Keynes and Bush
John Keynes has had a lot of influence in economics. As usual with major thinkers, he was right about some things and wrong about others.
The biggest problem is that he did not understand the destructive effects that high government indebtedness has on the economy. The government bond market sucks investment capital out of productive sectors of the economy and slows the economy to a crawl. Instead of buying stocks, the investors buy bonds. This prevents businesses from forming and expanding. The result is that the economy becomes very sluggish, and it becomes harder to build prosperity.
Another problem is that he did not care much about the future. His statement to that effect was, "In the long run, we are all dead." Aye; but we also have our children to think about. And nobody who is not a complete scumbag wants his children to have a worse world than had he.
Where he was right was in challenging the classical economic idea that economic decisions are based in rational interest. He said instead that they are based in "animal spirits." In reality, a lot of economic decisions are not based on rational anything but rather on psychology. Buying expensive clothes because they are fashionable, buying expensive houses because they mark one's status, buying expensive cars to impress one's neighbors, gorging oneself on fast food, gambling away one's money, or procuring expensive sneakers that one needs to sell drugs in order to buy, are not rational decisions; they are psychologically driven decisions. And the more economics understands the vast effect that psychological factors play in it, the more it will be able to understand the realities of economic activities and economic choice.
The biggest error of Keynes was his promotion of deficit spending. While deficit spending can save an economy from a depression or a recession, sooner or later it will be necessary to stop the deficit spending and start to pay down the debt. When Clinton did that, the results were spectacular. Not only was deficit abated, but America had its greatest ever period of peacetime prosperity. This accomplishment was destroyed by Bush Republicans (and, yes, a Republican Congress), and only now is the Obama administration beginning to reduce the huge deficits that have taken place over the last decade.
The most venal feature of the Bush administration, along with causing the deaths of 600,000 Iraqi civilians, has been ballooning the debt at the time that there was no need for it, and before there was a need for it. With baby boomers retiring, there will be a need for a lot of government spending, for which there was absolutely no need when Bush was president. This crime against the American people will be remembered for a long time. And whenever Republicans start attacking the Democrats, it is this crime of which they deserve to be reminded.
Where Keynes was right, he succeeded tremendously. He successfully played the stock market's "animal spirits" and amassed a fortune. But he was never in charge of a country, and what he advocated for national leaders has proven disastrous. And it will take much time for countries whose policies have been influenced by Keynes - in America, both Democrats and Republicans - to overcome these effects.