Or so says Harvard professor and Hoover Institution senior fellow Niall Ferguson here.
There is something desperate about the way economists are clinging to
their dogeared copies of Keynes’ “General Theory.” Uneasily aware that
their discipline almost entirely failed to anticipate the current
crisis, they seem to be regressing to macroeconomic childhood,
clutching the Keynesian “multiplier effect” — which holds that a
dollar spent by the government begets more than a dollar’s worth of
additional economic output — like an old teddy bear.They
need to grow up and face the harsh reality: The Western world is
suffering a crisis of excessive indebtedness. Governments, corporations
and households are groaning under unprecedented debt burdens. Average
household debt has reached 141% of disposable income in the United
States and 177% in Britain. Worst of all are the banks. Some of the
best-known names in American and European finance have liabilities 40,
60 or even 100 times the amount of their capital.The
delusion that a crisis of excess debt can be solved by creating more
debt is at the heart of the Great Repression. Yet that is precisely
what most governments propose to do.
