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The thing about Keynesian economics is that it isn't sustainable in the long term, because there is never a plan to pay off the debt accumulated during each rec

The thing about Keynesian economics is that it isn't sustainable in the long term, because there is never a plan to pay off the debt accumulated during each recovery. In practice, keynesians talk about increasing spending during recessions but never speak of running equivalent surpluses during 'the good times.'

dragonwriter 9y ago
Technically, you don't need to pay off the debt in expansions; you increase spending by deficit spending during recessions, increasing the debt to GDP ratio, and then curtail surplus spending (even without paying down debt, you can even do this with some net deficit spending) in expansions, decreasing debt to GDP ratio mainly by GDP increase. (This still oversimplifies a bit; you really care about the debt service cost to GDP ratio, not the debt to GDP ratio, but the two tend to move in the same direction.) People dependent on income from wage labor need to pay off debt for sustainability because the ability to do labor eventually declines or is lost. Governments aren't individuals.
- lend000 9y ago
  And in practice, Keynesian economies don't do the 'curtail surplus spending' part, so we end up where we are now with debt interest taking up a significant part of US spending, with signs of increasing significantly.
  - dragonwriter 9y ago
    The US basically has (measured by direction of change of debt-to-GDP ratio) in periods of economic expansion even as debt grew in the post-WWII period, except under Nixon and later Republican Presidents and Obama (and even in Obama’s case after the first term debt expansion overlapping the Great Recession and immediate aftermath, the second term was basically flat.) I'm not sure there is a good case that “Keynesianism” is the problem; the late anti-tax orthodoxy of the Republican Party, which has nothing to do with Keynesian fiscal policy, seems more to blame.
glhaynes 9y ago
By itself this doesn't prove that it's unsustainable. In fact, there's plenty of evidence around us that it is sustainable, since it's quite rare for states to collapse due to debt (that wasn't caused by exceptional catastrophic circumstances like war/revolution/highly-corrupt mismanagement/etc). State debt doesn't EVER need to be repayed in full, interest on it just needs to stay sustainable. (Which isn't to say debt is without its costs, just that the fact that it doesn't get aggressively paid down during good times doesn't imply inevitable disaster.)
- conception 9y ago
  More so, having safe government debt is incredibly useful. Retirement and pension funds and other low-risk investment vehicles depend on them.
- alethiophile 9y ago
  This doesn't prove that it's sustainable in principle, only that the time to inevitable collapse is greater than the ~80 years since it's been widely implemented. In practice, ever-increasing debt absolutely requires ever-increasing growth in order to service it. We've so far been lucky, in that the period during which we've used this policy has coincided with the enormous productivity gains that came with the computer revolution. But rearranging our economy so that it's dependent on continual windfalls from external sources merely to stay afloat seems reckless at best.
  - raiflip 9y ago
    If there was ever a point where our current run of innovation starting with the Industrial Revolution were to slow down or stop, then you are correct. However arguing that it's not proven to be sustainable because the fact that it hasn't collapsed in ~80 years only proves that its sustainable for 80 years is makes proving it sustainable impossible. Absent a better theory with better predictions Keynesianism is still the most successful economic theory. Moreover the scenario where innovation stops or slows down is a fairly unlikely scenario and if we're going to have a public policy debate I don't think it's wise to count on it.
gshulegaard 9y ago
> running equivalent surpluses during 'the good times.' This is because government debt isn't a zero-sum game. Especially since our currency is no longer gold standard/backed (partly because of the Great Depression).
- jazzyk 9y ago
  The end of the US dollar international convertibility to gold did not happen until August 15, 1971. It is also exactly the year inflation took off like a rocket - see the "Cumulative Inflation" graph. And the standard of living for the middle class (at least in the US) began to stagnate (up to this day). https://inflationdata.com/Inflation/Inflation/Cumulative_Inflation_by_Decade.asp https://inflationdata.com/Inflation/Inflation/Cumulative_Inf...
  - caseydurfee 9y ago
    Inflation also took off like a rocket in Switzerland in the early 1970's: https://tradingeconomics.com/switzerland/inflation-cpi https://tradingeconomics.com/switzerland/inflation-cpi Switzerland was on the gold standard until 1999. Since abandoning the gold standard, inflation in Switzerland has been minimal. Clearly abandoning the gold standard does not necessarily lead to inflation. You haven't even shown a correlation here, much less causation.
    - jazzyk 9y ago
      Lack of gold standard is not sufficient for inflation - you also need reckless monetary/fiscal government policies (abundant in the US, taking full advantage of the dollar being the reserve currency) I was not trying to prove causation. There appears to be correlation, but obviously other factors (like government spending) are at play
  - pjc50 9y ago
    The end of convertibility didn't occur in a vaccum though: it was a response to a whole bunch of exogenous causes, including oil price shocks.
deleted 9y ago
[deleted]
anigbrowl 9y ago
Simply not true. A good contemporary example is the governor of California, Jerry Brown, who has been vigorously defending the accumulation of surplus in the name of fiscal rectitude for the last several years.
- lend000 9y ago
  Not all Keynesian fantasies go on forever. If we are not careful (which we aren't), then at a certain point, those interest payments become a runaway expense. See Puerto Rico. California is not exactly a model of fiscal excellence -- they're in big trouble with pension obligations, amongst other things.

dragonwriter 9y ago

Technically, you don't need to pay off the debt in expansions; you increase spending by deficit spending during recessions, increasing the debt to GDP ratio, and then curtail surplus spending (even without paying down debt, you can even do this with some net deficit spending) in expansions, decreasing debt to GDP ratio mainly by GDP increase. (This still oversimplifies a bit; you really care about the debt service cost to GDP ratio, not the debt to GDP ratio, but the two tend to move in the same direction.) People dependent on income from wage labor need to pay off debt for sustainability because the ability to do labor eventually declines or is lost. Governments aren't individuals.

lend000 9y ago
And in practice, Keynesian economies don't do the 'curtail surplus spending' part, so we end up where we are now with debt interest taking up a significant part of US spending, with signs of increasing significantly.
- dragonwriter 9y ago
  The US basically has (measured by direction of change of debt-to-GDP ratio) in periods of economic expansion even as debt grew in the post-WWII period, except under Nixon and later Republican Presidents and Obama (and even in Obama’s case after the first term debt expansion overlapping the Great Recession and immediate aftermath, the second term was basically flat.) I'm not sure there is a good case that “Keynesianism” is the problem; the late anti-tax orthodoxy of the Republican Party, which has nothing to do with Keynesian fiscal policy, seems more to blame.

glhaynes 9y ago

By itself this doesn't prove that it's unsustainable. In fact, there's plenty of evidence around us that it is sustainable, since it's quite rare for states to collapse due to debt (that wasn't caused by exceptional catastrophic circumstances like war/revolution/highly-corrupt mismanagement/etc). State debt doesn't EVER need to be repayed in full, interest on it just needs to stay sustainable. (Which isn't to say debt is without its costs, just that the fact that it doesn't get aggressively paid down during good times doesn't imply inevitable disaster.)

conception 9y ago
More so, having safe government debt is incredibly useful. Retirement and pension funds and other low-risk investment vehicles depend on them.
alethiophile 9y ago
This doesn't prove that it's sustainable in principle, only that the time to inevitable collapse is greater than the ~80 years since it's been widely implemented. In practice, ever-increasing debt absolutely requires ever-increasing growth in order to service it. We've so far been lucky, in that the period during which we've used this policy has coincided with the enormous productivity gains that came with the computer revolution. But rearranging our economy so that it's dependent on continual windfalls from external sources merely to stay afloat seems reckless at best.
- raiflip 9y ago
  If there was ever a point where our current run of innovation starting with the Industrial Revolution were to slow down or stop, then you are correct. However arguing that it's not proven to be sustainable because the fact that it hasn't collapsed in ~80 years only proves that its sustainable for 80 years is makes proving it sustainable impossible. Absent a better theory with better predictions Keynesianism is still the most successful economic theory. Moreover the scenario where innovation stops or slows down is a fairly unlikely scenario and if we're going to have a public policy debate I don't think it's wise to count on it.

gshulegaard 9y ago

> running equivalent surpluses during 'the good times.' This is because government debt isn't a zero-sum game. Especially since our currency is no longer gold standard/backed (partly because of the Great Depression).

jazzyk 9y ago
The end of the US dollar international convertibility to gold did not happen until August 15, 1971. It is also exactly the year inflation took off like a rocket - see the "Cumulative Inflation" graph. And the standard of living for the middle class (at least in the US) began to stagnate (up to this day). https://inflationdata.com/Inflation/Inflation/Cumulative_Inflation_by_Decade.asp https://inflationdata.com/Inflation/Inflation/Cumulative_Inf...
- caseydurfee 9y ago
  Inflation also took off like a rocket in Switzerland in the early 1970's: https://tradingeconomics.com/switzerland/inflation-cpi https://tradingeconomics.com/switzerland/inflation-cpi Switzerland was on the gold standard until 1999. Since abandoning the gold standard, inflation in Switzerland has been minimal. Clearly abandoning the gold standard does not necessarily lead to inflation. You haven't even shown a correlation here, much less causation.
  - jazzyk 9y ago
    Lack of gold standard is not sufficient for inflation - you also need reckless monetary/fiscal government policies (abundant in the US, taking full advantage of the dollar being the reserve currency) I was not trying to prove causation. There appears to be correlation, but obviously other factors (like government spending) are at play
- pjc50 9y ago
  The end of convertibility didn't occur in a vaccum though: it was a response to a whole bunch of exogenous causes, including oil price shocks.

deleted 9y ago

[deleted]

anigbrowl 9y ago

Simply not true. A good contemporary example is the governor of California, Jerry Brown, who has been vigorously defending the accumulation of surplus in the name of fiscal rectitude for the last several years.

lend000 9y ago
Not all Keynesian fantasies go on forever. If we are not careful (which we aren't), then at a certain point, those interest payments become a runaway expense. See Puerto Rico. California is not exactly a model of fiscal excellence -- they're in big trouble with pension obligations, amongst other things.