Sunday, October 19, 2008

Keynes Ascendant

It is no longer a question of whether or not, as Andrew Keen put it, John Maynard Keynes has been rehabilitated as we try to work our way out of the economic mess we have created. If media recognition is used as an indicator, the spirit of Keynesianism is definitely on the rise, even if the man is no longer around to enjoy the adulation. This may be most evident in the invocation of one of the last global events to which Keynes was a major contributor. Consider the way in which BBC NEWS reported the outcome of the meeting that President George W. Bush held with French President Nicolas Sarkozy and EU Commission chief Manuel Barroso:

President George W Bush has invited world leaders to gather in the US by the end of the year to discuss reform of the global financial system.

The summit would be the first of a series announced after talks between Mr Bush, French President Nicolas Sarkozy and EU Commission chief Manuel Barroso.

Here is the final sentence of the article:

Correspondents say such meetings would echo the Bretton Woods conference of 44 nations after World War II, which established many of the institutions and monetary systems that are now under threat.

On the BBC NEWS Web page just above that sentence, we even have an old Agence France-Presse photograph of that gathering, which even the Chicago economists will probably recognize as a major event in the history of economics.

Not too long after BBC NEWS released that story, the Web site for the Financial Times ran the following report by Jim Pickard and Nicholas Timmins:

Alistair Darling evoked the spirit of John Maynard Keynes on Sunday as he ­signalled a “reprioritising” of spending plans towards capital infrastructure, housing and energy.

The chancellor of the exchequer will call on departments to bring forward billions of pounds of capital expenditure to invigorate the economy ahead of an expected recession.

The government is limited in its ability to step up overall spending for the current three-year period, set at the last comprehensive spending review. But it can bring forward money from planned budgets in 2010-11 – after the next general election – creating potential difficulties for whoever is in government.

The challenge will be to accelerate the spending in such a short period, not least given the chill in private finance initiative markets upon which many such projects depend.

Mr Darling, in a newspaper interview published on Sunday, spoke approvingly of Keynes, the economist who urged the use of public money to finance job-creating capital projects in difficult times.

It may be just as well that Keynes himself is not around to witness his revival. For all his clarity of expression, which earned the adulation of John Kenneth Galbraith, I suspect that he would be more than a little disconcerted with what now passes for news in both the United States and the United Kingdom. Indeed, he probably would have been downright depressed over the role that the media played in promoting Chicago-style free market thinking (going back at least as far as coverage of the Presidency of Ronald Reagan); so, if anything were to surprise him, it would be only how long the United States had managed to endure on such a heavy diet of toxin-laced Kool-Aid, not to mention that Kool-Aid being the beverage of choice at the regular gatherings of the World Economic Forum. Indeed, were Keynes to be raised from the dead and allowed to walk the surface of today's world, I wonder if the only human being with whom he would feel capable of conducting intelligent conversation would be Muhammad Yunus!

The Bretton Woods system was, of course, the product of an international agreement rising to the challenge of restoring economic stability to a world torn apart by war. The invocation of the memory of that famous meeting in New Hampshire is ironic to the extent that, this time, the damage was done by the unbridled greed of the financial elite, rather than bloodthirsty tyrants like Adolf Hitler or Benito Mussolini. If we can get beyond that irony, we may appreciate the sobering lesson that neither peace nor democracy necessarily entails prosperity or even economic security. I invoke the adjective "sobering" because I suspect that economic stability will not be restored by new (or revived) institutions and practices alone; recovery is likely to require the moral equivalent of a twelve-step program. It is unclear that a convocation of even the wisest of economic heads can implement that kind of rehabilitation on a global scale, particularly if the countries most responsible for the catastrophe (such as the United States) are still loath to fess up to having a problem in the first place. Nevertheless, however rough the going may be, it would probably be a lot worse if there were not at least a few Keynesians around to try to keep the ball rolling in the right direction!

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