According to myth, Richard Nixon once said, “We are all Keynesians now.” Whether he really said that (and there’s reason to believe the attribution is apocryphal, though he most definitely did say, “Sock it to me?”), the sentiment was unequivocal.
Across the political spectrum, there’s been wide agreement over the last several decades that the government wields a big fiscal stick that can either beat an economy into the ground or prod it onto a more prosperous path, depending on how much money it spends, and how it spends it.
But lately, politicians have been trying to have it both ways. Earlier this year, almost no one wanted to go over the dreaded fiscal cliff – the combination of automatic spending cuts and tax increases that threatened to scuttle a weak-kneed recovery. If that’s not classic Keynesian thinking – acknowledging that it would be a terrible idea to tighten the purse strings at a time when the economy was still vulnerable – I don’t know what is.
Indeed, the part-time deficit hawks in the GOP’s all-obstruction-all-the-time wing seemed just as concerned about careening over the cliff as the president and everyone else. (Where these faux-hawks were when George W. Bush was furiously running up war debts is anyone’s guess. But the instant a Democrat stepped foot in the Oval Office, their collective sense of fiscal responsibility apparently disgorged from the same temporal wormhole that had previously spat out pork pie hats and Betty White’s career.)
Even Paul Ryan, the mascot for deficit hawkery when, you know, a member of the opposition party is in the White House, has been caught talking out of both sides of his mouth on the issue. In August, while campaigning for vice president, Ryan said the defense cuts that were part of the sequester that was set to go into effect March 1 were potentially “devastating.” However, more recently, in reference to those very same dollars, Ryan said, “We can’t lose those spending cuts.”
Then again, Ryan’s apparent flip-floppery may not be as stark as it seems. As is the GOP’s wont, he was eager to preserve defense spending and upper-class tax cuts, but if he couldn’t keep those, his expert advice as the Republicans’ premier budget maven was that his party should immediately take its ball and go home.
Of course, Keynesian economics suggests governments should spend freely during economic hardship, not all the time – advice that some Democrats would be wise to heed as well. But as John Maynard Keynes himself pointed out, the time to get your fiscal house in order is after the economy has fully recovered from the most recent gruesome Bush recession, not before. (I’m paraphrasing here.)
But how you indulge in Keynesian spending is important, too. It’s only common sense that pouring money into your own country’s infrastructure (as Obama did through the one significant stimulus package he was able to get by the GOP) will yield more bang for the buck than spending it on an eight-year-long WMD scavenger hunt.
Common sense also suggests that a payroll tax holiday (which Obama fought for and which put money back in workers’ pockets) will stimulate the economy more effectively than tax breaks for the already wealthy.
The same lessons, of course, apply here in the Badger State.
In last month’s column, I took a stab at answering why job creation in Wisconsin has lagged behind the rest of the country, hinting that Scott Walker’s decision to limit public workers’ ability to spend was a decidedly anti-Keynesian move that also limited our economic prospects relative to other states’. Shortly after my screed hit the streets, The Cap Times’ Mike Ivey asked the same question, and where I took a stab, he wielded a scalpel.
Ivey noted that budget moves such as reducing the Earned Income Tax Credit, which boosts lower-income residents’ buying power, may have gravely injured the Wisconsin economy.
His conclusion was perhaps best summed up by economist Kenneth Thomas, whom Ivey quoted: “Wisconsin did absolutely the wrong thing at the wrong time. You want to practice austerity when things are going well, not the other way round.”
In other words, timing is everything – definitely in comedy and without a shadow of a doubt in economic policy.
Wouldn’t you agree now, Mr. Nixon?
Sign up for the free IB Update – your weekly resource for local business news, analysis, voices, and the names you need to know. Click here. If you are not already a subscriber to In Business magazine, be sure to sign up for our monthly print edition here.
