While it is impossible to predict the economic consequences of Mr Trump’s tenure, given his strategic preference for vagueness over policy detail, one thing is clear: any mention of Trump as a Keynesian president, just as in the case of Ronald Reagan, confuses “Keynesian” for “irresponsible” and generates expectations unlikely to be fulfilled.
Deficit spending can take one of three forms: tax cuts, spending increases or a combination of the two. Republicans, from Ronald Reagan to George W. Bush, and now clearly Donald Trump, favor large-scale tax cuts while concentrating additional spending on defense procurement.
If the objective is to provide a flagging economy with necessary stimulus, Republican deficit spending is a most inefficient means. John Maynard Keynes, who had no love lost for the working class, and harbored a keen interest in promoting the wellbeing of aristocratic folk like himself, nonetheless objected to large-scale tax cuts for a simple, practical reason: the trickle-down effect is a myth, to put his point in Reaganite language.
The reason that “trickle down” is a myth is that the rich are most likely to save a large part of the tax relief they receive, thus blunting its stimulus potential, or use it to go skiing in Switzerland, rather than to spend it in their demand-deprived community. This is why targeted spending on the poor was the British gentleman’s recommendation: because it stimulates demand much more efficiently.In defense of Keynes, Varoufakis points out that Keynes was a deficit dove that recommended balancing the budget over the cycle, running deficits in bad time and surpluses in good times. This where MMT economists part company with Keynes.
Yanis Varoufakis
TRUMP: THE NEXT KEYNESIAN PRESIDENT? DON’T BANK ON IT
Newsweek, 16 NOV 2016
6 comments:
"In defense of Keynes, Varoufakis points out that Keynes was a deficit dove that recommended balancing the budget over the cycle, running deficits in bad time and surpluses in good times. This where MMT economists part company with Keynes."
It should be noted, that Keynes was proposing this while working under a gold standard - you have to get off the gold standard for MMT to fully come into play.
Here is Keynes celebrating the end of the gold standard in Britain - Keynes celebrates the end of the Gold Standard (rare video footage)
"Keynes was a deficit dove that recommended balancing the budget over the cycle,"
Probably a good policy under gold...
Unk, beat me to it...
In systems analysis you would re-set t=0 when the conditions change like that in order to track the new function...
Unknown: Lots & lots of people say Keynes said that. Through constant repetition, most people believe he said it. But nobody has ever provided a genuine "deficit dove" / "balance budgets over the cycle" quotation from Keynes.
Once in a long while, somebody gives an actual quotation that they think supports this statement. It is a good exercise in reading comprehension and in building economic understanding to be able to make the distinctions, which were clear to Keynes and everyone else at the time he wrote - between the meaning of the real quotes and the nonexistent balanced budgeteering "quote".
IMHO, Varoufakis grossly underestimates "the room for using deficit spending to stabilize the economy".
Keynes' view was nuanced but different from the MMT view according to Bill.
Bill Mitchell, The roots of MMT do not lie in Keynes
Bill Mitchell is imho not the best or most consistent historian. More common sense and reading a book on historiography would help him. For a long long time he has said things like "The roots of MMT do not lie in Keynes" & much stronger critique. While frequently quoting Keynes himself and saying that MMT comes through Lerner - who attributed the main ideas of functional finance to Keynes - and Kalecki, who certainly recognized affinity with Keynes. Both were "deeper in insight than Keynes". In some places, but less deep in others. What a surprise.
Better historians of ideas concentrate more on where some predecessor went right (i.e. agreed with the historian :-) ) than on captious criticisms of where they went wrong. Especially when it takes a lot of work and distortion, as in the affair of this "quotation" to convince oneself that they went wrong. Considering his criticism for being afraid of inflation in WWII - you would have to be insane not to be - Mitchell is a worse historian than I thought - to the point of allowing his animus against Keynes to distort his economic thinking.
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