Keynes, however, is alive and well.
Keynesian fiscal intervention helped avoid a second Great Depression in 2008-9, just as it rescued economies from the first one in 1929-35.
Not surprisingly, there has been an explosion of recent writing on the Keynesian Resurgence.
From the Financial Times’ Martin Wolf and IMF Chief Economist Olivier Blanchard to Noel laureate economists Paul Krugman and Joseph Stiglitz, Dani Rodrik and Robert Reich, lessons are being drawn from the crash to answer the question: “what next?”
I am currently reading Paul Krugman’s ‘Return of Depression Economics” and will blog on this shortly. Robert Skidelski’s “Keynes: The Return of the Master” is emerging as a “must read” for social democrats, alongside Wilkinson and Pickett’s “The Spirit Level“.
Here is a quick taste of some common themes that emerge:
- Neoclassical economics cannot prevent major cyclical crashes crashes and asset bubbles. Its theoretical underpinnings look increasingly shaky. Global financial re-regulation is urgent.
- The inequality of wealth and income flowing from trickle down economics has been bad for everybody: more equal societies empirically do better. Reducing inequality has a strong economic payoff.
- Active government is more necessary than ever in the wake of the crash, but will have to be smart and cost effective. It will learn from both the post-War Keynesian period and the neoclassical consensus that followed it, and be different from both.
- Counter-cyclical fiscal policy makes sense, and there is potential to automate some of the stabilisers to build the balance and resilience of markets.
Contrast this to the current National government: still preaching trickle down tax cuts for the richest few; ignoring the growing inequality and sense of despair among the many; hidebound by the ideas of an era that has already passed; bereft of leadership as it stares in the rear view missor of focus group entrails and last month’s polls.
The world is changing fast. New Zealand deserves new thinking. Fast.