As Pete pointed out this morning, Hendrik Hertzberg of The New Yorker predicts economic calamity to come from the debt deal, because it will be restraining federal spending in a time of economic weakness, which by Keynesian lights is exactly the wrong thing to do. And, just to show how up-to-date he is, he takes the conventional–and entirely erroneous–liberal swipe at “Herbert Hoover economics,” as opposed to New-Deal pump priming. (Just for the record, federal government expenditures in 1929 were $3.1 billion. In 1932 they were $4.6 billion, a whopping 48 percent increase, despite swiftly falling federal revenues, which were down 50 percent in that same period. Obama is borrowing 40 cents out of every federal dollar spent in 2011. Herbert Hoover in 1932 was borrowing 58 cents out of every dollar spent.)
Paul Krugman of the New York Times has also been saying insistently that any deviation from the Keynesian true faith will result in renewed recession and economic disaster. As Pete also points out, he does so with his characteristic restraint and evenhandedness.
Dick Durbin, number two Democrat in the Senate, says at the Huffington Post, the deal represents the final interment of Lord Keynes (who actually died in 1946).
So what we have here, it seems, is an upcoming natural experiment in economics, a science (if that’s the word) in which it is notoriously difficult to conduct experiments, at least on the macroeconomic level. Keynesian orthodoxy, to these three, is the only way to go, and yet, we are about to go the other way. Therefore, if they are right, the economy should immediately begin a downward spiral. If, instead, it begins to improve with the reductions of government borrowing and spending, then Keynesian orthodoxy will have been shown to have been flawed and they will have to revise their economic thinking. (Free advice: don’t hold your breath waiting for them to do that.)
As a nice little irony here, President Obama had better hope Keynesianism is wrong. If Hertzberg, Krugman and Durbin are correct, he won’t have a ghost of a chance of being re-elected.
Just ask Herbert Hoover.