18 December 2009

The Rap on Keynes

Pretty good stuff.

Lord Skidelsky doesn't mention, and Professor Roberts fails to bring up, that Keynes said that in normal times of growth governments should be running a surplus with deficit spending on public works ("countercyclical spending") when things start to go bad. This concept has been bastardized by neo-Keynesians (see anything written by Paul Krugman, ever), and politicians of all stripes, as justifying perennial negative spending by government in order to "keep things moving along." Even Keynes knew that the market needed no incentive or prodding to "move along" for productivity to grow ceteris paribus. The accumulating debt and ill-effects that deficit spending has on interest rates bode poorly for GDP growth which is why the ideas promulgated by Keynes were to be massive and short-term...the surplus in good times would be the cushion for when the shocks happen. The result is less robust short-term growth (broad-based market inefficiency) and becoming a less attractive option for long-term investment which harms long-term growth.

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