Two stories - Krugman on Europe and Thomas Lane at TPM - point to the inescapable conclusion that Keynesianism is apparently dead as a policy touchstone. Lane writes:
Whatever the outcome of Thursday's projected House vote on Speaker Boehner's debt plan, this process has already ended the political life of one prominent member of the Washington establishment: John Maynard Keynes. True, Keynes died in 1946. But his ghost hovered over America's economic debate until pretty much Monday night. At that time, in their ostensibly dueling speeches, both President Obama and House Speaker Boehner embraced the language of "austerity" and performed an unwitting exorcism.
[. . .] Whatever the validity of their arguments, for now the anti-Keynesians have prevailed. Part of the reason is optics: at a time when citizens are cutting back, it looks good to engage in a bit of sympathy rhetoric about Washington "tightening its belt." On Monday night even House Minority Leader Nancy Pelosi - for so long demonized by the right as the smiling face of big government - released a pro-austerity statement. That's a clear sign which way the wind is blowing.
(Emphasis supplied.) What's remarkable about this is that the merits of Keynesianism have been firmly established by the Lesser Depression. And Austerity has been proven an absolute failure as policy in a zero lower bound recession. Krugman points to Europe:
For some reason events in European bonds markets aren’t making big headlines. But they should be: even as the GOP does its best to destroy America’s credit, things are falling apart, with a vengeance, on the other side of the Atlantic. [. . .] German interest rates are plunging. [. . .] What this is surely about [. . .] is the growing sense that European recovery is sputtering out, and that the European Central Bank — which sets short-term rates — will eventually call off or even reverse its planned rate hikes, with rates staying low for a long time.
In short, what the markets seem to be seeing is disaster on the periphery and the Japanification of the core. And I can’t say they’re wrong.
Krugman's reference is to Japan's Lost Decade. It seems inevitable now that the industrialized world will not avoid a Lost Decade. But what is remarkable about it is that despite all the fresh evidence of its correctness and appropriateness for our times, the lessons of Keynes will be utterly ignored.
This is a catastrophic failure of a ruling class that has not met the challenge of our time. History will not be kind.