Keynesian In Asia

David Pilling and Paul Krugman both write about the success of Keynesian fiscal policy in Asia where it’s been attempted on a massive scale and is working well.

The difference is that most of these Asian countries had accumulated large stockpiles of money or financial assets pre-crisis, which I think makes a big difference to a lot of people’s intuitions. I think it’s obvious to most people that a government shouldn’t just sit on a large pile of money amidst mass unemployment when it has the opportunity to spend the money putting the people to work. But the important thing to understand is that spending $1 billion is spending $1 billion and nothing magical happens when your “unsaving” turns into “borrowing.” In either case, the issue is that a government in a slump should try to find a way to mobilize real resources rather than letting everything stay idle. That normally takes money. But whether you get that money by borrowing it at super-low interest rates or by spending down accumulated surpluses or just by printing it up doesn’t make much of a difference. The issue is the real resources. Are you targeting resources that are genuinely idle? Are you mobilizing them to do something useful? The intuition that “the money has to come from somewhere” and thus that there’s a huge difference between spending what you’ve saved and borrowing what you don’t have is a mistake. Money is just money, it’s the people and raw materials and such that constitutes the actual constraint (or lack of constraint) on what you can do.