The real loser last night was Keynesianism, darn it

The idea that when businesses and individuals stop spending, government must. That idea will not rebound; it’s over for this period in economic history. First Britain, and now the United States, are responding to the worst economic contraction in 75 years by contracting government, despite the fact that the world’s best economists are screaming that it’s exactly the wrong thing to do. As Virginia Thomas might say, “Have a good day!”

You can already see the shift in the media commentary. On MSNBC, Keith Olbermann and company gleefully skewered the newly elected Republicans for not being more specific about what they’ll cut and gleefully predicted a civil war between Tea Party zealots who want massive cuts and Republican establishmentarians who don’t. But in so doing, they implicitly conceded that the question of the next two years will not be whether government contracts, but by how much. The best case scenario is gridlock: Obama blocks large-scale cuts as his 2009 stimulus money peters out, which means America goes from stimulus to no stimulus. The worst-case scenario is that in trying to balance the budget, Republicans force the White House into substantial cuts, which means America goes from stimulus to anti-stimulus. That’s the same move Franklin Roosevelt made in 1937, which according to many economists prolonged the depression for several years.

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