Robert Samuelson, the distinguished economics columnist for the Washington Post, has a column on one of the most important reasons for the anemic recovery. He blames, with very good reason, the fateful intersection of Lord Keynes’s economic paradigm and human nature, in this case the self-interests of politicians:
Until the 1960s, Americans generally believed in low inflation and balanced budgets. President John Kennedy shared the consensus but was persuaded to change his mind. His economic advisers argued that, through deficit spending and modest increases in inflation, government could raise economic growth, lower unemployment and smooth business cycles….Kennedy’s economists, fashioning themselves as heirs to John Maynard Keynes (1883-1946), shattered…[the old] consensus. They contended that deficits weren’t immoral….This destroyed the intellectual and moral props for balanced budgets.
Walter Heller, Kennedy’s chairman of the Council of Economic Advisors, famously talked about “fine tuning” the American economy to keep it humming along smoothly, throwing off wealth and jobs like an engine throws off work-doing energy.
Keynes had argued that economies were machines, “a whole Copernican system, by which all the elements of the economic universe are kept in their places by mutual counterpoise and interaction.” Governments, thought Keynes, could keep an economy humming by deliberately running deficits in times of slack demand. Politicians, of course, were only too happy to have an intellectual justification for spending in deficit. This allowed them to spend money (“the mother’s milk of politics”) in order to satisfy various constituencies without having to raise the taxes needed to pay for the largesse.