Henry Blodget’s piece on Yahoo! Finance, IT’S OFFICIAL: Keynes Was Right, is the almost perfect antidote to Mort Zuckerman’s nonsense that I highlighted in my previous post Mort Zuckerman: President Obama’s Economic Programs Have Failed.

This morning brings news that Europe may finally be beginning to soften on the “austerity” philosophy that has brought it nothing but misery over the past several years.

The “austerity” idea, you’ll remember, was that the continent’s huge debt and deficit problem had ushered in a “crisis of confidence” and that, once business-people saw that governments were serious about debt reduction, they’d get confident and start spending again.

That hasn’t worked.

Instead, spending cuts have led to cuts in GDP which has led to greater deficits and the need for more spending cuts. And so on.

I said almost perfect except for the following:

And, by the way, I don’t think this “stimulus” necessarily needs to come from just the government. Our corporations are as profitable now as they have ever been. So I’d like to see a lot of them voluntarily decide to invest more and pay their low-wage employees more and hire more employees. They can afford it, and “cash flow” isn’t the sole objective or reward of running a business.

Perhaps Blodget should have saved the following statement till just before the quote above:

Now, I’m not an economist, and I’m not born of a particular economic school that I’ve bet my life’s work on, so I have observed the global economic events of the past five years with a fairly open mind.

Now, I am no economist either, but I do know enough about Keynes’ theories, and can see the logic of saying that the death spiral that Blodget talks about is almost impossible to stop except by government action.  Any business that is considering taking actions on its own is faced with several problems.  First, no single business is large enough to make a significant impact with the resources it has at hand.  So the money it spent to solve the problem would be largely ineffective and would put the company at risk in the continuing down turn by using up its cash reserves.  Second, in a financial crisis it is the fiduciary duty of officers of the company to concentrate on ensuring the survival of the company and protecting the stock holders’ assets.

Only a large federal government has the staying power, confidence, and resources to make the investments in stimulating the economy.  It is only sensible for individuals and individual companies to try to protect themselves from the impending disaster.  That was the paradox that Keynes uncovered.  Only the government, whose responsibility is the entire country, can take the chance to save the whole economy.