Thursday, January 24, 2013

Is Paul Ryan the Only Keynesian Left?

I found this post at the always good TaxVox blog interesting.  It lays out the positions of the parties on reducing the deficit.  It contrasts the position of Paul Ryan (who wants to balance the budget within 10 years) with Democrats who seem to be focused on a stable debt to GDP ratio.

The Goal Line. But Democrats and Republicans don’t even agree on the goal line in this game. While Ryan wants balance in a decade, Democrats are not thinking about balancing the budget at all. Their aim: Stabilize the debt so it does not grow faster than the economy. This would set the ratio of debt to Gross Domestic Product at about 73 percent.

To return to the question I asked before.  How does Keynesian thinking allow for "stable debt to GDP" to be a target over a 10 year period of time?  Is it A) that economic cycles are now 20+ years long and therefore we are running deficits during the down side of the cycle to be offset by surpluses in the good side of the cycle or B) that liberals have surrendered the ghost of Keynes and the through cycle target is now a deficit to GDP ratio of 4 to 6% (the nominal through cycle GDP growth rate)?

It certainly looks like the latter.  So perhaps Paul Ryan is the only Keynesian left.  Wouldn't that be an interesting turn of events?

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