Word: keynesian
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...with that threat, governments seemingly cannot help turning to the remedy formulated by Keynes during the dark years of the early 1930s: stimulating demand by spending much more than they take in, preferably but not necessarily on useful public works like highways and schools. "I guess everyone is a Keynesian in a foxhole," jokes Robert Lucas, a University of Chicago economist who won a Nobel Prize in 1995 for theories that criticized Keynes...
Contrary to popular belief, Keynesian thinking was not a big part of Franklin Roosevelt's New Deal. Deficit spending and monetary easing were both first put to work in a really big way by the U.S. government in the 1940s--out of wartime necessity, not economic conviction. The economy responded with rapid growth, and after the war, Keynesianism became gospel. Its central tenet, this magazine explained in its 1965 cover story, was that "the modern capitalist economy does not automatically work at top efficiency, but can be raised to that level by the intervention and influence of the government...
...pages later came the now famous quote from economist Milton Friedman: "We are all Keynesians now." Friedman later objected that it was taken out of context--all he meant was that everybody used Keynesian language and concepts. But the phrase stuck. It's often attributed these days to Republican President Richard Nixon, but what Nixon actually said, in 1971, was the less expansive "I am now a Keynesian...
Friedman wasn't a Keynesian at all. He distrusted government and didn't believe that bureaucrats could fine-tune the economy for long. His student Lucas offered another criticism: for Keynesian fiscal policy to work, taxpayers had to be awfully shortsighted. Otherwise, they'd see that deficit-financed tax cuts or government spending would eventually have to be paid for, and they'd set money aside for that rainy day--thus counteracting the stimulus...
...that growth will slow again, un employment will rise and inflation will creep upward over the next twelve to 18 months. Most of the government's economists are bracing for a jump in joblessness to 3.3 million by this fall. Nonetheless, the Prime Minister is unlikely to resort to Keynesian pump priming even if her policies remain slow to work. At one of the most critical times of her first term, when she was being pressed by many in her Cabinet to reflate the economy by some $5 billion, she uttered the now famous words: "The lady...