Keynes

I recently attended an economics conference in Houston, where I was thrilled to hear such luminaries as Ron Paul talk politics. The gathering, however, was not without purpose. The central theme, which tied all the presentations together, was the failure of the Keynesian state. How pertinent a topic, given its proximity to Obama’s State of the Union farce.
For those readers who are lucky enough to not know who John Maynard Keynes was, I should like to provide a succinct, yet replete summary of his life. Keynes was an Englishman and the most famous, if not notorious, economist of the last century. A devotee of the new science of macroeconomics, he introduced a new method of planning that has profoundly shaped the political order.
Keynesian economics is defined by its active role for the State in ensuring the stability of the market. Its proponents believe that the market is inherently unstable, due to the inefficiencies of the business cycle and the tendency for the private sector to affect inefficient macroeconomic outcomes.
This often leads to decreases in aggregate demand, resulting further in recession and depression. Through government intervention, aggregate demand can be boosted and economic inefficiencies overcome.
In other words, when times get bad, the tide of economic misfortune might be turned back by government spending. This was the zeitgeist of FDR’s New Deal, epitomized in scenes of men digging ditches only to fill them up again. Somehow, this was meant to buoy the economy and boost market demand. Anyone can see the inherent problem in this arrangement.
Neo-Keynesianism has infected American politics since the latter years of George H. W. Bush. Monetary policy gurus and fiscal intervention wizards have dominated the Federal Reserve and the White House. How did we get the housing bubble? Or so many other irregular instances of artificial demand? It wouldn’t happen to be Keynes, would it?
It doesn’t make sense for government to fight off recession. Downturns in the economy are necessary; they represent a purgation of malinvestments. If the housing industry grows too large, with inflated prices, there has to be a balancing downturn. Government spending to mainain “demand” and encourage “growth” are misleading and detrimental in the long turn.
Obama has yet to learn this lesson. He may have promised a freeze on all government spending, but luckily that doesn’t include everything necessary for economic recovery, which is just about everything he had already planned on spending. So, here’s to high taxes, waste and comfort in artificial prosperity.