Economic Policy of Debt and Destruction

Abstract

It is shown from empirical data that the Keynesian policy of continual stimulus of the US economy over decades has led to a mountain of debt and a destruction of economic growth. The causal mechanism of how this occurs has been identified. Excessive Keynesian monetary stimulation of aggregate demand has encouraged new debt creation which has tended to increase consumption more than investment, leading to an ever rising propensity to consume. The over-consumption structure of US aggregate demand has led to lower economic growth which in turn called forth more monetary stimulus, more new debt, greater propensity to consume and lower economic growth, in a vicious spiral of increasing debt and destruction of the US economy. Within this spiral, the Clinton years were a notable hiatus (the “Great Moderation”) when debt was retired (debt-deflation) with the economy growing strongly and steadily and unemployment falling to a four-decade low. Clintonomics provides a clue to avoiding Keynesian economic collapse.

Keywords: Keynes, macroeconomics, policy, debt, growth, consumption, investment

JEL Classification: B22, B23, E12, E20, E50, E60