I still can’t believe it

Most of us have heard something-or-other about Keynesian economics. I was an economics major, so I heard a lot about it.

It’s the idea that the government doesn’t have to balance its budget every year. Shouldn’t balance its budget every year. During the business cycle, when demand (spending) in the private sector (households and businesses) goes low portending a recession, the government should engage in deficit spending to increase aggregate demand. That would incur debt, but the government can, later, when the business cycle is robust, run surpluses to pay off the debt. Being so large, the government’s spending can counter-balance the oscillations of the cycles. Being long-lived, the government’s deficits and surpluses just have to balance out over long periods to time. In the short run deficits are OK and can be used as a fiscal policy cycle management tool.

The Keynesian Revolution. Dating from the 1930s. It was extremely controversial until the 1960s. Then: orthodoxy until the 2020s.

The new revolution says the government doesn’t need to ever balance its budget or pay off its debt or even be concerned about its debt. The budget of the federal government can be all about expenditures. It doesn’t need revenues. It doesn’t have to pay attention to deficits:

https://en.wikipedia.org/wiki/Stephanie_Kelton#The_Deficit_Myth

Right now the theory is extremely controversial. Yet the government is kind of “just doing it.”

The old idea was that too much government spending would create too much demand and interest rates would rise. Now the Federal Reserve proactively keeps interest rates low while the government spends and spends and spends. The old idea was that such a scenario would generate spiraling inflation. But there hasn’t been a problematic degree of inflation in over forty years.

Households, businesses are getting checks from the government. The economy is buoyant.

Hand around money. That’s the new idea!

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It doesn’t seem to make sense. But that ought to be a tip-off that what we call “the economy” is a crazy huge Rube Goldberg machine of money sloshing around having only an indirect relation to the production and distribution of goods and services. It usually works but more for some than for others and sometimes it doesn’t work and nobody can see it all no less manage it all and it’s dumb and it’s unecological.