You got your chocolate in my peanut butter (this time, without breaking the blog.)

November 21, 2008, 8:13 am

Promoted from comments by the Principle of Sufficient Awesomeness, by the most excellent andrew:

I think I’ve worked it out. Keynes had a commitment to the idea that:

1. All government actions play by the same rules.
2. “Public works and other investments aided by Government funds or guarantees” help the economy recover according to the Principle of Sufficient Stimulus.

Anti-New Dealers saw that a) the 1938 recession followed a cutback in government spending as described in (2) above, and b) an increase in government spending during the second world war brought the economy out of the depression. The implications of these observations led them to worry that they might be heading into Keynesianism.

Eventually, they came up with the Principle of War Spending, which states that

government spending on the war aided the economy because it was necessary spending.

Another way to phrase this would be to say that the reason war spending helped the economy is because.

The Principle of War Spending and the Principle of Sufficient Stimulus are both independent fundamental principles. Therefore, neither principle can follow from the other – one cannot say, for instance, that war spending is a form of stimulus and then conclude that war spending helped the economy recover by the Principle of Sufficient Stimulus (rather than by brute necessity) – and neither can contradict the other.

But because it was war spending, not stimulus spending that ultimately got the country out of the depression, the existence of the PWS forces a reconsideration of the PSS: maybe no stimulus spending would have been sufficient. Furthermore, this also implies that not all government actions play by the same rules.

O brave new blog, that has such people in it.

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