In 2008 America elected as its president not only an African-American but an unapologetic Keynesian. In his inaugural address Barack Obama declared, “The state of our economy calls for action, bold and swift. And we will act not only to create new jobs but to lay a new foundation for growth. We will build the roads and bridges, the electric grids and digital lines that feed our commerce and bind us together.”
The stimulus package that followed—while disappointing in many respects (and based on a far rosier view of economic conditions than turned out to be justified)—was nevertheless defended in explicitly Keynesian terminology. The American Recovery and Reinvestment Act injected $814 billion into the economy. As Obama described it, the stimulus was “the largest investment in research and development in our history, the largest investment in infrastructure since Dwight Eisenhower, the largest investment in education…in this country in thirty years” and “the largest investment in clean energy in our history.”
Coincidentally, Eisenhower came up again recently. Upon signing the deficit reduction deal at the point of a political gun—the deal in which House Speaker John Boehner bragged that he won “98 percent” of what his Tea Party–dominated majority had wanted—Obama proudly proclaimed that the deal would result in “the lowest level of annual domestic spending since Dwight Eisenhower was president.” The Onion proved painfully accurate when it described Obama as bragging of having demanded “tough concessions from Democrats and Democrats alike.” But Illinois Senator Richard Durbin accurately assessed the agreement as “the final interment of John Maynard Keynes. He normally died in 1946, but it appears we are going to put him to his final rest with this agreement.”
It was Milton Friedman who coined the phrase “We are all Keynesians now,” in 1965, and President Nixon famously repeated it six years later. And while Keynes’s death was frequently reported on, the administration of George W. Bush was still trotting out his arguments to sell its economic program. Lawrence Lindsey, director of the National Economic Council, compared those who opposed the Bush tax cuts to Herbert Hoover when the country found itself in recession during the first year of Bush’s presidency.
Data-wise, the proof has been in the pudding. While austerity is all the rage among politicians on both sides of the Atlantic, the International Monetary Fund has found that deficit cuts of 1 percent of gross domestic product tend to raise unemployment by 0.3 percentage points. Markets have also tended to react accordingly. The Dow fell by fully 265 points, or 2.2 percent, on the day Obama signed the Boehner deal and twice that amount again—512 points; 4.3 percent—just two days later. Since the showdown began earlier this year, according to economist Simon Johnson, the stock market has lost about 20 percent of its value (roughly $10 trillion). Thus, the consequence of Tea Party anti-Keynesianism has been, in Johnson’s words, “to reduce publicly funded social benefits—including pensions and Medicare—even as its methods dramatically reduce the value of private wealth now and in the future.”