(UPDATE: The full video has now been released. View it here. -VVC)
As many of you know, for several summers I've given a lecture at Acton University with the title, "Why Keynesianism Failed." I'll be giving an updated version of the talk again this summer.
By the way, Acton U is a fantastic program, and I would encourage anyone serious about bringing good intentions together with sound economics to consider attending.
At any rate, each summer that I give the talk it gets more and more interesting, given that Keynesian ideas appear to be winning the fiscal-policy day.
The Keynesian view is simply stated. When an economy is experiencing unemployment, the culprit is insufficient spending by consumers and firms. And because unemployment is real and painful, an appropriate role of government is to step in and start spending the taxpayers' money on goods and services, thereby raising demand. Facing increased orders, firms will begin calling back their laid-off workers.
Critics charge that Keynesian advice is a bad deal in the long run. Merely spending taxpayers' money on "stuff" to prop up a struggling economy will never correct what is fundamentally wrong with the economy. So we settle for short-term unemployment reductions in exchange for inevitable long-term damage. When Keynesian policy is used to stimulate the economy--as it is currently--we trust government to wager taxpayers' money on which industries will be "winners" and "losers" further down the macroeconomic road.
For example, who's to say whether propping up GM today is appropriate; it's possible (perhaps likely) that GM has no chance of long-term self-sufficient vitality. In the long run this really is a bad deal: keeping people busy at jobs that cannot possibly endure, while simultaneously inhibiting the longer-term growth and vitality of the economy by artificially creating demand today where there won't be tomorrow. This strategy also leads to bigger and (usually) badder deficits, as government borrows to finance today's spending plans.
Another danger that Keynesian activities court is the risk of inflationary spirals. Artificial increases in the demand for goods and services inevitably puts upward pressure on prices.
Keynes knew his critics were correct, and he famously confessed as much in his Treatise on Monetary Reform, in which he wrote, "In the long run we are all dead." For Keynes future consequences were irrelevant; we should help people who are hurting today because we have the power to do so, and ignore the future perils today's actions will bring.
Despite the myopia required to be a Keynesian, today we are vigorously pursuing a Keynesian course in both fiscal and monetary policy. And while there is little public debate these days over the merits and shortcomings of the Keynesian view, George Mason University economist Russ Roberts and award-winning director John Papola are producing a rap video in which Keynes and his free-market-minded nemesis Friedrich Hayek throw down. PBS's NewsHour covered Keynes and the video last night. Take a look: