Tuesday, 3 August 2010

Defining Modern Keynesianism

For the modern left John Maynard Keynes is the source of all wisdom on matters of the economy.

Keynes was no dummy and his The General Theory of Employment, Interest and Money is a major piece of work and serves as the economic bible for many economists to this day.

Being a major piece of work doesn't make it right, though. Marx was an intelligent man but still manage to bring to life The Communist Manifesto, which brought so much suffering to, especially, people in the 20th century. Like Tolkein, Marx and Keynes invented their own reality and then proceeded to solve all of the problems within it.

However, Keynes's reputation suffered a severe blow in the 1970s when major economies around the world went through a period of stagflation - the combination of high unemployment and high inflation - that Keynes said was impossible.

Due to this failure of Keynesianism, modern economists adjusted his theories and refer to themselves as "New-Keynesian", which replaced the term "Neo-Keynesian". As is the way in all branches of economics there are divergent opinions of which Krugman, Mankiw and Stiglitz are three such examples.

But how do they differ from the plain, old, vanilla Keynesian of days of yore?

Anyone who has even the shallowest understanding of economics will have heard of the term "pump priming", which comes from Keynes's theory that when economic activity slows the government can "prime the pump" by spending money to stimulate the economy.

"How does that differ from what Krugman is saying?", I hear you ask.

Here's the only real difference between Keynes and the Modern Keynesian...

Keynes believed that governments should create a fund into which surpluses would be placed when times were good so that those funds could be used when times were slow.

Saving for a rainy day, as my grandmother used to say.

Instead of using a pool of surplus funds as the source of government stimulus, Modern Keynesians use the next generation of taxpayer in the form of government deficit.

And that's all there is to it.

Modern Keynesianism is about giving the bill to your kids.

That's why Keynes has made a comeback; it provides political cover to those governments whose preference is to spend money rather than reduce in size.

Yet another example of the deep immorality of left wing policies and their ruinous effect on the world.

(Nothing Follows)


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