A student (BO not the BO) brought this to my attention:
What the world has now reached instead is a Keynesian dead end. We are told to … continue to spend and borrow until the precise moment when … it is time to raise taxes to reduce the huge deficits and debt that their spending has produced.
… The good news is that voters and markets are telling politicians to stop doing what hasn't worked.
I read these things and I don't know what to think.
I believe that a lot of experts in economics, who were in positions of policy authority in 2008-9, panicked, and reverted to older Keynesian models rather than sticking with their newer models.
I don't know what to think about articles like this because I'm not sure that I would not have done the same thing.
I think what we've learned over the last 40 years is that the influence of active government policy is a lot smaller than we thought. But, the influences that are stronger are not things that we can manage with policy.
In sum, we have a tool, but not a very good one.
So, is that an argument for not relying on it when we might need it, or an argument for throwing everything into it that we can (since its effects are going to be diminished instead of amplified).
I actually ran into this in the "real world" just this morning. I was pounding something delicate with a (soft) rubber mallet and the rubber was splitting. Does that mean I should pound gently to accomplish what I can, or pound harder to get the job done before the mallet breaks for good?
There just aren't good answers to these questions. The only solid message is to not believe those who think that there are good answers.
Read the whole thing, entitled “The Keynesian Dead End” in the June 26 issue of The Wall Street Journal.
