Frauds Unite: Henry Blodget Says Keynes Was Right


If we're talking about Germany, we're talking about Heino.

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:

That's spending in the middle.

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. 

If Blodget were wearing a fez, this picture would really work.

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. 

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  1. If the leeches don’t cure you of your bad humors, it’s clear you haven’t applied enough leeches.

  2. I don’t get it.

    If you’re a Keynesian, you still have a job. If you’re not, you don’t.

    Market forces at work.

  3. It is obvious that Keynesian Economics does NOT work for many reasons However, what does appear to work is a New Economic Platform called The FALGAFT Plan. One of this plans applications is that it “Reduces” Govt size AND Balances the Budget as a Default position. Now that can’t be a bad thing.
    Another point is that it Eliminates Lobbiest Financial Powers which in turn Reduces Corruption scenarios.

    1. OK, and what would FALGAFT be? Or do I really want to know?

      1. By following the rules of the Film Actor’s Guild, the world can become a better place; that handles dangerous people with talk, and reasoning; that, is the FAG way. One day you’ll all look at the world us actors created and say, “wow, good going, FAG. You really made the world a better place, didntcha, FAG?”

        1. So, I didn’t want to know.

      2. FALGAFT is a plan to fix things. I couldn’t actually understand how it proposes to fix things, but I think it involves building gas chambers.

        1. Hey,
          How about F[ix]T[hings]R[ight]N[ow]?
          Declare DC and state capitals as ‘politician-free zones’? And enforce it…

  4. The beauty of Keynes’ theory is its unfalsafiability. Any nonzero amount of government spending is obviously the cause of economic growth. Stagnation or shrinkage is caused by insufficient government spending.

    There are no conditions short of total anarchy that would disprove Keynes.

    1. Hugh Akston|4.24.12 @ 9:43PM|#
      …”There are no conditions short of total anarchy that would disprove Keynes.”

      Well, not really.
      *IF* those who claim to be Keynsians would demand their governments follow through on the *entire* program Keynes proposed, we might find out if it works. But that requires the various governments cut expenditures and taxes during times of growth.
      So, as communism relies on the fantasy of the irrational ‘new soviet man’, Keynesian econ relies on rational governments.
      Both *could* be falsified, but neither ever will, as unicorns remain thin on the ground.

      1. Too many confounding variables anyway. In practice it’s unfalsifiable.

    2. Austrian theory isn’t falsifiable either. I’m not sure any non-contrived macroeconomic theory is falsifiable, tbh.

      1. Evil Otto|4.24.12 @ 10:19PM|#
        “Austrian theory isn’t falsifiable either.”
        True in absolute terms, but there are limits to what econ ‘experiments’ can ethically do.
        We had a pretty good case-study in Hong Kong that delivered positive data re: as free a market as we’re likely to find.
        Pretty sure neither Keynsian [and certainly not] Marxist theory has ever approached that level of success.

      2. The difference is that the Austrian school does not claim to be a science, unlike the other schools.

  5. Another sorry wanker who lost his dictionary. He thinks that “austerity” is when you wish for a 20% increase in spending and only get 19%.

    O the tragedy!

  6. “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.”

    Well, maybe that might be true. Problem is, there’s no “austerity” here, just reality.
    And reality tends to fix problems caused by fantasy.

  7. Semi-OT:

    I used to wonder why I wasn’t taught Economics, Finance, Business or any similar actually useful subject early and often in public school.

    We had a halff-semester Econ. and Gov. class in 12th grade, and those were optional.

    Why are classes like Chemistry, Biology, Phys. Ed. and art given high priority, while classes more likely to teach applicable marketable skills almost completely ignored?

    I will never send my kid to public school. It is such a massive waste of youth.

    1. Not to mention that our teachers never made it halfway through a fucking textbook.

    2. Why are classes like Chemistry, Biology, Phys. Ed. and art given high priority, while classes more likely to teach applicable marketable skills almost completely ignored?

      L-10 lol.

    3. Chemistry and Biology aren’t marketable? Someone better tell the pharmaceutical industry that.

        1. L2W (what you mean clearly)

          1. It is clear if you don’t intentionally skip words.

      1. He must live in bizarro world. The sciences aren’t focused on enough and the other two are usually the first on the chopping block.

        Plus, I can only imagine what drivel would be taught in a public school economics/business class.

        1. I took Econ in High School. Standard stuff: supply and demand, command vs. market economy, etc.

          ‘Orthodox’ (Keynes) economics was never questioned though.

        2. I had a consumer economics class in HS where they showed some pro-market video about people living on an island embracing capitalism after discovering the wonders of sea shells as money.

          It would probably be considered racist today though.

          1. Of course that was during The Nineties so things have probably changed.

          2. Fuck. I remember that video…they showed us that too. I remember that the ending was left up to us and the teacher asked us how we could solve their economic problem. I answered “Start a war.”

            Oh, how close I was to a Nobel Prize and didn’t even know it!

        3. It’s better that they’re exposed to Econ., Business, and Finance earlier (than they generally are in public school), and more often. Economics isn’t very difficult to understand, but it’s all but ignored while kids’ heads are filled with multiple mandatory subjects, five days per week, for most of their first 18 years (in most cases). It’s easy to judge how ignorant of Econ. people are by their actions.

          You’re probably right that they would be taught crap, but that goes the same for the sciences. The methodology is more of an issue than the subject. But regardless, merely exposing kids to the subjects which permeate advanced society, those that I listed, would give them a chance to develop their own ideas and maybe acquire a basic comprehension. In my experience they aren’t even getting the latter.

          1. I agree. I had 1 Economics class and 1 Government class in high school, and that was it. I hardly remember anything from either of them. Just like everything else, you need those topics to be taught early and often.

      2. Tell you what, take all the high school level Chemistry and Biology classes you want and let us know how many jobs that qualifies you for in the Pharmaceutical industry.

        In otherwords, no Biology and Chemistry are not marketable skills at the level being discussed

    4. We had a classes in personal finance and business organization in the public schools that I attended. We learned that capitalism is the source of everything wrong with the world and that salvation is solely through government and unions. Be careful what you wish for.

      1. The bullshit is bullshit, but you still might have learned something useful. Of course, it wouldn’t be absolutely good or absolutely bad, but I believe it’d be progress. As I said, at least kids would have a chance to think about the subjects and develop their own thoughts.

  8. Liebe Mutter out of it

  9. Tim Cavanaugh – YES – a fez for Mr. B would make that picture purrrrrrrfect (Arianna H as Ms. Kitka).


  10. 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.

    You seem to have misunderstood what a stimulus is. And there was a brief postwar recession in 1945, actually.

    Not that Blogette is right, just playing avocado diaboli.

    1. You seem to have misunderstood what a stimulus is.

      And you seem to have misunderstood that the purpose of an economy is to provide goods and services to people — something sadly lacking with all that capital, labor, and resources employed building things to be shipped overseas and destroyed.

      1. And you seem to have misunderstood that the economy is merely an abstract concept, and people provide goods and services to each other for mutual gain. ‘The economy’ has no purpose, but is a reflection of the values of individuals.

        1. And you fail to understand that what is found to be desirable is “economic growth,” which you don’t get by literally destroying material goods and goods producers (i.e. people).

        2. Ryan, don’t pretend you have an actual point when all you’re disagreeing with is semantics.

    2. I’m sure you make a fine guacamole, Marcia Clark, but you would make a better fit as council to my immortal enemy the Demiurge.

  11. I can’t open the article. Does he ever try to explain what Keynes actually believed?

    Last I checked, Keynes believed in running a surplus during the good times. During economic downturns, he thought the government ought to spend that surplus and maybe even do some borrowing.

    He never said to run trillion dollar deficits while growing the economy – then double it during a recession.

    1. This. It’s a little frustrating that we’re ragging on Keynes for what he didn’t really advocate, at least nowhere as forcefully as “neo-Keynesians.” The deficit-during-booms-and-more-during-busts crowd has turned his rainy day fund (which I think would work okay) into a defense of endless deficits.

    2. What happens when the govt runs a surplus though? It’s not clear how they can “invest” any significant surplus to draw on in the hard times. Presumably, drawing on those investments during hard times would make things worse, no?

      1. What happens when the govt runs a surplus though?

        at the state level, it gets a name like “rainy day fund” in anticipation of economic downturns, natural disasters, or some other unforeseen negative event. NC had one (and may still) for a long time while the RTP was growing and while Charlotte was becoming a financial center.

        Unfortunately, it also had a Dem-run legislature and governors with huge egos, finding itself with an almost perennial ‘budget shortfall’. Sometimes, the rainy day fund was tapped to make up the gap.

        1. Perdue to the rescue:

          The state’s Rainy Day Fund totals approximately $787 million. Of that, Gov. Perdue will use $250 million to stabilize the State Health Plan for state employees. When necessary, the remaining funds are being used to manage cash flow.

          (It used to be $2 billion, by the way. But Dems get elected and hear about all this money “just sitting in a rainy day fund,” and, well, that’s that.)

        2. The question was not what is this surplus called.

          The question is what IS it.

          Where does this “Rainy Day Fund” reside? What is in it? How large should it be?

          Is it a pile of dollars stuffed in a mattress in the Governors Mansion? Money sitting in a bank account? A portfolio of Stocks and Bonds?

          Problem is if you put it in a bank account or invest in stocks you have not created a store of value, you have merely redirected tax funds to those locations where they will be used for current production. If you Stick a pile of dollars into a mattress (or the equivalent) youi have defacto restricted the money supply and the question of why it is preferable to tax at a higher rate than is needed to meet needs now rather than to leave the money in the hands of the taxpayers and allow them to determine how to allocate the funds between investment and consumption.

      2. What happens when the govt runs a surplus though?

        It pays off debt, or should, anyway.

        1. IF it pays it OFF, then it’s a surplus. If it’s paying it down, it really isn’t a surplus.

          It’s immoral for a government to run a surplus of more than, say, 2% of GDP. Likewise, it is immoral for a gov’t to run a deficit more than, say, 2% of GDP. And GDP is a fudged, inflated number already.

    3. Article is here:…..ght-2012-4

  12. But what was World War 2 if not an absolutely gigantic Keynesian stimulus?

    Die in a fire. Yes, Europe and Asia had to rebuild after the near-annihilation of its disfavored ethnic groups and firebombing of its cities, and the US was the last country with industrial infrastructure. WW2 stimulated the US economy not because of haphazard government expenditures, but because Europe and Japan were ruined.

    This is like saying the best way to stimulate homebuilding is to destroy all homes. It’s true that such a campaign causes economic activity, but it only does so by destroying wealth. It fails to notice that economic activity is a means to achieving a higher quality of life. The only people who claim WW2’s devastation as justification for economic stimulus are partisan zealots and terrible human beings.

    1. WW2 stimulated the US economy not because of haphazard government expenditures, but because Europe and Japan were ruined.

      Actually WW2 “stimulated” the economy because people were willing to defer the goods and services they’d rather have in order to defeat the enemy and bring the boys back home and because planning production for a thousand generals and admirals is much easier than planning production for a hundred million diverse consumers.

      But people certainly weren’t better off because of that “stimulus”. Nor were they better off because Europe and Japan were ruined, just as Californians wouldn’t be better off if the Midwest were ruined.

      1. Actually WW2 “stimulated” the economy because people were willing to defer the goods and services they’d rather have in order to defeat the enemy and bring the boys back home and because planning production for a thousand generals and admirals is much easier than planning production for a hundred million diverse consumers.

        I thought market activity was superior to central planning. You seem to think the latter is superior.

        And people were deferring purchasing the goods and services they wanted during the 1930s too, for a much longer period. That didn’t produce an economic boom.

        1. You seem to think the latter is superior.

          Wow. What poor reading comprehension.

          I don’t think the latter is superior. I think the latter is an explanation for why naive computation of GDP would make World War II look like an economic boon when it was actually extremely destructive to the well being of the economy.

        2. Yeah, Tulpa doesn’t seem capable of stringing together more than 3 coherent, relevant posts. Which puts him a few levels above Tony and Shrike and one above Orrin, but still leaves him aggravating.

      2. planning production for a thousand generals and admirals is much easier than planning production for a hundred million diverse consumers.

        Are you actually equating a war effort to a consumer market? Of course, a thousand generals are easier to plan for; they have a set shopping list of things that will bought from a single vendor to achieve a specific goal.
        Once that goal is reached, however, this market dies.

        There were no competing groups of generals demanding product, nor were there competing manufacturers. And people “deferred” purchases because about the only products being made were for the war, not to mention the lingering effects of the Depression.

        1. Are you actually equating a war effort to a consumer market?

          No. I’m offering an explanation for why naive reading of GDP would lead one to believe that World War II drove a recovery when in fact it did as much for the domestic economy proper as a massive hole digging and filling project would have.

      3. I’ll just leave this here. Good as place as any.

        1. Indeed.

          We could have done better, had we only spent more
          Too bad that only happens when there’s a World War
          You can carp all you want about stats and regression
          Do you deny World War II cut short the Depression?

          Wow. One data point and you’re jumping for joy
          the Last time I checked, wars only destroy
          There was no multiplier, consumption just shrank
          As we used scarce resources for every new tank

          Pretty perverse to call that prosperity
          Rationed meat, Rationed butter… a life of austerity
          When that war spending ended your friends cried disaster
          yet the economy thrived and grew faster

          You too only see what you want to see
          The spending on war clearly goosed GDP
          Unemployment was over, almost down to zero
          That’s why I’m the master, that’s why I’m the hero

          Creating employment’s a straight forward craft
          When the nation’s at war, and there’s a draft
          If every worker was staffed in the army and fleet
          We’d have full employment and nothing to eat

  13. I remember seeing this pretty funny meme that showed Ozymandias from “Watchman” lecturing on his plan to bring about world peace by destroying large portions of the US and USSR while Paul Krugman looks on in awe at this perfect example of a Keynesian stimulus.

  14. Keynesianism sounds plausible – aggregate demand can be regulated by government by increasing public spending when private spending drops and decreasing government spending as private spending rises. It keeps total demand on a more even keel than cyclical booms and busts that swing from extreme to extreme.

    The first problem with this is that not all spending is equal – when people stop buying TVs the government can’t simply take up the slack by buying an extra aircraft carrier. And they can’t take up the slack by buying TVs either without totally screwing up the market for TVs. The idea that government can just kind of put extra demand out there and it will just sort of flow around to wherever it is needed is not a very sound theory unless you assume away that nasty unpredictable erratic human behavior. (Which, to be fair, all economic models do.)

    The second problem is Keynesians are only heard out of in bad times when they call for more government spending to stimulate the economy. During good times, when the government has lots of money, politicians have lots of ideas on where government should “invest” this money and it ain’t by taking the money out of the demand stream.

    There’s never a bad time to increase government spending, never is only a good time to decrease government spending. As witness every single government on the planet hacking and slashing and cutting spending and still spending goes up.

    1. Money is money, and jobs are jobs. That’s the core of the Keynesian argument, and it works well if your target metric comes from a government source.

    2. Nice, succinct answer.

      That control during the good times is the rub. We often don’t have a grasp of when we are actually in them until we are well within a steady upward climb. The Bush stimulus of tax cuts and rebates coupled with Greenspan’s overall policy to stimulate demand was a Keynesian response at the beginning of the oughts. At what point was it safe to pull back the punchbowl? Doing so in 2006 instead of 2008 would have likely had the same results, only earlier. Who really had a grasp on that answer outside of a few Austrians who were ignored?

      1. Okay, technically, Greenspan’s monetary policy was Monetarist, a Keynesian hybrid, but I would argue that the other aspect of Fed action, buying and selling on the market, QE, is Keynesian in nature.

    3. Hayek (and WH Hutt) did a fine job explaining why Keynes’s short-term solutions are not so simple and effective. Buchanan did a fine job explaining why Keynes’s long-term plan was politically doomed and quickly transformed in both theory and practice, and led to the emergence of transfer programs in the 60s.

  15. “IT’S OFFICIAL: Keynes Was Right.” link leads me to a admin page O.o

  16. Most countries in Europe have only the austerity route to follow, there is no other choice. When these smug morons state that all that Greece needs is a government stimulus for growth, they forget to mention that in Greece they have so many public servants and public works programs already that creating more is practically impossible.

  17. lol, so is anyone actually surprised by this? lol

  18. well technically WW2 did get us out of the Depression and that was helped by the public works projects of the Depression Era, however it had nothing to do with spending.

    Basically at the end of WW2 we had this huge industrial economy that had been built to handle the war, some of which leveraged infrastructure build from depression makework projects and every other industrial country had been bombed back to pre-industrial levels. So who gets all the orders for the stuff the rest of the world needs to rebuild their industrial bases? Why the US.

    So we had a huge slack of industrial capacity and manpower with the rampdown from the war and a position as pretty much the only global supplier of mass scale industrial manufactured goods.

    Problem is this is an unsustainable position because eventually the rest of the worlds industrial bases will be rebuilt and their internal markets will begin to supplant our exports and their exports will even challenge our internal markets in places but it made for a nice run through the 50’s and 60’s.

    1. Yes, “technically” WW2 did get the US out of the Depression, but that’s solely because the metric used for determining depressions is GDP, and war economies raise GDP.

      But even after the war you seem to celebrate a mighty mercantilist perspective. The US making products and sending them to ruined countries overseas improves well being in the US less than freely trading with healthy countries overseas does.

      From a mercantilist perspective, this “unsustainable position” looks favorable because employment is full and easy and GDP appears high. But if there’s nothing for that GDP to buy — effectively if you are subsidizing the consumption of the produced goods overseas and getting nothing in return — then you are worse off than you would be in a wealthier world that could give you goods back.

      1. But those other countries did have something to offer. Their mines, farms, and oilfields were all still open for business and they made wonderful places for a vacation etc.

        We weren’t just building machines and shipping them off for nothing, we were building them and gathering the lions share of global raw material production back in return giving us cheap gas, cheap food, cheap steel and so on.

        1. Fair points. But it is still economically more wealth enhancing to have the choice of trading for raw materials or for higher value goods than it is to be the only purveyor of the higher value goods.

          1. For everyone, yes. But for the monopolist in the short run, no. The monopolist producer captures the consumer surplus and all that, except on a national scale.

            My point above was that if you bomb a hospital and a school, you have some good idea of what to build in its place: a hospital and a school. The maintenance of that hospital and school during peacetime hardly touches GDP, and its destruction is not considered in GDP. By bombing and rebuilding you do increase GDP, although that represents an illusory gain to wealth. After the post-War recession, the US was in a favorable bargaining position and reaped large gains from countries who had little choice but to buy American and accept American investment.

            My criticism is that they’re bombing Peter to stimulate Paul. Net, humanity is far worse off. The level of stimulus neo-Keynesians advocates derives much of its stimulative impact on country A by the wanton destruction of country B, which makes it intellectually and morally horrible.

            1. Net, humanity is far worse off.

              I agree with most all of what you say, but on net, the nonruined economy is also worse off.

              Yes, it may have what looks like high GDP, and yes it has easy and full employment because the things that need to be produced can be easily predicted. Nonetheless, to the extent that one economy is rebuilding another economy, it’s not producing new goods and services for its own population. That population must be worse off.

              The following people won’t care about this effect because they are fixated on GDP and jobs numbers: mercantilists, Keynesians, politicians, reporters, historians, … basically anyone who matters for policy.

              1. to the extent that one economy is rebuilding another economy, it’s not producing new goods and services for its own population.

                …nor is its population getting as much in the way of new goods and services from trade with the ruined economy.

                (Since I’m being ultra-sensitive to mercantilist notions, I needed to FTFM.)

    2. No, technically, the END of WWII got us out of the depression.

    3. The industrial infrastructure was already in place. In a mere few weeks after Pearl Harbor frigates were coming on line at a historical rate of production never matched. Paul Johnson completely destroyed the fallacy you repeat in Modern Times.

  19. The other aspect missed here is that the Governments of Europe have done what the US did in regard to the banks, and bailed them out. Then they initiated austerity. Common sense says this won’t work. You take on the debt of your gambling addicted neighbor, and then cut your spending down and wonder why you can’t meet your obligations? Duh.

  20. Basically, austerity Keynesian stimulus puts you into a death spiral in which you keep trying to cut borrow your way to prosperity, but all you end up doing is digging a bigger hole.

    Seriously, how hard is this to understand?

    Last year, the US spent nearly half a trillion dollars on debt service. That’s a deadweight burden on the economy, the outright destruction of half a trillion dollars of demand. And Keynesian theory says that we should just keep adding to the debt, and adding to our future debt service obligations, so long as the economy is staggering along under the burden of that debt service.

    I mean, seriously, intelligent people believe that you can just wish prosperity into being by borrowing forevermore?

    Because we are past the tipping point, now, where the economy will ever be successful on Keynesian terms (that is, macro GDP growth and high employment) without larger and larger stimulus via borrowing. That is a death spiral – borrowing -> debt service -> economic stagnation -> borrowing, etc. ad infinitum.

    1. Last year, the US spent nearly half a trillion dollars on debt service.

      I’m having a hard time finding good numbers on this, which is very odd, in its way.

      I know I’ve seen the half a trillion number, but I’m only finding information on interest expense (which was just over $200BB), and I think debt service also includes payment on maturity (all of which, of course, is being rolled over into more debt now).

    2. The amazing thing is since 2008 a significant number of Americans have discovered that not paying debt leads to prosperity.

      Of course, a significant number already knew that and didn’t go into debt in the first place.

  21. Here’s the basic problem with Blodgett:

    Any time you balance a budget or start paying down debt, you will, by definition, cause GDP to go down. That’s a failure in Keynesian terms.

    So what he’s saying is that the only way to succeed under Keynes is to continually run deficits and borrow more and more and more. Forever. Because we know that you can borrow infinite amounts of money and nobody will ever stop loaning it to you or expecting repayment in real terms, right?

    1. There is a great video about your comment called Money As Debt. It is a great video highlights your point well.

    2. Well, the problem with Blodget is that he disseminated information privately that contradicted information he published publicly, which conflicts with basic ethical standards for finance and got him banned from the securities industry. But I digress.

  22. Mr. Cavanaugh uses a table in the middle of his column to try to illustrate a point about trillion dollar spending increases. Two problems: 1. The column headings are missing (the middle column is federal spending); and 2. the table uses estimated numbers for FY 2011, even though actuals have been available since October of last year.

    Further, it fails to document spending increases as spending actually declines in FY 2010, the last year of actual data in the table. Note that this is the first nominal dollar spending decline since FY 1965.

    Yes, there was a big increase in FY 2009, President Bush’s last budget year. This was primarily caused by the recession, although $100 billion of ARRA stimulus spending was added to Bush’s budget to get the final numbers.

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