BlueLabel wrote:Does your last statement refer to fiscal policy? I guess I'm not much of a Keynesian (or economist for that matter), but my reasons for wanting deficit reduction stem not from fiscal policy concerns; rather, I think it's important for us to stabilize our long term debt-to-GDP ratio dynamics to keep debt cheap and avoid uncertainty about our finances. It was concern about this (more specifically, inability of US lawmakers to agree on policies that will ensure this) that resulted in S&P downgrading us.
S&P downgraded us in the middle of fight over the debt ceiling, which was a stupid fight in the first place (the debt ceiling shouldn't exist). S&P downgraded us after that fight resolved, while Moody's and Fitch did not. The downgrade has not really affected the value of treasury bonds, which are still treated as basically risk-free. After the fact, I'd argue S&P looks actually somewhat foolish. We should also note that S&P was giving AAA ratings to the subprime mortgages that crashed so spectacularly.
The only reasons to avoid debt are to avoid it being harder to borrow and to avoid inflation. Both are indeed problems in the long run. Mitt Romney and the Republicans seem to think it's a problem in the short run as well, with no basis in actual fact. Meanwhile, low demand is a very serious problem right now. Republicans argue that lowering taxes or keeping them low is a solution to that. I agree that raising taxes will reduce demand. It will also harm employment. There are in fact two ways to raise demand and reduce unemployment. Lower taxes is one! But increased public spending is a vastly superior way to raise demand. The idea is that we spend a ton of money now, and then when we get employment back, we run a government surplus to pay down debt, so we can then safely deficit spend next recession.
That is what I see as the difference between deficit hawks and Keynesians. Both acknowledge that markets are cyclical and there will be down times, but Keynesian policy smooths out the cycle. Down times are reduced in severity, while admittedly, booms are reduced as well.
Of course, rich people tend to benefit more from a boom and get hurt less in a bust, (I'm counting this by living standard. Yes a billionaire is going to lose more money in a bust, but that means he'll have a smaller mansion, while a person who may lose less money also might lose their house altogether) so it's easy to see why Mitt Romney is not Keynesian.