“Keynes advocated deficit spending ONLY during recessions. In good growth times, the government was supposed to be running surpluses and saving for the next recession”
That is correct. I have pointed out in other Shout Bits articles that Keynes’s prescriptions have never been followed during economic expansions. Nobody talks Keynes except when it is time to spend.
That said, the fact that the stimulus side of the Keynesianism never works is proof enough that Keynes’s theories are fatally flawed and should be abandoned.
Oh it works, and quite well actually! Want proof?
Go back how ever many ears you want and for each and every year subtract the deficit for that year from the reported GDP and recalute the "growth". To be even closer to reality, you'd also have to subtract that portion from the Consumer Spending side that consist of Transfer Payments financed by the deficit - but that is almost impossible to calculate ...
That being said, I would also contend that "Economic Stimulus", to be effectual, should also be wisely used - special interest spending buys votes, but does little to stimulate the economy as a whole.
This is going to sound like I'm defending Keynes. I'm not. His theories of the economic cycle and how government should act is the antithesis of my views. IMHO, government needs to be forced to live within it's means. Keynes would have disagreed with me - but not later on when he saw reality at work.
Keynes lived to see how poorly our government did in terms of saving money in good years. That is when he started voicing objections which some here have interpreted as him renouncing his own theories. He insisted his theory would work if only government would actually follow the entire program. And it may have worked - if it had ever been followed.
He realized the error he made which is that governments that are allowed to run ANY deficits, will become addicted to them. Without a mechanism in place to control government spending such as a constitutional amendment, Keynes' theories are junk science.
Will Keynes theory ever be abandoned. I doubt it. Perhaps after national economies in the West really start collapsing under the weight of the debt and derivative bubbles - we may get a break, but I'm not optimistic.
IMHO, this is why I believe the Nobel is dangerous. Too many people actually believe the Nobel committee's findings are gospel and that a Nobel laureate is like a god in their field. Of course, smarter people know better.