It figures that Bloomberg Businessweek‘s economically challenged Peter Coy authored a new cover story dedicated to Keynesian economic arguments.
Mr. Coy ought to consult Roy Cordato for a refresher course on Keynes.
Martinez: Despite the fact that you have said there really is no evidence that Keynesian economics gets us out of a recession, it clearly now seems to be the platform from which many people are advocating that we move forward in this country today. Why a rebirth of Keynesian economics?
Cordato: Well, it’s the kind of economics that politicians love — especially leftist politicians who want a lot of power in the hands of the state — because what it does is, it says look, the government can basically get us out of recession by spending massive amounts of money and running big deficits. That’s exactly what politicians want to hear, right? We can spend. We can put lots of money into all our pet projects. We can essentially pay off all of our constituencies with spending, and we can call it stimulus, right? And not only can we call it stimulus, but we have this famous economist backing us up — John Maynard Keynes.
So I think the reason why there’s a rebirth is because it appeals to politicians, and it always has. The fact is, it’s a bizarre kind of view. It was discredited especially in the 1970s because the Keynesian model says, for example, deficits are good for the economy. It also says you cannot have unemployment and inflation at the same time. This was the big kicker for Keynesian economics — in the early 1970s when we had something called “stagflation,” where we had rising unemployment and rising inflation at the same time. Under the Keynesian model, you can’t have that; that’s impossible. And that’s where it kind of fell apart, became discredited. What was call supply-side economics — as opposed to demand-side economics of Keynes — started to come to the forefront. We started to see Reagan’s tax cut policies and so on. But we thought it was dead and buried, much like Keynes himself. …
… Martinez: Roy, as we speak, demand-side policy, Keynesian economics, is indeed winning the day with the Obama administration. As an economist, what would you predict we’ll see down the road with the implementation of Keynesian-type policy?
Cordato: Certainly these policies will not get us out of our current problems, and, in fact, they will make them worse. What’s going on right now is a huge distortion of the economy through massive government spending and government debt, and I see no good coming out of any of it.
