A Keynesian For Now

The economics debate in this country these past few years is almost a microcosm of the problem with ideological politics. In response to the worst recession since the 1930s, the right immediately rejected Keynes’ core analysis of the Great Depression and turned any idea of stimulus or spending and borrowing to tackle the recession into a gloom-ridden, terrifying harbinger of hyper-inflation and insurmountable debt. The zero House votes for the Obama stimulus reflect that rigid lockdown of the mind. We know where this aversion comes from – the misappropriation of Keynesian emergency economic management as a general theory of full employment and growth in the 1960s and 1970s. And there is a strong argument that misreading Keynes in that era of hubristic liberalism was indeed an error that needed a correction.

But that doesn’t rebut Keynes’ central claim about our current predicament: that in a liquidity trap, austerity is counter-productive and fears of inflation are over-blown. Bartlett:

The core insight of Keynesian economics is that there are very special economic circumstances in which the general rules of economics don’t apply and are, in fact, counterproductive.

This happens when interest rates and inflation are so low that there is no essential difference between money and bonds; money, after all, is simply a bond that pays no interest. When this happens, monetary policy becomes impotent; an increase in the money supply has no stimulative effect because it does not lead to additional spending by consumers or businesses.

This is not an eternal ideology – determined as “on the left” and therefore impermissible on the right or center. It’s a specific analysis of a specific problem, which happens to be where we are now. A true conservative would throw ideology aside and look at the real world. Which is the difference between today’s GOP and a genuine conservative, like Bruce. I’m not a Keynesian for ever. But I am a Keynesian for now.