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by Darren Byrd on April 27th, 2004

Darren Byrd

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Is President George W. Bush following Keyne's theories to overcome the U.S. recession?

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  • by Rumpleforeskin on June 1st, 2005

    Rumpleforeskin

    As for FDR, interestingly enough, most of his New Deal programs were in place by the time of the publication of Keynes' book in 1936. FDR's REAL inspiration for most of his programs was the apparent success of syndicalism in fascist Italy during the 20's. It is, of course, politically incorrect to point this out.

    Working as it is from Partial Equilibrium Theory, Keynsian economics assumes a drop in tax revenue to inevitably result from a lowering in tax rates. They rationalize that a short-term lowering of tax rates MAY be helpful if the assumed revenue drop can be offset through bond finance. This was the rationale behind Kennedy's tax reduction in the early 60's (Kennedy was the first president to overtly embace Keynes).

    Bush's reason for the spending increases aside (spending always increases during wartime), the rationale for the recent tax reduction is much more likely to be rooted pretty firmly in "supply-side" theory. "Pioneered" in the early 70's by Arthur Laffer and others, supply-side economics was largely a return to classical economic theory, and a rejection of Keynes. Based on a General Equilibrium Theory approach, supply-side assumes that increasing the money available to the populace through tax cuts MAY be helpful if rates have been so high as to previously create a "chilling" effect on investment and spending. They maintain that increases in tax revenue FOLLOWING tax cuts, as happened in the 80's (not to mention the early 60's, although not intended), PROVE this theory, while disproving Keynes. I tend to agree, but please to not take the preceding as a blanket endorsement of W's economic policies. All classical economics -- and to this modern interpreters include Marx -- is in some sense "supply side" (at least insofar as he would not have denied that to consume, one must first produce).

    My source for much of the preceding is "The Way the World Works" by Jude Wanniski. This is one of the best primers on economics I have ever read, and the only book to adequately explain to me The Crash of 1929.

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