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Bye-Bye Keynes? – Robert Samuelson

12/20/2011

“Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.”

— John Maynard Keynes, 1936

WASHINGTON — The eclipse of Keynesian economics proceeds. When Keynes wrote “The General Theory of Employment, Interest and Money” in the mid-1930s, governments in most wealthy nations were relatively small and their debts modest. Deficit spending and pump priming were plausible responses to economic slumps. Now, huge governments are often saddled with massive debts. Standard Keynesian remedies for downturns — spend more and tax less — presume the willingness of bond markets to finance the resulting deficits at reasonable interest rates. If markets refuse, Keynesian policies won’t work.

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