Sarcasm noted, but my question remains: what about what Reagan actually did would Keynesians have found disagreeable? What would Keynesians say about his raising of capital gains tax rates, raising of corporate tax rates, and increasing spending?
Reagan increased
military spending, which Keynesians regard as of minimal stimulus value. It was local and state governments that boosted spending. He certainly wasn't intending to boost the economy by creating demand via military spending.
AFAIK they disagreed with the idea that tax cuts (heavily tilted to the wealthy) would lead to such a great economic stimulus that tax revenues would increase.
They disagreed with the basic concept of supply-side economics, i.e. you can fix a recession by lowering the costs to produce goods and services.
AFAIK few Keynesians would agree that pre-Reagan taxes were anywhere near Laffer Curve territory. That's not really a question of economic philosophy, though; it's more an empirical question of "what is the true shape of the Laffer Curve"?
No, the contraction after an asset bubble bursts is realistic. What was artificial was their confidence in that assets' value before the bubble popped.
The EMH strikes back, eh?
Yes, a great deal of confidence and much of the valuation before the crash was wrong. There were a variety of structural reasons why it was off before the crash, and the crash may have dropped the scales from people's eyes, but did not fix those issues overnight.
At the same time, it is very clear that it was an overreaction, and it lasted far longer than it should have. We see this with year after year of flight to safety, such as investing in gold and throwing money at US securities which offered near-zero yields. Within 6 months, perhaps 12 at the most, the valuation models should have been much more reliable. And yet, lending has lagged for
years. Even now, with default rates at roughly 0.87%, and underwriting revenue on the upswing, banks are sitting on $10 trillion in reserves.
On a side note, I find it slightly amusing to think that you view everyone as acting irrationally before the crash, yet perfectly rational immediately thereafter.
That doesn't make the least bit of sense. Neither the DOT nor its projects compete for anything. That is nonsensical.
Of course it does.
Do you believe that the US labor market is infinitely large? That the DOT can summon asphalt and concrete out of thin air?
At the peak of the housing bubble, the costs for construction materials were going through the roof. There was so much building going on that there were shortages of certain materials. The same goes for labor; there is a finite number of American workers who are available at a given time to perform this type of work.
During a recession, and after a housing bubble popped, most of those construction workers and materials were easier to find, and cheaper to procure, because the bottom dropped out of that market. Government spending wasn't going to get anywhere near bubble levels, so it wasn't going to create a bunch of "artificial" demand -- especially if that infrastructure spending was needed. Instead, it's a "softer landing."
