Frauds Unite: Henry Blodget Says Keynes Was Right
You never know if permanently banned securities analyst Henry Blodget actually believes the stuff he writes for public consumption, so I'm not sure how seriously we're supposed to take his Business Insider piece "IT'S OFFICIAL: Keynes Was Right."
Blodget holds that a nebulously defined cadre of "Austerians" have launched a global jihad of spending cuts and budget-balancing.
This puts us in the realm of science fiction from the start. The only Eurozone country that currently has a balanced budget is Estonia. In the rest of Europe, only Norway, Sweden and Switzerland currently bring in more tax revenue than they spend.
In the EU, the only countries that have engaged in serious reductions in outlays are Greece, which had no choice, and Germany, which by the strangest coincidence is the continent's economic powerhouse as well as the economy all the others are hoping to suck dry. Talk about austerity in the EU was a result of the sovereign debt crisis, not a cause of it, and still the EU countries haven't managed to put it into practice.
As for austerity on this side of the pond, here you can see how devastating budget cuts have mysteriously resulted in trillion-dollar increases in annual federal spending:
Since accuracy is clearly no object, it is not surprising that we never find out who the Austerians are or what they allegedly support. Considering the wordplay and Blodget's antipathy toward Ron Paul (who exercises such Rasputin-like influence over budget decision-makers in DC), it's possible that he's mocking Austrian economists. But the only name he coughs up is that of popular historian Niall Ferguson. In any event, here's why the Austerians are all wet:
Basically, austerity puts you into a death spiral in which you keep trying to cut your way to prosperity, but all you end up doing is digging a bigger hole. And in the meantime, tens of millions of people are out of work, the economy is retrenching, and everything is generally miserable.
And how about the alternative?
Well, die-hard anti-Keynesians will tell you that the alternative is what we're experiencing now. Obama did the big Keynesian stimulus thing a couple of years ago, and the economy is still lousy and the unemployment rate is still too high. And we have an absolutely massive debt pile that we need to work off.
Ergo, Keynesianism doesn't work.
But isn't that an unfair conclusion?
Most of the debt mountain we've piled up is the result of what we did before the crisis, not after it. In the years leading up to 2007, our absurdly undisciplined leaders took a nice big budget surplus and then squandered it. And they created absurdly loose lending standards and encouraged the whole country to lever up and buy stuff we couldn't afford. And they never said "no" to anything except tax increases, no matter what, and denied all the structural problems that were building up for decades.
Note how the "debt mountain" paragraph – the only truthful part of the article – manages to avoid answering the question of whether it's fair to say Keynesianism doesn't work. That's because, in the only version of the multiverse we can observe, what actually happened was that Presidents Bush and Obama, with plenty of Rooseveltian hubris and even some vintage Roosevelt rhetoric, put a massive Keynesian project into action. And it failed so spectacularly that even schoolchildren (though apparently not former dotcom seers employed by the former Merrill Lynch) understand that it failed.
Weirdly, Blodget concedes this point midway through the piece, claiming his "real conclusion" (italics original) is that "no matter what anyone does, we're going to be licking our wounds for years." This is not actually Blodget's real conclusion. It comes 11 paragraphs before the end of the article.
Still, he might at least have claimed to be standing up for the Platonic noble lie: We know Keynesian intervention doesn't work; we just want to keep the rubes in the 99 Percent thinking the government is doing something to help them.
But then Blodget lets slip that in addition to being dishonest, he doesn't even know what he's talking about:
The Austerians love to point at the 1930s as "proof" that Keynes was wrong. Look at the huge "New Deal," they say. Look at all those expensive public works projects. Look at all the spending the government did to try to get us out of the Great Depression, and it never really worked. What got us out of the Depression, the Austerians smugly observe, was World War 2.
But what was World War 2 if not an absolutely gigantic Keynesian stimulus?
This gets us back to who the "Austerians" actually are. Leave aside that deficit hawks don't believe World War II "got us out of the Depression." Even Christina Romer doesn't believe World War II got us out of the Depression. Nobody who has given any thought to the devastating depression that failed to occur in 1945 and 1946 still believes the U.S. economy was expanded by the massive diversion of blood and treasure into the sterile business of mass slaughter.
Has Blodget kept up with the reading? Paul Krugman may still think we need an invasion by space aliens to take up all our slack demand. But Krugman isn't even the cutting edge of Keynesian thinking, let alone whatever has replaced Keynesianism since it was brought back, once again, with catastrophic results.