In 1939, President Roosevelt’s Treasury Secretary Henry Morgenthau concluded: “[W]e have tried spending money. We are spending more than we have ever spent before and it does not work… I say after eight years of this Administration we have just as much unemployment as when we started.”
New York, NY - The beginning of the Keynesian Era can be dated, perhaps, to September 1931 - the year when Britain intentionally devalued the pound, throwing the world into turmoil and currency conflict.
Today, we are again in an extended period of economic crisis. However, I suspect that this will turn out to be the end of the Keynesian Era - the time when it is, in fact, Keynesianism itself which destroys us.
"Keynesianism" is really just this century's version of Mercantilism, which dates from the beginning of the 17th century. There's nothing particularly new or original about it. Behind the billows of academic obfuscation, it amounts to two policies: exaggerated government spending in the face of recession, and some sort of "easy money" policy. Although the term "Keynesian" has become unfashionable, virtually all academics and government economic advisers are Keynesians today.
The primary attraction of Keynesianism, I would say, is not its wonderful overall results, but rather, that it provides a good excuse for politicians do to what they wanted to do anyway. Any politician knows that a certain way to increase one's popularity is to hand out government money. In a recession, politicians are likely worried about their declining popularity, and thus their first instinct is to hand out more money. The Keynesian economists often boast that the money can be spent on total waste, such as "digging holes and filling them back up".
The other Keynesian trick is some form of "easy money" policy, which usually results in a decline in currency value. Currency devaluation can, in some cases, result in what appears to be a short-term improvement in economic conditions. However, it is said that "you can't devalue yourself to prosperity", and it is true. The countries that have the greatest success in the long term, also have the most stable, highest-quality currencies.
A basic effect of currency devaluation is to reduce real wages, since wages are paid in a devalued currency. This can increase "competitiveness", but it is easy to see that a strategy that reduces real wages cannot create long-term prosperity. More
