According to Professor Krugman and his many internet acolytes, cutting any government spending in our poorly performing economy would be a disaster because all government spending is stimulative. If that's the case, the near doubling of the Federal budget under George W. Bush and the parallel rise in state spending (much of it driven by the unfunded mandates of the Republican Congress and President) should have produced a thriving economy by 2009 when President Obama took the oath of office. But we know that although we had a finance and real-estate bubble during much of Bush's tenure in office, there was little job growth and the underlying economy stagnated or worse. The reason is that government money was wasted. Our progressive colleagues will object - "but, but that's exactly what Keynes suggested" - but that's just superstitious drivel. In fact, when the government throws tax money at rich people via Keynsian Trickle Down, it has the same effect as Classic Trickle Down tax breaks for the rich. That money finances speculation, not real economic growth.
Keynes famously argued that even wasting money would stimulate the economy, but Keynes wasn't talking about the kind of 21st century supercharged waste of government money that the Republicans have pioneered.
If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.Keynes was here pushing back against the right wing complaint that government spending was "wasteful" but his example is a "wasteful" project that employed a large number of workers. The employed workers would then purchase goods and services, which would encourage businesses to hire more workers to meet demand, and those workers buy more stuff, and so on. It's pretty much common sense - the idea is that in slump, the government can create demand that ``primes the pump". And note that he points out making things that actually increase social wealth would be a lot better than digging holes in the ground. In our situation, he would no doubt have mentioned that rebuilding our crappy infrastructure would be a much better use of the money. But Keynes was not imaginative enough to foresee the George W. Bush government would put banknotes on pallets, ship them to Iraq and just lose track of them and come up with a scam like Medicare Advantage. Instead of making companies bid to dig up money, Bush just handed it out. And aside from some lobbyists, prostitutes, and mercenaries overseas, there was not much hiring resulting from these expenditures. Certainly not the kind of stimulation that Keynes had in mind.
Driven by a fever pitched dislike of and disdain for the Obama administration, the progressive critics have now talked themselves into defending 8 years worth of Republican looting of the Treasury under the name of Keynsianism. It is amazing to see Keynes invoked as the patron saint of a variation on Supply Side economics but this is only the latest development as the "progressive critics" embrace one right wing idea after another in their campaign against the President. From Professor Cornell West calling the President "deracinated" to Professor Wilentz calling the President a "race man", to Professor Krugman attacking the President for demanding cuts in the Republican Rich Man Welfare System, the Princeton professors have lead the way. What next? Will we see the President lambasted for failing to accept the theories in "The Bell Curve"?