Austerity Gaff!

Let's bring this argument between two economic theoreticians into the real world.  Keynesian Economics has lost some credibility in the real world not because of the theory, but rather how politicians have used it in practice over the past 3 or 4 decades. Austerity has become popular because politicians are not willing to admit  they have misused economic theory advocated by Keynes.

Keynes advocates government spending in recessions to offset the decrease in demand from the private sector. Keynes also advocates the paying down of government debt during good times in the public sector. During the last 40 years our politicians were happy to take credit for the government picking up the slack in slow times and reluctant to go to the voter in good times and say it was time to pay back the money Uncle Sam spent to spur the economy during the recession.

It is time for the politicians to go to the woodshed and admit their errors. It is not time to compound the consequences of these errors when our economy is in disarray and facing our stiffest competition since World War II. Stretching out the time period to get our debt under control from 10 years to a 15-20 year time frame gives future generations a chance to experience the same prosperity we have.
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  1. Again, I agree with much of what you write, but here I believe you’ve mischaracterized the economic theory that has “guided” politicians over the past thirty years. It has NOT been Keynesianism, but misguided Neoliberalism. Both sides of the aisle, starting with Reagan, and including Clinton and now Obama, have bought into this fallacy. (Remember--Clinton repealed Glass-Steagal and pushed “free trade.” Those were very Neoliberal policies.) A great book about this is Tom Palley’s “From Financial Crisis to Stagnation: The Destruction of Shared Prosperity and the Role of Economics.” He has the best, most systematic analysis of the 2008 crisis that I’ve read. He incorporates and transcends both the Chicago School neoliberal hypotheses and those of what he calls “textbook" or "soft-core" Keynesians (the MIT School, e.g. Krugman). He shows how both only go part-way because they take the present economic system as given and look for patches. Until we change our mental paradigm of what economics is and is meant to do, we will just sink deeper and deeper.


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