2012 politics and dead economists

In a fusillade of debates and speeches President Barack Obama and his Republican challengers have firmly established the economic policy combat lines for next year. ….

Providing intellectual underpinnings to each side – while lurking mostly out of sight – is the work of long-dead economists. The White House continues to lean heavily on the playbook of economist John Maynard Keynes – without uttering his name. ….

Republicans have been less coy about their favourite school: Ludwig von Mises and Friedrich Hayek. The quasi-libertarian, anti-statist sensibilities of these philosophers appeal to a public that has soured on government. “I love von Mises,” Michele Bachmann told one interviewer. “When I go on vacation and I lay on the beach, I bring von Mises.” ….

The Republicans’ rhetoric may work well at the ballot box but their policies lack efficacy. However compelling the merits of long-term deficit reduction, the Keynesian notion of counter-cyclical fiscal policy remains valid. As economists Alan Blinder and Mark Zandi (a former adviser to Republican John McCain) found, the first Obama stimulus saved about 8.5m jobs and may have prevented a depression. Now Mr Zandi calculates the new Obama plan would create 1.9m jobs in the next year and add two percentage points to gross domestic product. The Republican alternative – slamming on the brakes – would have the opposite result.

Steven Rattner, “The 2012 rivals can be named: Hayek v Keynes“, Financial Times, 13 September 2011.

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