In the car this morning I caught a snippet of an NPR segment on the stimulus package (you know, one of those great ones where a liberal Keynesian debates a conservative Keynesian), and I heard someone justifying the level of spending in precisely the same terms as Krugman had on “Fresh Air several months ago: the government spending revives a stagnant economy, and then the debt and deficit the spending creates is then paid back with increased tax revenue, siphoned off as it were, from the newly healthy economy. Even if this were not a classic case of the circular logic fallacy as I argued before, and that this is in fact how the economy works, does it not make the government a kind of economic perpetual motion machine? And if it is that, why stop at 800 billion and change, when we can wipe out poverty forever by cranking it up? I’m sure a Keynesian will argue that an “overheating” might take place in the form of runaway inflation. This relies on the shopworn metaphor of economy as automobile, with deflation being like running out of gas. But then how can you explain stagflation, which would have the car somehow slowing down and speeding up at the same time?
Keynesian economics is supposed to be built on a number of “paradoxes”. Might they not just be contradictions?