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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 had fallen.

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 party.

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.