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
