Keynes Was a Failure in Japan – No Need to Embrace Him in Europe

Draghi’s volte-face two weeks ago has emboldened the Keynesian majority in the media and in economic research departments. It has injected new life into their relentless campaign for yet more state intervention in the Eurozone economy. It wasn’t anything the ECB actually did (or announced) that initiated this new euphoria. As usual, the measures fell short of what the tireless advocates of ‘stimulus’ demanded. To the true Keynesian, no interest rate is ever low enough, no ‘quantitative easing’ program ever ambitious enough, and no fiscal deficit ever large enough. But with his talk of ‘stimulating demand’ and his calls for ‘fiscal flexibility’, Draghi was finally speaking the Keynesian lingo. It was this that got hearts racing.
‘Choirs of angels must have sung over the statement that the eurozone has a problem with demand,’ enthused Martin Wolf, head guardian of the Keynesian faith at the Financial Times, so aptly called the ‘pink Times’. Remember, that a lack of demand is, in the Keynesian religion, the original sin and the source of all economic troubles. ‘Aggregate demand’ is the sum of all individual demand, and all the individuals together are not demanding enough. How can such a situation come about? Here the Keynesians are less precise. Either people save too much (the nasty ‘savings glut’), or they invest too little, maybe they misplaced their animal spirits, or they experienced a Minsky moment, and took too much risk on their balance sheets, these fools. In any case, the private sector is clearly at fault as it is not pulling its weight, which means that the public sector has to step in and, in the interest of the common good, inject its own demand, that is ‘stimulate’ the economy by spending other people’s money and print some additional money on top. Lack of ‘aggregate demand’ is evidently some form of collective economic impotence that requires a heavy dose of government-prescribed Viagra so the private sector can get it’s aggregate demand up again.

This post was published at FinancialSense on 09/15/2014.