Keynesians have some unfortunate propensities. Quick to blame insufficient private demand for economic ills, they propose to ratchet government to higher levels to make up for the supposed shortfall. That diagnosis is often debatable; the prescription may be a palliative at best and destructive at worst. A fashion among Keynesians is to invoke warnings about the dangers of deflation, a hobgoblin providing additional cover for expansionary monetary and fiscal policy. Then, the mantra of infrastructure spending is invoked, ignoring the many political, regulatory and technical obstacles to efficient execution of favored infrastructure initiatives, even as promising but disfavored private infrastructure projects are blocked. This form of activism is thus revealed as simple statist, agenda-driven politics.
John Cochrane covers these and other pathologies of the Keynesian mindset in “An Autopsy for the Keynesians.” His wsj.com op-ed might be gated, but you can also try the first link given here. From Cochrane:
“Stimulus advocates: Can you bring yourselves to say that the Keystone XL pipeline, LNG export terminals, nuclear power plants and dams are infrastructure? Can you bring yourselves to mention that the Environmental Protection Agency makes it nearly impossible to build anything in the U.S.? How can you assure us that infrastructure does not mean “crony boondoggle,” or high-speed trains to nowhere?”
Keynesians warn that policymakers must actively mitigate the risk of deflation, but there are strong reasons to believe that deflation is more friend than foe. Cochrane makes that point in this post on the CATO Institute web site, distinguishing between deflations precipitated by financial crises and those induced by gains in productivity or other positive shifts in aggregate supply, such as the current oil supply boom, which involve healthy declines in the price level
This post by Christopher Casey at the von Mises Institute discusses the monetary causes of “bad” deflations. Jerry Jordan emphasizes some conceptualizations of money as a factor of production here, noting that stable money, as an input complementary to capital and labor, tends to boost the economy’s productivity (and reduces prices):
“It is important to note that a condition of “rising purchasing power of money” is most commonly described by the pejorative “deflation.” This unfortunate custom has caused most observers to believe that a gradually falling “price level” is as bad, or even worse than, a gradually rising “price level.” Our analysis concludes there can be—and historical experience has demonstrated—“virtuous deflations” during periods of rapidly rising productivity.“