10 May, 2011

Under What Conditions Are Keynesian Approaches Relevant And Good Policy?

That’s the title of a wonderful article from economist Steve Kates at Catallaxy Files today.

He lowers the boom (emphasis mine):

The problem with the question asked – “Under what conditions are Keynesian approaches relevant and good policy?” – is that the answer is becoming more evident every day. There are no conditions when Keynesian approaches are relevant and good for policy. A Keynesian policy is a deficit-financed increase in public spending during recessionary periods to hasten a return to strong growth and full employment. It has never worked. Not during the New Deal, not during the Stagflation of the 1970s, not in Japan in the 1990s nor has it worked right up to this minute as embodied in the “stimulus” packages that followed the Global Financial Crisis. Economic theory is in crisis mode although no one goes around pointing it out. But whatever we economists might teach in the classroom, no one actually framing policy will ever again base what they do on the need to restore aggregate demand through higher levels of public spending. We may continue to teach it but no one will do it. Keynesian theory, so far as public policy is concerned, is dead in the water.


We have a President that continues to believe it does. See the problem?

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