Keynesianism is Not Good for You

There was a time, some 50-60 years ago, that many people thought smoking was good for you. Today we know that this was just an excuse we liked because it provided cover for what we wanted to do: smoke. Today, people smoke anyway even though we know for sure that it is not good for us. At least the illusions are gone.

Keynesianism is both similar and different. Sixty years ago, governments attempted macroeconomic stimulation through spending, debt accumulation, and eventual inflation and taxation. They thought it was good for us. It turns out that it wasn’t good. Nothing has failed so often and in some many places and under as many unique situations as Keynesianism.

Why did governments continue to do it, and why do they do it today? Because they want to, and for the same reason that people smoke. The subjective pleasure it provides the institution exceeds the serious health risks. The heck of it is that they still claim, despite all evidence, that it is good for us too.

Listening to Obama (and Bush before) tout these “stimulus packages” is not that different from hearing cigarette ads from the 1930s-50s.

To understand more deeply, the analogy with smoking breaks down. Governments do like Keynesianism because it is good for them, but the rest of us pay the price. Keynesianism brings in massive new revenue to spend on projects important to the government and the politicians in power.

Visit Washington as I did last week and you will see something amazing. It is a boom town, and as never before. Construction hasn’t slowed, the stores are packed with inventory, there are no liquidations, the office market is holding up, vacancies are down not up, and even the high-end stores are packed with people spending like it’s 2007.

That is not surprising after several rounds of stimulus in which trillions have been sucked out of the private economy of the rest of the country. The Imperial City is booming even as the rest of the country is suffering. Keynesian is certainly good for them, but it is not for us.

Hence it is not completely crazy that a discredited economic doctrine–failures piled upon failures–could have such a sway over existing economic policy. Listening to the blather from the beltway, you would think that John Maynard Keynes had all the answers. It’s very foolish to believe it.