A Keynes for all seasons


C.R. in The Economist:

IN THE years since the publication in 1936 of "The General Theory of Employment, Interest and Money", John Maynard Keynes’s name has been irretrievably linked to the idea that fiscal stimulus should be used to combat recession during downturns. Such ideas came to dominate economics in the 30 years after the second world war, so much so that Republican president Richard Nixon declared in 1971 that “we are all Keynesians now”.

Although Keynes’s ideas went out of favour in the 1980s and 1990s, they came back into fashion as the financial crisis of 2007-09 unfolded. The use of fiscal stimulus to fight recessions in America, Britain and Asia led Keynes’s most prominent biographer, Robert Skidelsky, to declare the “return of the master”. Keynes's notoriety among the public rose so much that a hip-hop video of him arguing the merits of fiscal stimulus with his rival, F. A. Hayek, went viral on YouTube back in 2010.

But whether Keynes’s ideas were ever as simple or consistent as some modern-day Keynesian economists suggest is a matter of great contention. The Economist noted as long ago as the 1960s that the ideas of Keynes the man were diverging from contemporary Keynesian economics. While Keynes emphasised austerity in the good times as much as stimulus in the bad, many Keynesians considered stimulus a “one-way road” in the 1960s and 1970s. As Keynes himself wrote in 1937: “The boom, not the slump, is the right time for austerity at the Treasury.”

More here.