The Economy: We Are All Keynesians Now

  • Share
  • Read Later

(2 of 10)


A slide, of course, is not what the U.S. Government's economic managers have been worrying about in 1965; they have been pursuing a strongly expansionist policy. They carried out the second stage of a two-stage income-tax cut, thus giving consumers $11.5 billion more to spend and corporations $3 billion more to invest. In addition, they put through a long-overdue reduction in excise taxes, slicing $1.5 billion this year and another $1.5 billion in the year beginning Jan. 1. In an application of the Keynesian argument that an economy is likely to grow best when the government pumps in more money than it takes out, they boosted total federal spending to a record high of $121 billion and ran a deficit of more than $5 billion. Meanwhile, the Federal Reserve Board kept money easier and cheaper than it is in any other major nation, though proudly independent Chairman William McChesney Martin at year's end piloted through an increase in interest rates—thus following the classic anti-inflationary prescription.

Why They Work. By and large, Keynesian public policies are working well because the private sector of the economy is making them work. Government gave business the incentive to expand, but it was private businessmen who made the decisions as to whether, when and where to do it. Washington gave consumers a stimulus to spend, but millions of ordinary Americans made the decisions—so vital to the economy —as to how and how much to spend. For all that it has profited from the ideas of Lord Keynes, the U.S. economy is still the world's most private and most free-enterprising. Were he alive, Keynes would certainly like it to stay that way.

The recent successes of Keynes's theories have given a new stature and luster to the men who practice what Carlyle called '.'the dismal science." Economists have descended in force from their ivory towers and now sit confidently at the elbow of almost every important leader in Government and business, where they are increasingly called upon to forecast, plan and decide. In Washington the ideas of Keynes have been carried into the White House by such activist economists as Gardner Ackley, Arthur Okun, Otto Eckstein (all members of the President's Council of Economic Advisers), Walter Heller (its former chairman), M.I.T.'s Paul Samuelson, Yale's James Tobin and Seymour Harris of the University of California at San Diego.

First the U.S. economists embraced Keynesianism, then the public accepted its tenets. Now even businessmen, traditionally hostile to Government's role in the economy, have been won over—not only because Keynesianism works but because Lyndon Johnson knows how to make it palatable. They have begun to take for granted that the Government will intervene to head off recession or choke off inflation, no longer think that deficit spending is immoral. Nor, in perhaps the greatest change of all, do they believe that Government will ever fully pay off its debt, any more than General Motors or IBM find it advisable to pay off their long-term obligations; instead of demanding payment, creditors would rather continue collecting interest.

To a New Stage. Though Keynes is the figure who looms largest in these recent changes, modern-day economists have naturally expanded and added to his theories, giving birth to a form of neo-Keynesianism. Because

  1. 1
  2. 2
  3. 3
  4. 4
  5. 5
  6. 6
  7. 7
  8. 8
  9. 9
  10. 10