The End of Keynes

From: National Review Online

Sen. Dick Durbin, the liberal lion from Illinois, pronounces the debt deal “the final interment of John Maynard Keynes.”

The burial ceremony should be a nice, simple one after the violence done to the aged economist by the failure of the broad Obama stimulus program. The administration’s serial overpromising in his name did more to discredit Keynes than a century’s worth of broadsides by his intellectual enemies.


Nearly three years into the Obama administration, the unemployment rate is more than 9 percent, a grassroots movement devoted to cutting government has the upper hand in the House of Representatives, and the debt of the United States could well be downgraded by Standard and Poor’s. If Durbin thought that in these circumstances Keynes was heading anywhere other than a pine box, he hasn’t been paying attention.


The debt deal is austerity designed by committee. It’s late. It’s needlessly complex. It’s inadequate to our challenges and may not prove particularly functional. But it’s austerity. That a Washington with a Democratic Senate and president has to go through the exercise of at least appearing to cut $2.1 trillion from the deficit with no guaranteed tax increases is a humiliating reversal for Keynes’s self-appointed heirs.

Every time Washington has a showdown, pundits and presidential historians gather on TV sets to lament the breakdown of our governing institutions and the end of compromise. But Congress is still perfectly capable of splitting differences. The debt deal gives a little something to all the major players in a jerry-built, two-part increase in the debt limit coupled with an initial $900 billion agreed-upon cut and at least a $1.2 trillion cut TBD.

House speaker John Boehner gets less spending. Senate minority leader Mitch McConnell gets his cute trick of letting Congress disapprove a second debt extension while still giving it to Pres. Barack Obama. Senate majority leader Harry Reid and President Obama get a debt extension past the 2012 election and a special committee that could possibly recommend tax increases.

Washington doesn’t lack for the ability to cut such clever deals; it lacks the collective will to transform the entitlement state. So, it perpetually kicks the job over to a commission. Last year, the Bowles-Simpson commission released a report that President Obama promptly filed away in a drawer in the Resolute Desk. Now, the debt deal creates an all-new special committee to find the unidentified $1.2 trillion second round of cuts.

Realistically, it would have to find them in entitlements. Rarely, though, has a bipartisan committee been so primed for failure. The proposed committee will have 12 members, six from each party. It needs a majority of seven to make a recommendation that goes straight to a vote on the floors of the House and the Senate. Unless either party slips up in one of its appointments, the committee is very likely to deadlock.

As a spur to action, automatic spending cuts equal to $1.2 trillion kick in if the committee fails. The idea is to make these backstop cuts so ham-fisted and distasteful to both parties that they will have an incentive to agree. Democrats will have to stomach even deeper discretionary cuts than in the first round and some Medicare reductions, while Republicans take it on the chin on defense.

The automatic cuts are divided in half between security and non-security. They would amount to a roughly $500 billion cut in defense, on top of whatever is wrung from it in the first part of the deal. In the new politics of austerity, Democrats can’t spend more, but they can target the locus of the only spending to which they are reflexively opposed: the Pentagon. It is a sign of Republicans’ fiscal hawkishness overcoming their national-security hawkishness that the party’s leaders signed onto this deal.

The nation’s debate has fundamentally shifted onto the ground of what kinds of spending to cut, and how fast and far. Keynes would be appalled, but as even Dick Durbin realizes, he’s dead and gone.