Polly and Keynes

The idea may be economically illiterate and Cameron and Osborne may know it, but the Keynesian spending doctrine is counterintuitive: to spend more when in debt runs against the popular instinct.

Err, I don\’t think that\’s actually what Keynes said. In fact, I\’m pretty certain that he said no such thing.

He did say that when there is an output gap, when there are resources going unused, then the government raising spending and borrowing to do so can close that output gap (and he also thought that cutting taxes and leaving spending flat, borrowing to do so, would work). But that isn\’t the same as "spend more when in debt".

There\’s the other side of it too:

So long as it is paid back in the good times,

Ah, yes, Keynes did in fact say that too. That when there was no output gap, or when it was negative, then government should either raise taxes and keep spending flat or reduce spending and keep taxes flat, in order to pay back the debt accumulated during the period of fiscal expansion. For Keynesianism is, in truth, balanced. Just as some times require fiscal expansion, others require fiscal contraction.

And we all remember Polly saying that, don\’t we? How, with the economy booming from 1993 to 2007, the Treasury should be hoarding the gelt for the inevitable hard times to come, paying down the national debt and refusing the clamour for more public spending.

We do remember that, don\’t we?

1 thought on “Polly and Keynes”

  1. But her idol, our saviour, had declared the end to boom and bust. We were in the land of milk and honey where state spending always increases, where the grateful people would adore our socialist leaders for saving us from ourselves.

    Why would we need to save?

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