Keynesian economics has a bad rap in some circles. I’m certainly guilty of bashing inefficient so-called “Keynesian” spending programs myself. After all, Keynes did think that government job-creation, regardless of merit, is beneficial to the economy – and always preferable to doing nothing.

In The General Theory of Employment, Interest, and Money, he wrote:

“To dig holes in the ground,” paid for out of savings, will increase, not only employment, but the real national dividend of useful goods and services. It is not reasonable, however, that a sensible community should be content to remain dependent on such fortuitous and often wasteful mitigations when once we understand the influences upon which effective demand depends.

This is dangerous thinking, which has inspired economists like Paul Krugman in their quest for never-ending stimuli. There is no free lunch. Somebody always gets stuck with the tab. Government spending will eventually be paid for – via inflation, higher taxes in the future, or . And large government projects are usually inefficient, and often corrupt.

But Milton Friedman and “neoclassical” economists may be the real culprits, not Keynes. Friedman is Bernanke’s hero, and calling him a Keynesian probably isn’t fair to Keynes. Friedman should be referred to as a monetarist, or neoclassical economist.

Steve Keen makes this point (and others) well in the speech below. He’s one of the smartest economists out there, and saw the current bubbles coming. It’s worth the time to watch. If you’re in a rush, watch the first 2 mins, then skip to around 12:00 for the stuff on Bernanke. The speech explains why neoclassical economists did not see the bubble coming, and those who study Minsky did:

Steve Keen’s blog, Debtwatch is a good resource. h/t Rolfe Winkler