All Keynesians now

The title phrase goes all the way back to the Nixon years, but it seems even more apt now.  Looking for some consolation in the wake of Donald Trump's electoral victory?  This may be it.

Go back just one year, and there only seemed to be one lonely advocate for stimulative fiscal policy in the world: newly-elected Canadian PM Justin Trudeau.  He latched on to the idea of fiscal stimulus about half way through the endless election campaign, and reportedly told his wife, "I think I just won us the election".  So it proved, and in the succeeding months he and his government have dramatically scaled up the infrastructure spending plans that got them elected.

Over in the UK, the Cameron government had been preaching austerity, and to some extent delivering it, ever since it was first elected.  During the Brexit referendum campaign, Chancellor of the Exchequer George Osborne was rash enough to threaten a "punishment" budget of even more spending cuts if the Leave side were victorious.  After the vote, Cameron and Osborne exited the stage as if pursued by a bear, and the fiscal outlook changed abruptly. New Chancellor Philip Hammond, recognizing the potential for damage to the economy during the two years and more before Brexit actually happens, has pledged to keep the spending taps open, delaying sine die any return to fiscal balance.

And then there's Donald Trump.  Much of his economic platform is downright scary, given his focus on trade deals that he perceives as unfair to America.  However, he has also pledged to start a multi-billion dollar spending program to rebuild the country's aging infrastructure.  Since this is something that Democrats will find easy to support, it's very likely to be one of the first thing that Trump does when he assumes office on January 20.  Trump may be a Republican in name only, but he seems sure to follow in a time-honoured tradition of GOP Presidents -- rail against the fiscal irresponsibility of Democrats while campaigning, then spend at a dizzying rate once in office.

I've argued numerous times in this blog that the policy mix governments have used since the financial crisis has been wrong: too much monetary ease, not enough fiscal stimulus.  With the Fed likely to raise rates in December and several more times after that, we may be about to find out if I was right.