The Keynesian Path to Fiscal Irresponsibility | Dwight R. Lee

With the ideological shift, supported by the intellectual acceptance of Keynes’s General Theory, politicians found themselves with an excuse to do what most had always wanted to do — take more money from the general public and transfer it to favored groups (or voting blocs). The benefits are invariably less than the costs, but they are visible, readily appreciated, and easily credited to politicians. Predictably, beginning in the 1930s federal spending began increasing as a share of GDP. It was about 4 percent of GDP in 1930, increased during the Great Depression and spiked to a historical high of about 47 percent during World War II. The federal government share of GDP then dropped to about 13 percent in 1948, reached a bumpy plateau in the early 1960s at slightly below to slightly above 20 percent that lasted for over 40 years, and then escalated rapidly in late 2008 to an estimated 25 percent in 2011……

The Keynesian Path to Fiscal Irresponsibility | Dwight R. Lee (pdf).

8 Replies to “The Keynesian Path to Fiscal Irresponsibility | Dwight R. Lee”

  1. Mr Lee clearly thinks that he has a grasp of economics , because he has studied the previous papers and has lived in a university environment his whole life. While I can agree with his point about it is not a good idea to keep borrowing money from the banks to stimulate a flagging economy. Where I strongly disagree with him , is that he has no clue as too what would happen should a government follow his idea.

    So if there is any one out there who agrees with his idea’s please answer the following question.
    1 What exactly are these jobs that are magicaly going to appear. I don’t mean name industries,I mean plumbers,assemblers mechanics etc.
    2 Where does the money come from to pay for all the promises already made.
    3 What idea’s do you have have collage kids who up to there eyeballs in debt and can only get entry level jobs with no prospects, because their grandparents cant afford to retire and release their job security

    So please enough of looking at the past for answer’s , we are living in a world that does not need many of use to do the 40 hour week any more as the machines have replaced many of us..

    1. I agree with Dwight Lee that maintaining high levels of government spending harms long-run growth. I also agree that government hiring the unemployed to do unproductive tasks does more harm than good. Where you have a valid point is that we have to confront the immediate problem: years of bad fiscal policy have destroyed jobs and we have to remedy this. Quickly. Infrastructure spending to build productive assets seems to be the answer. But that is easier said than done — and requires some degree of anticipation from government, which probably was neglected during the Great Moderation.

      1. Colin
        You still wont tell me specificity what these productive jobs are. You also don’t seem to want to acknowledge the quantum shift in the worlds work patterns , from the twentieth century. Until the the discussion moves from papers written looking backwards there will be no change in a situation that, I agree with you is unserstainable.

      2. Restoring the trade balance would increase manufacturing jobs. Infrastructure projects would increase construction jobs. Far better that than reflating the housing bubble, so that homebuilders can build more homes based on artificial demand.

      3. Colin
        I am sorry for being persistent , but your profession has been been allowed to waffle for too long. When things ticked along and me and my class mates got factory jobs that allowed us to have more than our parents , we believed you knew what you were talking about.However that has all changed and the jobs we all had have been reduced , eliminated or outsourced. So we now listen to economists and our political leaders say that they know how to create more jobs when none of you can actually name what they are.
        Don’t get me wrong Colin I give you credit for actually engaging in conversation, but that is not the same as really understanding the problem

      4. A point you may have missed: I am not an economist. More on my background here.

        When it comes to economists, ignore the ones who try to explain things with equations — what you don’t understand is mostly BS anyway — and pay more attention to the ones (Koo, Shiller, Sumner, etc.) who try to explain things in plain English. In the end, however, you have to figure it out, in simple terms, for yourself.

    2. I agree with you that proper infrastructure spending is good. Here are few ideas:
      – our major roads are dozens of years behind the standards in Europe. Why don’t hire all unemployed people (with some limitations of course) and of course professional contractors and build true freeways between all major cities in Australia ? It is estimated that a death of one person on a road costs the country around $1 mln. One of the major reasons of the road accidents is the poor quality and type of major roads we have. Freeways are proven to be the safest. Such big projects will also draw in multitudes of small businesses – not only road building related. Then the benefits in the future are also huge – fast and convenient transport. People will be willing to travel more frequently so the tourism will prosper and more people will be willing to visit our country.
      – same with the rail system : train transport is way more economical for bulk quantities than road. Also it is more economical for individuals (esp single persons) to travel by train than by car, but it will work only if the trip is fast and pleasurable. NOw it is slow and often on a border with a disgust
      – buy out key mine startups listed on ASX that have JORC proven reserves, invest government money in those mines and then keep ripping rewards for years from each of those mines. Some of them worth $2-3 bln or more have current market cap in $50 mln range. BTW: China started doing this already here and in Africa.
      – change low to force notorious criminals to work instead of free food and service in prisons
      – fire half of the bureaucrats including centrelink and simplify the government offices procedures
      – simplify ridiculously complicated tax system

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