So, we\’re going to see whether this Keynesian thing actually works or not, aren\’t we?
Absolutely every commentator even vaguely left of centre says that the fiscal contraction (ie, the combination of spending cuts and tax rises) is going to devastate the economy. We\’re going to get a double dip recession, unemployment will go over 4 million etc.
Let us imagine that this doesn\’t happen: will we then have put to bed the idea that only government spending can get us out of such recessions?
Or if, in two or three years time, this hasn\’t happened, will they just walk away whistling, hoping no one will have noticed?
……Or if, in two or three years time, this hasn’t happened, will they just walk away whistling, hoping no one will have noticed?……
Yes
Economics is a “disgraced profession” (James Galbraith) so who gives a hoot what any of them think except, perhaps, the claimed 0.1% who saw the crisis coming?
Shades of the 364 economists who wrote to The Times to tell the nation that Geoffrey Howe’s 1980 budget would lead to all sorts of disasters.
They were wrong then and their offspring today are wrong now.
But it won’t shut them up. Never does. Socialists (why bother with the euphemism Keynesians, since real Keynesians don’t advocate deficit financing at the top of the cycle as their disciple one Gordon Brown indulged in) just believe in tax, spend, waste and squander – for all time.
if only macroeconomics was that easy.
first, the construction “only government spending can get us out of such recessions” is too strong. More weak: when interest rate is at zero point and the private sector is running a big surplus and unemployment is high, government spending can help a lot.
You want to test that idea by seeing if fiscal contraction pushes us back into recession. But what if we merely experience more years of low growth and high unemployment? Then you have to know what the unobserved counter-factual (what would have happened under slower and milder fiscal contraction) would look like, and you don’t. Or, conversely, say we do slip back into a recession, you might find some on your side of the fence arguing that we’d still have been even worse off, had we not got a grip on public finances. Or, should we miraculous experience good economic growth (perhaps because China and Germany start importing more) people will still say that we grew despite fiscal contraction .
this is the respect in which economics is not a science: we can’t run experiments.
At least he did not introduce a land value tax.
“will we then have put to bed the idea that only government spending can get us out of such recessions?”
No. Because the desire and wishes of the anointed ones to control our lives is psychological / religious in origin. The economics of Keynes provide a justifying narrative. The fact that it is discredited bullshit and has been shown to be so over and over again, logically and empirically matters not a jot.
Sure, if you can construct a diff-in-diff.
After all this is not so crazy. Haven’t we had other expansionary deficit reductions like 80s Ireland and 90s Canada whose example we can follow? Oh wait.
In any case, Keynesians are safe. They can always borrow the neo-liberal riposte, ‘Sure things are bad (good) but if we had less (more) government, things would be even worse (better)’.
At GeoffM; You really would find it instructive to read say, the Treatise on Money, to find out what Keynes thought about monetary management in ‘normal times’. His advocacy of fiscal demand management was 1) a response to the hopelessness of BofE policy in the 30s 2)a reaction against the weak explanatory tools CB had 80s ago.
With these two things out, we can confidently assume that ‘normal’ times would have seen the Keynes of the Treatise not the General Theory.
Do you really think that people who might expect or think the worst to be somehow punished for their pessimism?
We can all imagine what we like, we can imagine that bad things will not happen, we can imagine that up is down, right is left, war is peace, and lies are truth, and where has that lead us? Time and time again.
Really, what were you thinking?
Think Man, think!
Democracy allows us to be wrong.
Obviously people don’t get this democracy shtick too well.
“We’re going to get a double dip recession, unemployment will go over 4 million etc.”
and if that happens, no one is going to be up against a wall.