Jack Kelly | Keynes would be appalled by policies advocated in his name

Keynes repudiated classical economic theory, say disciples such as Paul  Krugman, Princeton economist and columnist for The New York Times.

Keynes didn’t think so. The market system is "the best safeguard of the  variety of life," preserving "the most secure and successful choices of former  generations," he wrote in 1936.

Keynes had little regard for the Krugmans of his day. He visited the United  States only once, for the Bretton Woods conference in 1944. When asked how  things went, Keynes lamented: "I was the only non-Keynesian there."

Keynes wrote his seminal work during the Great Depression. In times like  those, when the "animal spirits" of the people are depressed, governments should  "prime the pump" with tax cuts or spending to get the economy moving again.

Trying to balance the budget during economic downturns can make things worse,  Keynes said. A deficit in these circumstances is good even if — especially if  — it causes inflation. For unemployment to drop, real wages must fall. Labor  unions that would never accept direct pay cuts could if they were disguised by  inflation.

Keynes didn’t approve of budget deficits or inflation, per se. What he  proposed in the General Theory was a remedy appropriate only for a particular  set of circumstances. When times were good, governments should run surpluses to  make up for deficits during hard times, Keynes said.


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