My problem with the modern Keynesians – unlike their mentor – is that they are never ever as passionate about dieting in good economic times as they are about fiscal feasting in the bad. This bias towards profligacy leads me to think they only ever feast and never fast.
If so, as economists, they are in danger of being one-trick ponies. Worse still, I fear their reflex profligacy eventually suffers from a form of diminishing returns: if all they ever do is feast and never fast, does the economic sustainability of their fiscal fiesta eventually wear a little thin? Perhaps I am being too biblical here, but I thought the whole idea behind fat years was to store up grain for the lean ones that will surely follow. Yet modern Keynesians seem to inhabit a Nirvana where their grain silos are perennially full. (I think Mr Bernanke calls his grain silo a “printing press”.)
I also wonder whether fiscal incontinence in a nation whose demographic life-cycle is approaching maturity is not the height of intergenerational irresponsibility. If Maynard were alive, would he be writing an essay entitled “The Economic Consequences for Our Grandchildren”?
Finally just how effective is the all-important multiplier in a modern developed economy? Even leaving aside the not-unimportant aspect of the West’s broken down financial sector (which surely is the transmission mechanism by which the multiplier effect works), given the level of openness to trade of most modern economies, is not fiscal spending today the equivalent of turning on the air-conditioner whilst leaving the windows and doors wide open? (Keynes himself warned that the more open an economy, the more ineffective fiscal policy would be.)
If this is so, them fiscal spending is at best of little use in the short term but of even greater concern in the long – somewhat akin to a diabetic eating a chocolate bar: the sugar rush quickly gives way to a crash. (Is this what we economists would call a “double-dip recession”?)
Today’s Keynesians must not simply try to say that fiscal spending has worked before (and not all economists agree here either) so by definition it will work today. They need to argue convincingly that, in today’s West with today’s demographics and today’s open economies, it will work in the here and now. So far, no economist I have read has come remotely close to doing so. I fear this is because yesterday’s one trick pony has aged to become today’s clapped out nag.