Bidenomics is Keynesianism without constraints

Keynesianism persuaded policy makers of the benefit of beefed-up government spending via greater deficit spending, and it is largely faulted for the increase in deficits before 1980 but not for the deficit surge thereafter. Deficits over recent decades have evolved into a distorted form of Keynesianism, which the president now proudly touts as “Bidenomics."

By explaining how deficit spending could abate recessions, Keynes gave it a laudable fiscal purpose not previously recognized. His theories also reduced the political costs of increased spending by spreading the tax burden to unfranchised future voters via federal debt.

“Democracy in Deficit" led to an unrecognized insight: Prior to the advent of Keynesianism, the “balanced-budget norm" held sway. Political prudence mandated that deficits be offset by surpluses in following years. Even Franklin D. Roosevelt raised tax rates in 1935 to lower his deficits—hardly a Keynesian remedy for a depression.

Before the book was published, the federal budget ran a deficit every year between 1970 and 1977, averaging $27 billion. Every 1980s budget was also in deficit but averaging $171 billion. That sixfold increase was partially attributable to supply-side Reagan tax cuts, with short-term deficits to be offset by future surpluses.

In the following decades, something changed dramatically. In the 2000s, federal deficits averaged $471 billion. Deficits averaged $777 billion between 2011 and 2019 and $2.2 trillion between 2020 and 2023—81 times the 1970s average.

Portions of the increases can be attributed to such factors as inflation and economic growth. The consumer price index, however, rose only eightfold between 1970 and 2022. Deficits as a percentage of gross domestic product rose 20-fold and 15-fold as a percentage of federal expenditures. Unsurprisingly, total public debt as a percentage of GDP more than tripled between 1977 and mid-2023, and more than doubled between 2000 and mid-2023.

Why the deficit surge? At its inception, Keynesianism undoubtedly loosened the balanced-budget shackle, but it retained limited fiscal constraints. Its advocates acknowledged that federal expenditures came with economic costs and disincentive effects, and that perpetually increasing federal expenditures and deficits weren’t sustainable. They even taught that fiscal powers were limited by trade-offs, say, between unemployment and inflation rates, which would eventually check fiscal recklessness. Keynesians understood that the cost of relentless money expansion would eventually show up in inflation and rising federal interest payments.

Early Keynesians took Milton Friedman’s wisdom seriously: Incentives matter and can’t be ignored, and monetizing deficits is an inflation driver. Keynesianism’s policy prominence began to retreat in the 1970s, partially because of the emergence of “stagflation," the process by which unemployment and inflation rates both spiral upward. Keynesians simply weren’t equipped with a solution.

From George W. Bush on, every president has rediscovered the political value of Keynesianism under the banner of George Gilder’s catchphrase “emergency socialism." They rationalized unconstrained federal spending as a remedy for existential crises, which early Keynesians never considered because of their focus on recessions. Presidents Bush and Obama justified their hundreds of billions in deficits on the grounds that the world was on the brink of financial collapse. Presidents Trump and Biden rationalized their trillion-dollar deficits as a necessary corrective to a public-health crisis.

Add another half-trillion to Mr. Biden’s 2022 trillion-plus deficit by canceling student loans? No problem. The added deficit can be monetized. The embedded disincentives—absolving people of commitments and paying people not to work—can be denied. Millions of voters will be made better off during a midterm election, which will be to the betterment of everyone else, a claim that made added deficits a political imperative.

Mr. Biden shamelessly declared in 2021 a central tenet of Bidenomics: that its trillion-dollar programs would “cost zero dollars." Trade-offs can be assumed away. Similarly, Mr. Biden has treated his open-border, green-subsidies and student-loan-forgiveness policies as all gain, no pain, despite the accompanying spike in inflation and stresses on local budgets. The president’s all-purpose excuse has been to blame Republicans.

For several decades administrations and the Federal Reserve have set aside Friedman’s monetary and market wisdom. Some have jettisoned Keynesian fiscal constraints altogether with an imagined monetary epiphany: Claims that taxes must cover expenditures are “pure fantasy," and the government is the monetary sovereign and has a work-around.

Yet Bidenomics is no longer tethered to the Keynesians’ limited goal of full employment or even economic reality. In this administration’s view, government should use its fiscal powers to “balance the economy" in ways Keynesians avoided. Its overarching policy mantra is one that would have appalled Keynes: The sky isn’t a fiscal limit.

Mr. McKenzie is a professor emeritus of economics at the University of California, Irvine and author, most recently, of “The Selfish Brain" and “Reality Is Tricky."