Thursday, September 1, 2011

Can Republicans be Keynesians?

Is there anything inconsistent about being a Republican and being a Keynesian?

First let's define our terms. I define a Republican as someone who believes that overall government interference in the economy should be reduced at the margin. If we use government spending as a proxy for total government intervention, this means that Republicans want lower spending at the margin. Since spending needs to be financed, this also means lower taxes at the margin.

A Keynesian is someone who believes that government spending should be counter-cyclical. A counter-cyclical variable is one that is relatively high during recessions, and relatively low during expansions. That is, it moves counter to the cycle.

From these definitions we can see that, since Republicanism is defined in terms of the average LEVEL of government spending and intervention, whereas Keynesianism is defined in terms of the cyclical TIMING of this spending, there is in principle no contradiction between the two. A Keynesian Republican would argue that government spending should be higher during recessions than during expansions, but should be lower overall. A non-Keynesian non-Republican would argue that government spending should be no smaller, but should be constant over the business cycle.

Of course, in practice if one were a Keynesian Republican, one's policy preferences relative to current policy would be to increase spending (Keynesian) and to decrease spending and decrease taxes (Republican), with the net policy being to cut taxes, and move spending little if at all.

So maybe the better judge of one's Keynesianism is how worried one is about the deficit during a recession, and the best judge of one's Republicanism is whether one prefers expansionary activity to happen through spending increases or tax cuts.

By this definition, I am a Keynesian Republican. Good to have that settled.

5 comments:

Peter de Blanc said...

Nitpick: A non-Keynesian would not necessarily argue that spending should be constant; countercyclical and constant are not the only two types of spending profiles.

Jonathan said...

Granted.

For instance, many developing countries are forced to adopt procyclical spending because their debt is seen as unsafe.

buzzingstreet said...
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floridagreen said...
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