[…]it’s weird that Keynes is invoked sort of like he dabbled in arcane voodoo. If you implement policies that lay off a big chunk of your population and destroy functioning civil society, the consequences shouldn’t be much of a surprise.
It’s not like it’s hard to explain, or understand. Yes, excess government spending can cause inflation. But that hasn’t happened, so it isn’t excessive. Yes, the central banks should be able to lower interest rates and stimulate the economy, but we’re at the zero bound. Interest rates are effectively zero (if you’re a big bank or a government). Banks aren’t loaning the money they’re getting at zero percent — they’re paying themselves bonuses. So it makes a lot of sense for governments to borrow lots of money, lock in long-term low interest rates on that money, fix infrastructure that’s been neglected for years, do a lot of long term R&D (both practical, like sustainable energy, and impractical, like discovering the secrets of the universe), and employ a lot of people in the process. Those people will eat, make babies, and buy homes. And iPads. Even the scientists will figure out how to make babies. Well, how to get laid, which in the end leads to the same thing. It just takes them longer.
And so what if there’s a bit of inflation? That makes the low-interest debt cost even less. It’s how we paid the debt from WWII (the big one). We didn’t pay it so much as inflation and low interest rates ate it away. If you have a mortgage, or student loans, a little bit of inflation is not a bad thing.
Austerity — having more people out of work, not getting the infrastructure rebuilt, and destroying a generation of people — seems like the wrong way to go.
I’m sure Keynes said this better, as he was a pithy author, but as it’s time for me to go work, I don’t have time to dig up the quotation. Like Marx [1], most of the people who use his name as an epithet have never bothered to read him.
[1] Predictively and descriptively, Marx about nailed capitalism and it’s path. Proscriptively, well, not so good.