Past Peak Keynesianism: Why Big Government Is Holding the Economy Back

Keynes’s Comeback: Two Decades of Spending and Stimulus

Unlike Friedman’s belief in self-correcting markets, Keynes advocated for active government intervention to smooth out economic cycles. And that philosophy has guided U.S. policy through recent crises:

• During the 2008–2009 financial crisis and the 2020–2021 COVID pandemic, the federal government unleashed historic levels of spending and monetary easing.
• Non-defense government spending rose from less than 15% of GDP in 2000 to over 20% today.
• The M2 money supply has more than tripled since 2007.
• The U.S. has run budget deficits of roughly 6.5% of GDP for the past two years, with no real signs of slowing.

Rather than allowing markets to recover on their own, policymakers leaned heavily on the Keynesian playbook: spend, stimulate, and soften the fall.

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🧮 Why Keynesianism Still Appeals—Despite the Results

So why has Keynesianism stuck around? Two big reasons:

1. Politics: Big spending makes politicians look good—delivering checks, programs, and promises to voters.
2. Theory: Keynesians believe in the “multiplier effect,” where government spending supposedly generates more than its own value in GDP growth—especially when redistributed from savers to spenders.

And since consumer spending makes up about 70% of GDP, Keynesians argue that pushing consumption through stimulus drives growth.

But here’s the problem: It hasn’t worked.

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📉 20 Years of Diminishing Returns

Despite record spending, loose monetary policy, and technological advances, the U.S. economy has averaged just 2.0% real GDP growth over the past two decades—half the pace of the post-WWII era.

Other troubling signs:

• Federal spending has jumped from $3 trillion in 2007 to $7 trillion today.
• Interest rates were near zero for 9 out of the past 17 years.
• Yet housing remains unaffordable, and food stamp usage has more than doubled since 2001.

In other words, the flood of stimulus didn’t generate sustainable prosperity—it generated dependence, debt, and distortion.

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🏭 More Consumption, Less Production

Inflation-adjusted consumption of goods is up 62% since 2008, while value-added manufacturing has grown just 14%. That imbalance has led to:

• Widening trade deficits
• Weaker real economic growth
• Low national savings rates
• Structural budget deficits

America is consuming more than it produces—a red flag for any long-term economic health.

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🔁 Doing the Same Thing, Expecting Different Results

We’ve now passed peak Keynesianism. The theory may live on in textbooks, but in practice, it has failed to deliver the growth and stability it once promised. Instead, it has led to government bloat, market distortion, and a slower-growing economy.

The only real way out? Shrink the size and scope of government. That means:

• Trimming spending
• Reforming entitlements
• Restoring fiscal discipline

Unfortunately, neither political party has shown the will to take meaningful action. Government keeps growing, and with it, the private sector keeps shrinking.

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💡 Time to Revisit Free-Market Principles

The U.S. thrived in the 1980s and 1990s under a different philosophy: lower taxes, reduced regulation, and market-driven growth. That playbook worked, and it can work again—if we find the courage to return to it.

Until then, we remain stuck in a loop of stimulus and stagnation, with more money chasing less growth.

It’s time to remember what Milton Friedman taught us: there is no free lunch, and bigger government always comes at a cost.