The Keynesian Moment

Image via Wiki­me­dia Com­mons

Once the Fed’s tool­box proved unable to stop the cas­cad­ing glob­al finan­cial melt­down, the US gov­ern­ment turned to the one strat­e­gy that it had left. It dust­ed off the old eco­nom­ic play­book of John May­nard Keynes and began intro­duc­ing mas­sive stim­u­lus plans and oth­er forms of gov­ern­ment inter­ven­tion. Since our col­lec­tive fate now depends on Key­ne­sian the­o­ry hold­ing water, it seems worth bring­ing you a primer on Keynes and his style of eco­nom­ic think­ing. And that’s what you get with this seg­ment from This Amer­i­can Life. The seg­ment (get the full episode here and then move to the 38th minute) tells you a lit­tle about his com­plex per­son­al­i­ty. (As they put it, you could make two movies about him — one that fea­tures “Keynes the states­man, advis­ing pres­i­dents and prime min­is­ters, furi­ous­ly writ­ing up papers that changed the direc­tion of mod­ern intel­lec­tu­al thought. Anoth­er movie would pret­ty much be a gay porno …” He was sex­u­al­ly too “out there” for even the enve­lope-push­ing Blooms­bury Group.) Through inter­views with var­i­ous econ­o­mists, the pro­gram then overviews the cen­tral tenets of Key­ne­sian eco­nom­ics, and dis­cuss­es Keynes’ influ­ence over lat­er gen­er­a­tions of econ­o­mists. Dur­ing the 1940s, 50s and 60s, Key­ne­sian­ism was all the rage, then it declined and almost dis­ap­peared dur­ing the 70s. Now it’s back, per­haps stronger than ever. My com­plete­ly intu­itive guess is that Key­ne­sian­ism will alle­vi­ate some of the finan­cial strains — it will keep more peo­ple work­ing, which is good — but it will also length­en the reces­sion, bring about new prob­lems (infla­tion and new bub­bles), and pre­vent us from seri­ous­ly address­ing the prob­lems that got us into this mess. Key­ne­sian­ism may be the humane and nec­es­sary way to go, but don’t expect per­fec­tion, or any­thing close. In the mean­time, if you want more blogs and pod­casts that track the finan­cial cri­sis, then please see our handy list.