Kick the Can

Keynesian economics is currently in fashion, both with the world’s central banks and economist galore.  Many would argue it has never gone out of style since first being proposed to FDR as a solution to our nation’s woes during the Great Depression.  Within this philosophy the idea gaining the most traction holds that when citizens stop spending their money, the government needs to step it and spend it for them.  This stimulus will last only as long as is needed to jump start consumption by the private sector once again.  Thus, depressions are avoided, recessions ameliorated, and life can proceed in a fairly normal fashion year-in and year-out.  When the great liquidity crisis hit in early 2009, individuals and businesses hunkered down; a great freeze began to move across the global landscape.  Washington scrambled to provide liquidity via stimulus programs like TARP, then added to them as seen fit.  Thus we have had incentives to buy cars, homes, durable goods for those homes, and so forth.  Each of these tax-payer funded plans was intended to stimulate demand in a government controlled deus ex machina fashion, expecting the public would miraculously continue their feeding frenzy once the financial chum stopped.   Alas, each time the spigot was turned off, the buying stopped.  So far, rather than generating a solution, the government has succeeded only in kicking the can further down the road.  They had hoped to buy time, but the deficit grows ever larger and no clear recovery is yet in sight.  Perhaps they should remember one of Keynes’ oft-quoted aphorisms, to wit: “”Markets can remain irrational far longer than you or I can remain solvent.”