Cato’s Jeffrey Miron has a piece arguing that the recently enacted budget cuts known as sequestration will ultimately be good for the economy. He says the Keynesian worrywarts who’ve been preaching that the cuts will slow growth and cost jobs have it wrong:

The Keynesian model does not evaluate government expenditure using the standard microeconomic concept of economic efficiency (cost-benefit analysis). Instead, the model assumes policy should target increased GDP. This sounds reasonable, and consistent with efficiency considerations, until one examines government expenditure in detail.

This expenditure has two components: purchases of goods and services (e.g., roads, education, research, and the military) and transfer payments (e.g., unemployment insurance, welfare, food stamps, Medicaid, Medicare, and Social Security).

The efficiency concern with government purchases is that the National Income and Product Accounts value them as equal to the expenditure on these items. This means that bridges-to-nowhere or a military buildup aimed at an imaginary alien invasion are both desirable from the Keynesian perspective because such expenditures increase measured GDP. Yet this expenditure is pure waste.

With all due deference—Miron is a Harvard University economics professor, and I am … not—I don’t think that’s what Keynes taught. Keynes did not believe that government spending always multiplied itself in the broader economy. He did not believe inflation was always good or that debt would never need to be paid off.

Bruce Bartlett explained in his 2009 book The New American Economy that it was only under extraordinary circumstances—like those that prevailed after the financial crisis of 2008 and its ensuing “liquidity trap”—that we should ignore the cost efficiency of government spending:

Getting the money moving, so to speak, requires the government to engage in deficit financing precisely for the purpose of increasing market interest rates, which would get the economy out of the liquidity trap and make an expansive monetary policy effective once again. It didn’t really matter what the money raised by borrowing was spent on as long as it involved the purchase of goods and services. Income transfers and taxes cuts were less effective because much of the money would be saved, thus frustrating the need to raise interest rates. It would be best for governments to finance the construction of socially beneficial public works, such as roads and buildings. But for macroeconomic purposes it was not necessary that the construction be inherently productive, because the primary purpose of the effort was to create a mechanism for making monetary policy effective. …

[Keynes] understood that societies could not enrich themselves in the long run through such wasteful projects. They were applicable only during times when deflation had brought on an economic slowdown that reduced interests rates to the point where a liquidity trap existed. These were extremely special circumstances that occurred only very, very rarely; in normal times, Keynes knew perfectly well, such schemes would be economically counterproductive.

Four years removed from the crash of ’08, it may turn out that Miron is right about the sequester. But it won’t be because Keynes was wrong.