Keynesianism And Big Government

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"Keynesianism And Big Government"

Russ Roberts offers the hyper-nihilistic take on macroeconomic stabilization policy debates:

The evidence for the Keynesian worldview is very mixed. Most economists come down in favor or against it because of their prior ideological beliefs. Krugman is a Keynesian because he wants bigger government. I’m an anti-Keynesian because I want smaller government. Both of us can find evidence for our worldviews. Whose evidence is better? I’m not sure it’s a meaningful question. My empirical points about Keynesianism won’t convince Krugman. His point don’t convince me. I am not saying that we will never get any kind of decisive evidence on the question. I’m saying it sure isn’t here now.

That seems insane to me. Did George W Bush sign a 100 percent tax cuts stimulus bill in 2008 because he favored bigger government? That doesn’t sound right to me. I think he did a 100 percent tax cuts stimulus because congressional Democrats were pushing for stimulus, because many of his advisers believed in New Keynesian economic models, and because he doesn’t favor bigger government. Or consider this. In the late 1990s, the Keynesian thing to do was to run budget surpluses. Right-wing critics of the Clinton administration disagreed with this, preferring to expend the surpluses on tax cuts. Left-wing critics of the Clinton administration also disagreed with this, preferring to expend the surpluses on new programs. Either way, whether or not one believed the country should be following the Keynesian prescription of budget surpluses had nothing to do with beliefs about big or small government.

Here are some Keynesian questions:

— Regardless of the merits of deficit-financed tax cuts, do you think the case for them is stronger during downturns and weaker during spells of full employment?
— Regardless of the merits of deficit-financed increases in food stamp spending, do you think the case for them is stronger during downturns and weaker during spells of full employment?

The Keynesian answer, in both cases, is “yes.” It’s true that if unemployment is high and Democrats are in office, then in practical political terms Keynesian ideas will lead to bigger government. But if unemployment is low and Democrats are in office, then in practical political political terms Keynesian ideas will lead to smaller government. And if unemployment is low and Republicans are in office, then in practical political political terms Keynesian ideas will lead to bigger government. And if unemployment is high and Republicans are in office, then in practical political political terms Keynesian ideas will lead to smaller government.

I think the critique that Roberts and others want to make of left-wing Keynesians like Paul Krugman is to accuse Krugman of some kind of dishonest opportunism, like he suddenly started embracing Keynesian solutions in 2009. But there’s no evidence for that. Here’s Krugman in August of 2008 arguing that the U.S. fiscal position is more tenuous than it appears and politicians should resist embracing new surplus-diminishing initiatives. He’s not pushing for bigger government.

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