One point about Keynes theory that if I remember correctly goes something like spend in bad times <i>cut back</i> in good times.<p>Keynes is overused much like prescription antibiotics.<p>"Prescribing Keynesianism to some politicians is like prescribing crack to a coke addict. In the 1970s, the patient hit rock bottom. The U.S. had high unemployment, and the Keynesian solution stopped working. The national government spent and spent, but unemployment only got worse. Then came inflation, something Keynesians had no answer for."<p>The problem is we have been borrowing and spending like crazy both publicly and privately. We've had the accelerator pushed to the floor, how do we go faster now?<p>Keynes (again as I remember) recommended these fixes for short term problems. Our problem is systematic over spending.<p>Obama et al. are prescribing aspirin because they believe the patient has a hangover, when the country really needs chemotherapy for debt cancer.<p>The bad debt that has accumulated needs to be accounted for, losses have to be taken, companies need to go into bankruptcy (which is often reorganization, not necessarily going out of business.)<p>We can't "cheat" our way out of this with Keynes.
Given the headline I expected more of an argument about how Obama's stimulus plan is Keynesianism's first "true" test.<p>Really the argument amounts to this:
1. FDR didn't really try Keynesianism until he was forced to during WWII (the 30s didn't count). Too little Keynes.
2. The whiz kids of the 60s took Keynes too seriously.
3. The ~$650 billion Obama wants to spend follows directly from Keynes's formula. Goldilocks Keynes.<p>Not particularly rigorous, but the link to the "Marginal Revolution" blog might be fruitful. <a href="http://www.marginalrevolution.com/" rel="nofollow">http://www.marginalrevolution.com/</a>
All this spending - will it not cause inflation? And considering the weakness of the dollar, will the inflation not cause further weakness? And when American goods become so cheap, considering that most manufactured goods are imported, will this not cause an exodus of capital?<p>I really don't know, since I have no real understand of global economics.
The problem I have with the idea of "managing the economy" is that we might not even know what that phrase actually means. I often read "economy" and translate that as "runaway complexity." I sense this complexity in a system of such magnitude, involving so many interacting systems, and so many individual actors (many of which are computer programs at this point, I think) that it simply cannot be grasped by any single human mind, no matter the training or intelligence. This is just my sense of this; am I wrong? Someone here, please educate me.
I wish him luck, but it seems like a really big gamble to me :-( Going the Keynes route seems relatively uninspired - isn't that what all governments like to do, because it gives them an excuse to spend large?
I recommend checking out Keynes' opus The General theory of Employment Interest and Money. If it seems too daunting skip straight chapter 24 for a more general take before diving into the rest.
<a href="http://www.marxists.org/reference/subject/economics/keynes/general-theory/ch24.htm" rel="nofollow">http://www.marxists.org/reference/subject/economics/keynes/g...</a><p>If that first sentence doesn't strike you as odd go back and re-read Mind the Gap by Paul Graham.
This list of Macroeconomist opinion is interesting:<p><a href="http://www.ambrosini.us/wordpress/2009/01/political-affiliations-of-modern-macroeconomists/" rel="nofollow">http://www.ambrosini.us/wordpress/2009/01/political-affiliat...</a><p>Seems the professional macro guys are ambivalent about the stimulus.<p>Of course, the only economists' views that will actually make it into policy will be the Democrat economists.
Japan tried Keynesian policies. The result was the infamous lost decade: <a href="http://www.heritage.org/research/economy/bg2222.cfm" rel="nofollow">http://www.heritage.org/research/economy/bg2222.cfm</a>
Like all policies, you have to look at the downside risk.<p>IMO, the downside of a Keynesian solution is MASSIVELY larger than an chicago school type solution. You have the government taking on huge quantities of debt, no guaranteed cure for unemployment, and a risk for massive inflation..
> Organized public works, at home and abroad, may be the right cure for a chronic tendency to a deficiency of effective demand. But they are not capable of sufficiently rapid organisation (and above all cannot be reversed or undone at a later date), to be the most serviceable instrument for the prevention of the trade cycle.<p>-John Maynard Keynes