Saturday, February 6, 2010

How Obama got Keynes wrong

For you students of economics and for the rest of us who need to be better students of economics -

From Fortune Magazine via CNN:

"The Obama White House likes to say that the theories of John Maynard Keynes form the foundation for its fiscal policies. Most notably, it draws upon the legendary British economist's idea of spending big to pull out of a recession."

"But one economist says the administration has gotten Keynes only half right. Allan Meltzer of Carnegie Mellon is one of the most influential monetarists of the past 50 years. He has served in the Department of the Treasury under President Kennedy and on the Council of Economic Advisors during the Reagan Administration. He also authored the book, Keynes's Monetary Theory: A Different Interpretation."

"While the Obama team is laying out huge sums of money, Meltzer says it's neglecting a key part of Keynes' plan: You can't run up a debt without a way to cover it." (Emphasis is mine)

Meltzer recently sat down with Fortune editor-at-large Shawn Tully. Below are edited excerpts from their conversation.

If Keynes were alive today, what would he think of President Obama's fiscal policies?

He would roll over in his grave if he could see the things being done in his name. Keynes was opposed to large structural deficits. He thought that they chilled rather than stimulated the economy. It's true that we're stuck with large deficits now. The goal should be to reduce them, not to take on new spending that makes them worse.

Today, deficits are getting bigger and bigger with no plan to significantly lower them. Keynes understood what the current administration doesn't understand that the proper policy in a democracy recognizes that today's increase in debt must be paid in the future. (emphasis is mine)

1 comment:

  1. For an excellent research site for economic principles that are based on free markets, property rights and individual freedom, check out - Some of it is advanced, but most can be understood by the average Joe. They explain the boom/bust/bubble cycle caused by government intervention in an understandable manner. They also love to go head to head with Keynes.
    PS - Libs hate Austrian Economics, what's that tell you?