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Presidentiality: ‘Dr. Keynes’

“Presidentiality” is a weekly web series with Need to Know correspondent Win Rosenfeld that dissects what the candidates are saying, doing and promising on the campaign trail. Each week, “Presidentiality” deconstructs the candidates’ rhetoric through the lenses of historical precedent, economic theory and science.

Mitt Romney is the perceived front-runner in the Republican presidential primary, but one persistent accusation continues to dog his campaign: He’s a flip-flopper. So, to quell some of the criticism, he recently attempted to quote conservative hero Winston Churchill. “Winston Churchill said, ‘When the facts change, I change too, Madam, what do you do?'”

Except, as it turns out, Churchill didn’t actually say those words. In fact, they were uttered by one of the wartime leader’s contemporaries, the economist John Maynard Keynes. The accidental quotation turned out to be more than a little awkward for Romney because, well, Republicans these days revile John Maynard Keynes.

Keynes, the founding father of macroeconomics, has become the bete noir of the modern GOP because he advocated for government intervention in capital markets during times of recession. A downturn like the one we’re in now, Keynes might say, is a vicious cycle: Consumers have less money, so they spend less, causing businesses to produce less goods and hire less workers, who in turn have less money, and so forth.

The only way out, Keynes posited, was government stimulus. Stimulus could come in the form of expanding the money supply, or it could come in the form of deficit spending — putting people directly back to work with massive government infrastructure projects, like the Works Projects Administration during the Great Depression. When “aggregate demand,” as Keynes called it, is low, governments need to step in and fill the gap.

Until recently, Keynesian principles were accepted as fundamental economics by virtually everyone in the political class. Richard Nixon, after de-linking the dollar from the gold supply, said famously, “We’re all Keynesians now.” Even Mitt Romney called for monetary stimulus during the recession of the early 2000s. And Rick Perry, who recently declared Keynesian theory “done” in a debate, oversaw an increase in government spending in Texas during the recent downturn.

So what explains the sudden turnaround in Republicans’ attitudes towards Keynes? It might have something to do with how the two parties have diagnosed the current economic problem. The Obama administration sees it as a lack of consumer demand — a decidedly Keynesian view. Republicans, on the other hand, see the problem as high taxes and burdensome regulations.

In fact, the different diagnoses may be more revealing than the prescriptions: Democrats want lots of new spending, Republicans want to repeal health care reform. Those policy proposals have been batted around for months, with little progress. The more telling rift may lie not in how the two parties would solve the economic crisis, but what sort of crisis they’re seeing in the first place.