It’s bad enough when Keynesians run amok in government. But it’s worse when they seemingly can’t even figure out how to correctly apply their own economic model:
Britain’s highest earners face paying a new 45 per cent top rate of income tax, which is to be announced by the Chancellor, Alistair Darling, in the pre-Budget Report. Those earning more than £150,000 a year will fall into the new band, which the Government plans to use to claw back money to pay for an unprecedented £120 billion borrowing bill.
The Keynesian model calls for spending increases and tax CUTS to stimulate the economy out of contraction. Darling, supposedly an avowed Keynesian, is doing exactly what Paul Krugman faults FDR for doing during the Great Depression. But that’s merely how it appears on the surface. The reality, of course, is that this is little more than an easily evaded political measure meant to counteract the reduction in VAT and disguise the fact that UK budget deficits are going to soar.
UPDATE – Not that it’s significantly less crazy on the other side of the Atlantic: “The U.S. government is prepared to lend more than $7.4 trillion on behalf of American taxpayers, or half the value of everything produced in the nation last year, to rescue the financial system since the credit markets seized up 15 months ago.”