Durbin: Debt Deal Will Be The Death Of Keynesian Economics

WASHINGTON -- The Republicans are killing Keynesian economics with their attempt to cut spending as the economy rebounds from a recession, Senate Majority Whip Dick Durbin (D-Ill.) said in a floor speech on Sunday.

"I would say ... that symbolically, that agreement is moving us to the point where we are having the final interment of John Maynard Keynes," he said, referring to the British economist. "He nominally died in 1946 but it appears we are going to put him to his final rest with this agreement."

Keynes argued that aggregate demand was not always enough to spur full employment and that outside structures, such as governments, could influence the economy to create jobs and regulate business cycles. His thinking influenced later New Deal spending by President Franklin Delano Roosevelt.

Durbin said the economy is too weak for major cuts in spending, a view that is shared by many economists.

Although details of a debt deal are still unclear, lawmakers are likely to make cuts totaling hundreds of billions of dollars over the next decade, beginning in the 2012 fiscal year. Commissions set up to create a path for deficit reduction, such as the Bowles-Simpson commission, have advised against spending cuts for at least a year to protect the economic rebound.

"Their fear, and the fear that I share, is that if we make spending cuts at this point, it will not help economic recovery," he said.

Massive spending cuts as part of a spending deal, Durbin said, could cause the economy to sputter even if Congress can avoid economic turmoil by meeting an Aug. 2 deadline to raise the debt limit.

"So here we are in the horns of a dilemma," Durbin said. "In order to avoid the disaster that would occur August 2 if the United States defaulted for the first time in its history, we are being told we have to cut back on government spending and by cutting back on spending, we may also have a negative impact on our economy."

The Chamber of Commerce has warned against major spending cuts as part of a debt limit deal, asking lawmakers on Friday to be careful.

"The recovery is clearly on a lower trajectory, and it will likely be some time before the economy rebounds to the point it will create much in terms of job growth," Martin Regalia, the group's chief economist, said in a statement.

CORRECTION, 8/1 11:40 a.m.: This article has been revised to correct a typo in Sen. Dick Durbin's (D-Ill.) quote.

Comments

[Rodney Jr Rondeau]

07:56 AM on 08/19/2011

I am afraid keynesianism isn't dead. For years the right wingers have been errouniously claiming that keynesianism doesn't work. They usually cite Reagans "supply side revolution". Well I have got news for you. The economic boom experienced under reagan were made possible by none other that deficit spending and tax cuts. I do beleive they call that an increse in aggregate demand. The only supply side policy that I can think of was the NAIRU. This is a little tool used by economists today to create a reserve army of unemployed. Supply drives prices down. In this case its wages which have been stagnant since the seventies. Corporate profits are up though. And they ain't hiring. Public debt is not the problem. It's the fact that all the growth has been captured by the top end of town and they mean to keep it that way. And another thing. This enviroment is good for business. They are buying competitors and stocks on the cheap. High unemployment has driven wages way down. They are flush with cash. Lastly, the debt ceiling debate is one giant lie.The US government will never run out of money. Ever! The money to pay taxes in the currency of issue comes from government spending. The republicans would have you believe that the money just falls out of the sky or maybe the confidence fairy leaves it under the pillow. Nonsense. All money comes from government spending. Period.

[AverageJoeSixPac]

12:15 PM on 08/08/2011

Are Liberals begining to learn that KEYS ecomomics dosent work?

[MikeWebster]

01:43 AM on 08/03/2011

The corollary to the Keynsian idea of stimulating the economy during recession, is to save money during boom times. The Bush tax cuts and the two unfunded wars that Bush started during the economic boom left the majority of this debt for Obama to inherit. The continued accumulation of the debt is largely due to Bush's poor decisions.

The bottom line is that it is criminal to plunge the country into such great debt during good economic times. It is important for the Government to spend money during economic down turns in order to stimulate economic growth.

The Tea Party and the Republicans are fundamentally economically illiterate - along with the ignorance they display in so many other areas. The fetishistic focus on the debt, is simply the aspect they have decided to fixate on so they can attack what they really hate - a black man in the white house.

[AverageJoeSixPac]

12:35 PM on 08/08/2011

Keywords: Bush, (you have to blame Bush). TEA Party, ( Anybody who wants to save this country from ECONOMIC DISASTER is economically illiterate).......And, to make further excuses, claim rascism. Fetishistic debt?

Dude, you really need to see this. http://bitsblog.florack.us/?p=18530

Think this country is not in trouble, this is what were up against,

[MikeWebster]

03:48 AM on 08/09/2011

One thing that anyone who is familiar with the Heritage foundation should know is that they are propagandists and liars. That graphic is a transparent, and revolting lie. Here is one that is actually correct, and shows the Bush tax cuts are the major component in the rise of national debt:
http://www.huffingtonpost.com/2011/05/20/bush-tax-cuts-debt_n_864812.html

Here's another good articler from the business spectator:
http://www.businessspectator.com.au/bs.nsf/Article/US-debt-GDP-Bush-tax-cuts-budget-financial-crisis--pd20110608-HM2LX?opendocument&src=rss

When Bush took office, the national debt was $5.73 trillion. When he left, it was $10.7 trillion. That's a difference of $4.97 trillion! And, he left this country on a trajectory that, if continued, will nearly double the deficit again by 2018.

http://blogcritics.org/politics/article/first-step-in-fixing-the-federal/

Bush inherited an economy, and a fiscal position that was in good shape. He left such a mess that even withouth the tax cuts, the continued recession would have kept the debt climbing. There should be no mistake that the national debt is due to Bush, and the other presidents before him back to Reagan.

[Lindarella]

01:10 PM on 08/02/2011

Sadly, we are repeating the mistakes made in 1937 when the economy was recovering from the Great Depression. They cut back government spending then and sent the economy back into a double dip.

[PalaceOfWisdom]

12:35 PM on 08/02/2011

A major purpose of this bill is to deal a further blow to the economy, which in turn will cost more jobs, further reduce revenues, and "justify" future spending cuts. As the middle class is slain, wages will fall, productivity will go up despite the lower wages as people do far more than they are paid for out of fear of being fired, and the gap between rich and poor will keep widening until no one can cross it. That's the ultimate goal: a permanent ruling class served by 300 million serfs. Both parties are doing their part to usher in a new era of feudalism for their corporate overlords.

[MikeWebster]

01:45 AM on 08/03/2011

That's true. And so many are championing the policies that will leave them out of a job, and then destitute (because no handouts remember).

[l78lancer]

02:22 AM on 08/02/2011

Durbin's take was a bit dramatic - either the theory is sound or it isn't. Repub or Dem politics isn't going to change that. If either side didn't believe in the proposal, they should have voted accordingly. After all, he seems to be inferring that the proposals don't go far enough. Then is not far enough tantamount to no agreement at all? If so then disaster still looms in the future. Let's move away from the hype and solve the problems and let the economic theories prove or disprove themselves.

[MikeWebster]

01:47 AM on 08/03/2011

Yep. This has nothing to do with the life or death of the Keynsian idea. It is merely a little bit of Political symbolism used to show that the proposed bill is directly contrary to most tried and true economic understanding.

[Allen Skillicorn]

10:35 PM on 08/01/2011

Umm, Keynes argued that long term structural deficits were a drag on the economy.

http://money.cnn.com/2010/02/04/news/economy/meltzer_keynes.fortune/

Anyway Jimmy Carter killed Keynesian economics.

[MikeWebster]

01:51 AM on 08/03/2011

Yep - and the biggest structural deficit now is the Bush tax cuts, and the Tea Party and the Republicans are against repealing those.

I don't see how Carter killed Keynsian economics. Reagan certainly did though - and the structural deficits that he left are still here with us today.

[aynrandfan2012]

09:32 PM on 08/01/2011

Uh...yea.....John M.Keynes was wrong...this is a ancient stlye of Economics......Von Mises is the real deal......dont let repubs tell you that trickle down is a model either....Its simple.....man must work to live......Let the smart people create jobs for the dummies

[ironron]

09:05 PM on 08/01/2011

Mike hihn, stop running around with this false statement "Depression troughed (ended) in March of 1933."
You mix between recession and depression. NBER (the link which you provided) calls economic expansions and contractions (recessions) and not depressions so they could not call the end of the Great Depression.
I am attaching a link to the Federal Reserve web site which indicates that the Great Depression lasted into the early 1940's and not as you stated "Depression troughed (ended) in March of 1933."
March 1933 was the trough of the first of two recessions that made up the Great Depression.
"As Mankiw pointed out, perhaps the most famous economic downturn in the U.S.’s (as well as the world’s) economic history was the Great Depression, often described as starting in 1929 and lasting at least through the 1930s and into the early 1940s, a period that actually includes two severe economic downturns."(http://www.frbsf.org/education/activities/drecon/answerxml.cfm?selectedurl=/2007/0702.html)

As someone who struggles to differentiate between recession and depression you are in no position to call other people sparky and clueless.

[Nate Whilk I]

06:56 PM on 08/01/2011

Hurray!

But actually, it's the disastrous, miserable failure of the laughingly-named "stimulus" (including 2010's "recovery summer") that's put the nail into Keynes's coffin. The debt deal is just the eulogy, more or less.

Of course, it could come back as a zombie or vampire.

[MikeWebster]

01:53 AM on 08/03/2011

Of course Keynes would have thought that the stimulus was much to small - but don't let details like that get in the way of a good ideology.

[JimDandy]

03:04 AM on 08/03/2011

So, if it didn't work, it wasn't big enough? Don't let lame excuses like that get in the way of your ideology.

Actually, we could've had a recovery without a stimulus. The real problem is Obama's continued hostility towards business shown in his excessive environmental policies and other regulations making it more expensive to run a business. Obamacare is another huge contribution to that expense. Don't take my word for it. Ask businesspeople yourself, big and small. Or just Google it.

[Djabout Mauren]

06:17 PM on 08/01/2011

Figures don't lie. But liars can figure.

[TheDavejandro]

05:37 PM on 08/01/2011

Death of Keynesian economics would be a great thing for this country. Unfortunately I don't think that is really the case. The deal that 'cuts' doesn't really cut at all. They describe reductions in planned future spending increases as CUTS. HOW RIDICULOUS. THEY ARE NOT CUTS AT ALL. Gov't spending will continue to increase.

[PalaceOfWisdom]

12:38 PM on 08/02/2011

"Gov't spending will continue to increase."

Only on war and other forms of corporate handouts. Anything that helps working people will be gutted.

[MikeWebster]

03:34 AM on 08/03/2011

Never mind the fact that the economy is trashed largely due to the voodoo economics of trickle down.

Keynes only suggested it was alright to run a deficit during a recession. What possible excuse can you have for Bush and Reagan running deficits during boom times?

[profmsf]

05:09 PM on 08/01/2011

The idea of doing something as a community will never die. It simply goes in and out of fashion as other things change. The American belief in the sovereignty of the individual over the state is our great strength as well as our Achilles heel. Personally I expect this debt deal to increase unemployment and cause deflation but I may be wrong. Perhaps our animal spirits will pull us out of this. If not, however, a new interest in industrial policy, infrastructure, and activist government will arise. For now we must just watch and wait to see how this plan plays out.

[Arashi]

04:14 PM on 08/01/2011

I understand Dick.
Now, explain to us again how you let Kent "Please-Don't-Call-Me-Dino" Conrad become chairman of the Finance Commitee?

[Bob Wood]

03:46 PM on 08/01/2011

Economics is too deep for me. I know that there's a natural inequality of ability. If there weren't...I'd be able to play my guitar like BB King. I know that there's also a general equality of greed. Greed, once upon a time, was quite necessary to our survival as a species. We all maintain the residual today. Most all of us can be depended on to do that which is in our own best interest. So it seems natural that in every generation...the majority of goods will find it's way to a minority of men. This has been so since we began recording history. It has more to do with human nature than political parties...or systems. Everything has been tried over the past few thousands of years. Communism, Socialism, Oligarchy, Democracy, republics, Monarchy...the same problems always exist...they don't go away. The best we can hope for is to make the system as fair as can be...while recognising that there really is a natural inequality of ability. No system will ever change that...(sigh)

[madame48]

05:14 PM on 08/01/2011

but the cards are stacked to corporate cronies and capital....not a fair game

[Bob Wood]

09:41 AM on 08/02/2011

Always has been...always will be. Money talks...always did...always will...(sigh)

[aynrandfan2012]

09:35 PM on 08/01/2011

Almost right......you left out Capitalism.......the only system that creates abundance......jobs are created for everyone....even the unskilled....the Democrats just put the unskilled in rat houses,give them a couple bucks,and drive them into poverty......At least Capitalism creates jobs anyone can do........and dig this,,,,,the more you learn...the more money you get

[Kathryn Warner]

09:40 PM on 08/01/2011

Yes... if you can afford to learn, you can afford to earn. Theres the rub, eh?

[Bob Wood]

09:55 AM on 08/02/2011

True...in my haste, I left out capitalism...which also works for a while...and breaks down eventually because it progresses beyond the capacity of many people to keep up. As a system it's been in and out of fashion along with everything else. Today, jobs are created only for highly educated and skilled workers. Many, many people...because of the natural inequality of ability...get left out. A robot can push a broom or perform highly repetitive and boring jobs. Perhaps economic systems come and go like flu epidemics..on their own...and not so much by design. I suspect that when budgets...and deficits run into trillions of dollars...people don't control the budget...the budget controls the people. If you count one number per second...it will take 31,720 years to reach a trillion. I question whether anyone comprehends such numbers...maybe astronomers...(sigh)