{"id":45399,"date":"2018-10-21T03:00:07","date_gmt":"2018-10-21T07:00:07","guid":{"rendered":"https:\/\/quotulatiousness.ca\/blog\/?p=45399"},"modified":"2018-10-20T11:32:56","modified_gmt":"2018-10-20T15:32:56","slug":"this-is-why-keynesianism-doesnt-work-in-practice-the-politicians-flub-the-hard-part","status":"publish","type":"post","link":"https:\/\/quotulatiousness.ca\/blog\/2018\/10\/21\/this-is-why-keynesianism-doesnt-work-in-practice-the-politicians-flub-the-hard-part\/","title":{"rendered":"This is why Keynesianism doesn’t work in practice – the politicians flub the hard part"},"content":{"rendered":"

Tim Worstall<\/a> explains the fatal flaw in Keynes’ economic theory … not so much in the theory<\/em> part, but in the practical application by flesh-and-blood human beings:<\/p>\n

We\u2019re told that government borrowing is falling, the deficit closing. This therefore means that it\u2019s possible to relax austerity, to start spending more upon sweeties for the voters. This being exactly and precisely why Keynesianism as a practical matter doesn\u2019t work. For politicians will follow the fun bit and not the difficult part. Thus as an overall theory it simply is, to use a governmental phrase, no longer operative.<\/p>\n

[…]<\/p>\n

Think of what that basic Keynesian idea is. When the economy\u2019s in the doldrums we should blow out the deficit in order to increase demand and thus boost the economy. But when we\u2019re running at the resource limit then any such attempts will just turn up as inflation. So, we should stop doing that. Also, as Keynes himself pointed out, when the Sun shines is the time to repair the roof. Perhaps pay down some of that national debt so that the next time we need to blow that deficit out we\u2019ve got space to do so.<\/p>\n

Do note that this basic set up is also entirely consistent with modern monetary theory. When the economy is running at its limits then we should be taxing more of that created money back to prevent inflation. That is, running a smaller budget deficit, possibly even a surplus.<\/p>\n

So, what happens to kill either theory in reality? Well, here we are. Unemployment at its lowest since the early 1970s. Employment to population ratio at its highest since then. And what are people talking about? Blowing out the deficit again to buy sweeties for voters. That is, the political imperatives just don\u2019t militate in favour of anyone using these theories as they\u2019re supposed to work.<\/p><\/blockquote>\n

In the meantime, of course, we’ve effectively changed the meaning of the word “austerity<\/a>“:<\/p>\n

Austerity is a political-economic term referring to policies that aim to reduce government budget deficits through spending cuts, tax increases, or a combination of both. Austerity measures are used by governments that find it difficult to pay their debts. The measures are meant to reduce the budget deficit by bringing government revenues closer to expenditures, which is assumed to make the payment of debt easier. Austerity measures also demonstrate a government’s fiscal discipline to creditors and credit rating agencies. <\/p><\/blockquote>\n

To a modern politician — or political activist — “austerity” now means something more like “only spending a bit more this year than you did last year”. British commentators have been accusing the government’s “austerity” measures for all kinds of negative effects, yet there have been no<\/em> large scale austerity measures brought in. <\/p>\n","protected":false},"excerpt":{"rendered":"

Tim Worstall explains the fatal flaw in Keynes’ economic theory … not so much in the theory part, but in the practical application by flesh-and-blood human beings: We\u2019re told that government borrowing is falling, the deficit closing. This therefore means that it\u2019s possible to relax austerity, to start spending more upon sweeties for the voters. […]<\/p>\n","protected":false},"author":1,"featured_media":35193,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[25,84,53],"tags":[71,165,118],"class_list":["post-45399","post","type-post","status-publish","format-standard","hentry","category-economics","category-government","category-politics","tag-debt","tag-inflation","tag-taxes"],"jetpack_featured_media_url":"https:\/\/quotulatiousness.ca\/blog\/wp-content\/uploads\/2016\/06\/favicon.png","jetpack_shortlink":"https:\/\/wp.me\/p2hpV6-bOf","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/posts\/45399","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/comments?post=45399"}],"version-history":[{"count":1,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/posts\/45399\/revisions"}],"predecessor-version":[{"id":45400,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/posts\/45399\/revisions\/45400"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/media\/35193"}],"wp:attachment":[{"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/media?parent=45399"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/categories?post=45399"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/tags?post=45399"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}