Nathan Newman wrote:
>"Fiscal policy would be tighter"-- yep, a trillion dollars would not have
>been given away to the wealthy and the deficit would not be heading for $170
>billion this year. I understand Keynesianism, but a lot of leftists take
it
>to a point of fetishism, as if running a deficit shows some kind of virtue
by
>the Reagans and Bushs of the world.
-Nathan, the U.S. economy is in a rather vulnerable state. The tax -cuts were skewed to the wealthy, but not entirely, and spending is -rising above all previous restraints. If it weren't for fiscal -irresponsibility, the unemployment rate would be 7% now.
Unemployment was down considerably in the 1990s despite tight fiscal policy by Clinton and is rising despite the massive deficit being taken on right now-- I've just entered their ranks and half my friends are unemployed, so I am rather unconvinced. What I do know is that we will be paying through the nose in the future in interest rate payments for these deficits that are primarily benefitting the wealthy in tax cuts.
The explanation is rather clear why Keynesianism might be less effective or reasonable than in the past; in a global economy, tax cuts or spending will as often go to imports as to domestic production. If the spending goes to imports, it will not have the Keynesian effects domestically that theory would expect. I would note that along with rising deficits, the US is seeing its trade deficit rise dramatically as well, which indicates that the reasons to be skeptical of Keynesian solutions is quite justified.
-- Nathan Newman