Is Keynes a Republican?
Stanley K. Sheinbaum is founding publisher of NPQ.
Always be careful with any concept of absolute truth in matters of economic
policy. With the vast military expenditures during World War II that helped
lift the American economy out of depression, it became an article of faith
that Keynesian deficits would always lead to economic growth.
Yet, in the waning years of Papa Bush that wasn't so. In fact, Bill Clinton
himself was dubious about running in 1992 because Papa Bush was so popular
as the commander-in-chief of the Gulf War.
What changed Clinton's mind ultimately (remember, "its the economy
stupid") was that it became clear that Bush's spending for that war,
on top of Reagan's already huge "evil empire" deficits, had
pushed the US economy into a downturn. By crowding out the capital markets
too much of a government deficit slowed new investment.
Once in office, the very moderate Clinton let his Democratic Leadership
Council stripes show by bringing Robert Rubin into his administration,
ultimately as Treasury Secretary. Rubin called for the elimination of
all deficits in the federal budget. He was so successful in his quest
for "absolute"surpluses that George W. was faced with a weakening
economy almost as soon as he moved into the White House. Consumer demand
Soon, however, George W. leapt into deficit spending to wage his military
gambit in Afghanistan, followed by plans for huge defense spending increases.
The result is that the American economy is again showing signs of vitality.
Once again, it was the Republicans who employed Keynesian principles while
the Democrats had gone in the opposite direction.
In other words, Keynesian economics does not call for deficit spending
as an absolute cure for economic ills, but depending on the circumstances
and a very careful look at the budget situation. And by now it is clear
that neither deficits nor surpluses are proprietary to either political
George W. may just be smart enough to understand this. Ironically the
surplus of which Clinton was so proud, and that was supposed to guarantee
a continuation of the long economic boom, didn't do so. It has instead
taken Republican deficit spending to get things moving again.