The New York Times is the flagship of Keynesian liberalism. It sets the tone for the American Establishment.
An article on the world’s economy admits that the Keynesian cures for recession — deficits and central bank inflation — have not worked in the United States, Great Britain, and Europe. Only in Japan, and only through massive deficits and massive central bank inflation, and only for two months has there been economic growth above 3%.
What’s wrong? The Keynesian mojo is not working.
First, the author denies that governments are running deficits. The United States government has run an annual deficit over $1 trillion every year since 2009, but this is not enough, we are told. Not worth talking about. Chicken feed. Chump change.
Because governments are not taking steps to revive economies, like increasing spending or cutting taxes, the traditional concern of central bankers that economic growth will cause too much inflation has been supplanted by the fear that growth is not fast enough to prevent deflation, or falling prices.
Second, the central banks’ responses have been too little, too late. This includes the Federal Reserve. He does not mention that the FED’s monetary base has grown from $900 billion to $3.2 trillion.
It’s not enough. It’s nowhere near enough.
Still, for all the daring, some critics argue that the Fed is not trying hard enough. “It’s as if we went to the biggest fire we’ve ever seen and we poured more water on it than we’ve ever poured, and the fire isn’t completely out,” said Joseph E. Gagnon, a former Fed economist now at the Peterson Institute for International Economics. “Well, we should try more water.”
As for the Bank of England, it has also done far too little. Yes, the author admits, the Bank of England has purchased $569 billion in government bonds. This is equal to 20% of the British economy. Results? “An anemic recovery.” It has only 0.5% economic growth.
What’s a Keynesian to do?
“I’m not sure why we’re not getting more response,” said Donald L. Kohn, a former Federal Reserve vice chairman who is now at the Brookings Institution. “Maybe we’ve made some progress in identifying some of the causes, but it’s not fully satisfying why we have negative real interest rates everywhere in the industrial world and so little growth.”
The Keynesians are at the end of their rope, pushing on a string. The commercial banks are piling up excess reserves in their central banks. They will not lend into the economy, i.e., inflate. Businesses will not borrow. Except in Japan, the West seems to have reached “peak debt.” For the Keynesian, this is the end game. This is where their recommended policies fail. The specter of price deflation looms.
Falling prices can freeze economic activity as buyers wait for still-lower prices, a cycle that is hard to reverse. Japan, the only major economy to fall into such a pattern in modern times, has struggled to escape for almost two decades.
In a related story, we learn that consumer prices are still falling in Japan — the Keynesians’ nightmare, though of course not nightmarish from the consumers’ point of view.
Keynesianism has produced this. Blame-shifting is futile. They have been in charge for 60 years. Now what?
They don’t know.