Keynes vs. Friedman

John Maynard Keynes, who died in 1946, and Milton Friedman, who died in 2006, were the most influential economists of the 20th century. As a side note Keynes was 6’ 7” & Friedman was 5’ 0” (not that their physical stature has any bearing on the validity of their theories)

Please understand that I most likely will oversimplify the theories of these genius economists. The only “C” I made in Graduate School was in macroeconomics so this area is a definite weakness for me. However, the point I hope to make will not depend entirely on my understanding.

Keynes theory was in part based on the government’s role in facilitating the country’s recovery from the Great Depression. The WPA, PWA and eight other work programs of the 30’s combined with the war effort of the early 40’s resulted in near full employment and an economic boon that fueled the post war era and established the USA as the dominant economic super power of that era. Obviously, his theory is the basis of the current Democratic Party’s economic thinking. Deficit spending can be an effective method of stimulating the economy.

What many folks tend to forget is that Keynes was a proponent of running government surpluses during good economic times. He also warned that exceeding a 75% debt to GDP ratio should be avoided and doing this would be a sign of future economic disaster. The current ratio stands at 105.53% and it is growing! Keynes would be appalled.  Can you imagine what Friedman would say?

Friedman has been the darling of Republicans. He has opposed government deficits and his theory was that the best economy would be achieved in a free market system without government inference. Only monetary policy adjustments should be used to stimulate or retard growth.

Based on these competing theories I would have assumed that the Democrats would have been primarily responsible for the debt epidemic, but it turns out I was wrong. Actually, both parties have been co-conspirators. If you would like to see the details on this I would refer you to a prior posting on this subject titled: Two party System – Summary of budget results for the Parties which was posted on 2/13/2016.

I suggest we evaluate our elected officials by what they do and not what they say. The massive build up in our debt is evidenced by the following 50-year record:

Note that the estimated deficit for 2018 that was published many months ago had already been exceeded with 35 days to go in the year. At a rate of over $2 billion a day the actual 2018 deficit will exceed $900 Billion and the national debt will increase by over $1.3 trillion, approaching $22 trillion by years end.