Indeed, Lord Keynes did recommend borrowing by the government in certain circumstances, per recent bulletin. But he made those comments in an era where, bar during wars, the government was a tiny part of the economy, unencumbered by the pre-existing mountains of debt that the modern politico-economy has brought about. I agreed with him then. And I agree with him now - where he was quite clear that adding to a mountainously high existing level of government borrowing would end up producing inflation - not the desired economic rebalancing.
His theory is currently completely traduced by well-known commentators who should know better.
This time, we have mountainous total economy debt in the debtor nations. There is no historically approved theory as to how to deal with such a situation. It has never previously existed. It is both irrelevant and wrong to drag Keynes' 'borrowing' theory into the current debate.
Keynes was suggesting relevant and correct policy for the 1930s. But note - a reminder from my bulletin (of several years ago) on the Great Depression - contrary to folklore, Roosevelt's fiscal intervention in the US economy was no miracle cure. Henry Morgenthau, his Treasury Secretary, suggested all his fiscal tinkering actually produced no net benefit. Folklore is just that. The US did not, in fact, put Keynes' fiscal ideas to the test. Devaluing against gold certainly did help. Inter alia it ramped up inflation for a while - which hugely helped debtors. These things are not as simple as they seem to those who rely on folklore.
David Fuller's view This is a good read for perspective. I commend it to subscribers.Back to top