New(ish) column: The Comeback Keynes

First came the Great TIME.com Blog Crash of 2008. Then I spent Monday as the Nauseous Capitalist, and really didn’t feel up to posting. I still don’t feel great but here, finally, is a perfunctory post linking to my latest column. It begins:

We are all Keynesians now. It’s a phrase that entered public discourse as the headline of a TIME cover story in 1965. Now it’s coming back into fashion.

This does not signify that we are all–as was Englishman John Maynard Keynes–Cambridge University economists with lucrative side jobs as investment managers, spectacular art collections, lots of famous friends and Russian-ballerina wives. At least I don’t fit that description. Do you?

The resurgence of interest in Keynes also doesn’t represent a full return to 1960s-style Keynesianism–the belief, shared by many economists and politicians in those days, that government could tame the business cycle and guarantee good economic times indefinitely.

Instead, what we are seeing now in Washington and other world capitals is fear we might be headed for an economic collapse caused by a collapse of demand caused by a collapse of credit. Confronted with that threat, governments seemingly cannot help turning to the remedy formulated by Keynes during the dark years of the early 1930s: stimulating demand by spending much more than they take in, preferably but not necessarily on useful public works like highways and schools. “I guess everyone is a Keynesian in a foxhole,” jokes Robert Lucas, a University of Chicago economist who won a Nobel Prize in 1995 for theories that criticized Keynes. Read more.

Stocks Rally Further in Run-up to EU Summit

MOSCOW — Global stocks enjoyed one of their best days in weeks on Tuesday ahead of a summit of European leaders that’s expected to be dominated by calls to boost economic growth.

Europe remains the focus of attention across all financial markets in the run-up to the June 17 Greek election that could go a long way to determining the country’s membership of the euro as well as the future of the single currency zone.

That Anonymous Dude

jmickle?
http://curiouscapitalist.blogs.time.com/ Justin Fox

Didn’t realize that would show up on my postings. Will see if I can fix it. Mickle is my middle name.
Justin Fox

Okay, now it’s fixed and no one will understand what we’re talking about.
paul lukasiak

I can’t help thinking that “Keynes” is no longer a useful economic theory touchstone — especially when it comes to “cheap money.” The speed at which changes in Fed fund rates are absorbed into the market by arbitrageurs has rendered the economic stimulus provided by interest rate reductions practically non-existent — whatever “new capital” is created by lower rates goes immediately into pre-existing investment vehicles, and is simply “churned” until a new risk/benefit equilibrium is reached.

Nor are “deficits” created by cutting taxes the answer (although cutting the lowest rates may have some “stimulatory” effect in general, when people think bad economic times are coming, their first reaction is to lower their debt load).

So the only smart approach is creating jobs (revitalizing low cost urban and inner-ring suburban housing and public transit infrastructure, and converting forclosed outer ring suburban McMansions into duplexes) that can be spread out throughout the country, but targeted to the most depressed areas.

In other words, JOBS, JOBS, JOBS….
That Anonymous Dude

that’s the way i prefer it
bryanfromhouston

Justin Mickle Fox,
.
It is my belief that Keynesiology has never really gone away it has just taken a break every now and then from being fully embraced. Exactly when in the last 20 years have we not engaged in deficit spending with the idea of not increasing taxes and maintaining government expenditure?
Lionel Roberts

Good to see that Keynes’s interest in monetary as well as fiscal policy gets a mention, and some hint that Keynes was less like the post-war “Keynesians” than sometimes presented. He was also very concerned with the international context of economic policy – the need for internationally coordinated policies, and for international economic institutions that support appropriate domestic policies and helped to lessen the negative impact of economic rivalries between countries. While there’s been international action in the present crisis, and global economic summits called (with calls for a ‘new Bretton Woods’), I wonder if this international side has been given enough attention. For the background to Keynes’s thinking on this, check out Donald Markwell’s “John Maynard Keynes and International Relations: Economic Paths to War and Peace”. Also worth reading the biographies of Keynes by Robert Skidelsky and Donald Moggridge.