
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.
~Dick Armey, Chairman of FreedomWorks, in yesterday's WSJ
4 Comments:
Perhaps during WWII we should have the balanced the budget instead of performing "fiscal child abuse". Maybe "the greatest generation" wasn't so great after all. Maybe instead of fighting Hitler, it should have focused on containing the public debt. Because obviously by running public debt to 120% of GDP during WWII, we have had a completely stagnant economy since 1945.
No, instead of mobilizing the country, FDR should have focused on balancing the budget.
----sarcasm off---
I leave it to the good PHD to correct me but there were two parts to Keynesian Theory. The first was for the government to spend money in order to make up for lower demand. This is roundly hailed by all governments. But the second part was for government's to run like-surpluses after the economy had fully rebounded. Governments don't like the second part.
The article should be praised for pointing out Hayek, the great Austrian economist. The Austrians saw this mess coming - Ron Paul/Peter Schiff - and they're the only free market economists who understand the deleterious effects of central planning on money.
The chicagoite free marketeers are all closet socialists who spurn "pump priming" in fiscal matters, but celebrate it in monetary matters.
"Perhaps during WWII we should have the balanced the budget instead of performing "fiscal child abuse" Maybe "the greatest generation" wasn't so great after all. Maybe instead of fighting Hitler, it should have focused on containing the public debt."
I hate to break this news to you but without America's entry in WWI the conditions that created WWII would not exist. Without Wilson's folly the world would not have heard of Lenin, Stalin and Hitler.
"Because obviously by running public debt to 120% of GDP during WWII, we have had a completely stagnant economy since 1945."
The US had 15 years of terrible economic conditions prior to 1945. Once government started to loosen its grip on the economy it improved. What is the point?
"No, instead of mobilizing the country, FDR should have focused on balancing the budget."
FDR (and Hoover before him) should have handled the correction in the same way as Harding did. Harding inherited a collapsing economy from Wilson and saw GNP decline by more than 24% over a period of one year as the number of unemployed people by more than 100%.
Harding did not try to stimulate the economy through spending. Instead, he tax cuts and government spending. As a result, the gross national product rose again and the number of unemployed fell by around 2 million. In just a year and a half the economy recovered and the next boom was on the way. Had he done as you seem to suggest and taken the same type of actions as FDR the Wilson contraction would have turned into the type of Great Depression that Hoover and FDR created.
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