Harvard Economist Is Socialists' New Wet Dream?

I have argued that supply-side economic thinking has had a banner few years, because of it's positive performance in the markets, but more so because its main intellectual competitor, Keynesian economic thought, is taking a drubbing at the hands of the real world.  Contrary to Keynesian logic we are experiencing anemic economic growth despite massive and unprecedented fiscal stimulus.  Similarly contrary to the Keynesian worldview, we are experiencing, albeit the mere beginnings of, inflation despite massive economic "slack" in the system.

Scott Grannis brings us up to date in how this intellectual rivalry is playing out in real time in the real economy.

To sum up, the message of TIPS and Treasuries is that the market expects very weak growth in the next few years, along with rising inflation. This is significant, because it runs directly counter to the traditional Keynesian/Phillips Curve way of thinking, which holds that very weak growth—especially when growth is substantially below potential growth as it is today—should produce a decline in inflation. The bond market has cast aside its Keynesian predilections. And everyone by now should have lost faith in the Keynesian theory that holds that big increases in government spending, financed with deficit spending, are stimulative, and in the Keynesian theory that holds that the Fed has the ability to stimulate growth by keeping real interest rates low. The past four years have been a valuable lesson in why this is all nonsense. Government bureaucrats who think they can pull levers and micro-manage growth and inflation are fooling themselves and doing us all a disservice.

 Will this experience kill off Keynesian economic thought?  I hope so, but I don't see it.  The stagflation of the Carter years didn't kill it off, so the stagflation of the Obama years won't kill it off either.  Keynesianism is merely a gloss that big government statists use to lend their desires a sheen of intellectual/scientific credibility.  If it weren't Keynesianism, it'd be something else.  Should Keynesianism be discredited as an economic school of thought, they'll find new economic cover to lend their statist dreams legitimacy. 

In fact, maybe they've already found it

Gopinath, 41, a professor at Harvard University in Cambridge, Massachusetts, has pushed for tax intervention as a way forward for euro-area countries that cannot devalue their exchange rates. “Fiscal devaluation” is helping France turn the corner during a period of extreme budget constraints, former Airbus SAS chief Louis Gallois said in a business- competitiveness report Hollande commissioned...

The paper examines a “remarkably simple alternative” that doesn’t require countries to abandon the euro and devalue their currencies, Gopinath said. By increasing value-added taxes while cutting payroll taxes, a government can create very similar effects on gross domestic product, consumption, employment and inflation.

The higher VAT raises the price of imported goods as foreign companies pay the levy.

Got that?  European statists get to keep their flawed currency as part of their grand project in subverting national sovereignty, end run around the central flaw of said currency AND they get another excuse to raise taxes on consumers and subsidize local industry (that's all the payroll tax break is).  Fiscal devaluation is not innovative at all, it's pure mercantilism combined with the long-standing high tax, statist European model and it does away with the constraining mechanism of currency stability.  So, 1) higher taxes on consumers, 2) deeper ties between government and industry, 3) Euro project, thus bureaucracy, stays in place, and 4) beggar thy neighbor mercantilism.  What's a European socialist not to love?  Maybe statists the world over have found their new Keynes.  What's more, it's a woman.  An Asian woman, no less.  Can this be any more of a leftist wet dream?