Anatole Kaletsky — The takeaway from six years of economic troubles? Keynes was right.

Anatole Kaletsky been reading MMT? Here's the section on sectoral balances. Good post. Read it all. This is one of the best succinct presentations other than Warren Mosler's that I have seen. And Kaletsky uses some of Warren's phraseology. But there is also a strong influence of Krugman's approach, too, which would be better edited out.

The main lesson is that government decisions on taxes and public spending have turned out to be more important as drivers of economic activity than the monetary experiments with zero interest rates and quantitative easing that have dominated media and market attention. Fiscal decisions on budget deficits, taxes and public spending have mostly been debated as if they were largely political choices, with much less influence than monetary policy on macroeconomic outcomes such as inflation, growth and employment. Yet the reality has turned out to be the opposite. While every major economy in the world has followed essentially the same monetary policy since 2008, their fiscal policies have been very different and the divergence in outcomes, especially when we compare the United States and Europe, has been exactly the opposite to what was implied by the rhetoric of most politicians and central banks.…

Thus the six years since 2008 have provided strong empirical support for the supposedly outmoded Keynesian view that government borrowing is more powerful than monetary policy in stimulating severely depressed economies and pulling them out of recession.…The underlying reason why fiscal policy is so important in recessions, and has now come to dominate over monetary policy, is a matter of simple arithmetic that should not be open to debate.

Recessions generally occur when private business and households decide to spend less than their incomes in order to reduce their debts or increase their savings. If this process of “deleveraging” is happening in the private sector, which it clearly has been, then simple arithmetic shows that economic balance can only be restored if some other sector of the economy spends more than its income – and such excess spending is only possible if that “other sector” is willing to increase its debts [i.e., deficit]. Disregarding the role of exports and imports, which must sum to zero for the world as a whole, the government is the only possible candidate to play the crucial balancing role as the “other sector.” It is therefore a mathematical certainty that governments must increase their borrowing [i.e, deficit spending] whenever businesses and households decide to boost their savings by spending less than they earn…

Reuters
The takeaway from six years of economic troubles? Keynes was right.
Anatole Kaletsky | chief economist of GaveKal Dragonomics and economic journalist
h/t Mark Thoma at Economist's View