mead cohen berger shevtsova garfinkle michta grygiel blankenhorn
Pelosi: Uncle Sugar is Dead

An important post at Talking Points Memo this morning observes that the “anti-Keynesians” have won the Washington argument for now; stimulus is dead and austerity rules.  The evidence: a Nancy Pelosi statement that “it is clear we must now enter an age of austerity.”

Fair enough, although Pelosi’s idea of austerity may not quite be up to Tea Party standards.

The TPM piece cites my post on why nothing is shovel-ready as an example of anti-Keynesian thought; I wouldn’t put it that way.  Keynes’ greatest contribution to economic thought wasn’t the concept of deficit spending to stimulate growth.  It was to provide a framework for thinking about economic policy in the light of changing historical circumstance.

Keynes was rarely doctrinaire; most of the theoretical work we now call Keynesianism was conducted after his death by economists as they turned his insights and intuitions into a systematic body of theory.  If Keynes were around today, he would be immensely skeptical that equations derived from his analysis of the 1930s would provide much policy guidance for the very different world we now have.

My guess is that a contemporary Keynes would argue that ‘macroeconomics’, the study of national economies that became the domain of traditional Keynesianism, is outmoded and that an entirely new discipline of ‘megaeconomics’, the study of the global economy as a whole, is what we need.

Keynes was an intellectual pioneer, not a bureaucratic administrator of conventional ideas.   We need more and not less of his spirit today.

Features Icon
show comments
  • William

    Thank you for the resolution. Ambivalence re Keynes is common. How could the works of someone who wrote one of the classics in probability theory and the “General Theory” be called on to support the bizarre notion that excessive, long term debt produces prosperity?

  • WigWag

    “My guess is that a contemporary Keynes would argue that ‘macroeconomics’, the study of national economies that became the domain of traditional Keynesianism, is outmoded and that an entirely new discipline of ‘megaeconomics’, the study of the global economy as a whole, is what we need.” (Walter Russell Mead)


    • Walter Russell Mead

      @wigwag: or you could say, “I disagree.”

  • Maxbert

    Pelosi was quoted today, regarding the debt ceiling vote, as saying that the Democrats are working “to save life on the planet…” Oh, my!

    No wonder the dinosaurs went extinct. Nancy wasn’t there to protect them.

  • jim b

    one of keynes’s key tenants that has been overlooked by people who today call themselves keynesians is that the stimulus should be temporary and it should be clear that is so. I think Keynes would argue that if you already have a huge long-term debt problem piling on some public works programs without making it clear to market participants that the long-run situation is healthy would not be a good idea. so if the modern so-called keynesians were intellectually honest and most concerned with stimulating growth you’d think they would combine short-term public works spending with entitlement controls that make the market not worry that the debt could spiral out of control. otherwise everyone knows that should hoard money and not invest because future taxes are sure to rise substantially in a best case, ie non-greek meltdown, scenario.

  • William Walsh

    Blaming Keynes for the excesses of Democratic government is as foolish as blaming Friedman for the excesses of the Bush administration.

    This principle is enough: it’s really easy and lots of fun to spend money you don’t have to earn.

  • Paul

    Keynes never advocated running structural, systemic and systematic defecits for, essentially, decades on end. There are no Keynsians in Washington, just people (With D and R after their names in equal measure) who want an excuse to spend money they don’t have. Keynes wanted flexibility; deficits reduce this considerably over the long run.

  • Bob

    FINALLY!!! someone who understands that we do not live in a static world where what worked in 1930 should work in 2011. You are most insighful in stating that Keynes wouldn’t expect that outcome, and would apply his thoughts in a way that would reflect the current situation.

    Please run for President.

  • BCanuck

    There is only one economics.
    That is the economics of the individual and the choices they make. Macroeconomics is the study of statistical aggregates of individual economies but somehow presumes that the various aggregates interact and influence each other. How could statistics influence one another?
    Various economic events influence individual economies and these reactions are aggregated and expressed as statistics but the statistics are not connected in any real way. Unless a modern econometric theory can be reverse engineered back to how individuals are reacting to various economic events, the theory is only that – a theory.

  • Keith

    When one of my economics professors said “deficits don’t matter”, he explained that that was only true if, over the long run it was balanced. So 1 or 2 years of deficits and 1 or 2 of surplus. Never did we even think that there might be a situation with deficits forever.

    If you don’t ever get to even, you run out of people willing or able to give you more money.

  • The Alpha Male

    Oh how wonderful! Global economic theory! I’ll bet George Soros is giggling like a giddly little school girl…. and who, pray tell, would regulate the global economy? Would we draw straws? Have a bidding war? Rock, paper, scissors perhaps??

    Of course not, a global potentate would do all that. Wonderful. Let’s all bow down to the king that rules with bullion over bullets. Not on my life… step over my cold dead body on the way to his alter.

  • Kris

    Wouldn’t it be easier for all concerned for you to ask one of the Mead interns to implement a computer script that appends the following to all of your posts: “This post has been disapproved of by wigwag”?

    (Also: I have experienced, twice, seemingly unpublished posts of yours suddenly appearing in between previously published posts.)

  • Kris

    Alpha, do you also believe that the study of History is meant to enable us to control the past?

  • Luke Lea

    I agree. Keynes almost certainly would have put more emphasis on “mega-economics,” i.e., on the macro-economics of the new global economy, were he alive today.

    Not that he didn’t pay a attention to issues of trade balances and international exchange rates between the major industrial economies in his day. Witness Bretton Woods, a far more sophisticated approach to these issues than embodied in the European Monetary Union.

    What is new, of course, is large-scale trade in manufactured goods (as opposed to agricultural goods, oil, minerals, and the like) between the high-wage countries of Europe and North America and the much more populous low-wage countries of Asia, Africa, and Latin America.

    The problematical consequences of such trade had already been worked out in theory early in the last century by two Swedish economists, Eli Heckscher and Bertil Ohlin, later rediscovered by Paul Samuelson and Wolfgang Stolper in their famous paper, “Protection and Real Wages” and its eponymous Wolfgang Stolper and Paul Samuelson, and in Samuelson’s Factor Price Equalization Theory. If all this highfalutin jargon is confusing (as it is meant to be) just think neoclassical trade theory: extending the insights of the marginal revolution to issues of trade between rich and poor countries.

    The problem was not that Ricardo was wrong about comparative advantage of trade. Rather the problem was that the advantage of trade in this case would be purchased at the price of falling wages in the advanced economies (hence the title of Samuelson and Stolper’s famous paper and hence the jargon “factor-price equalization.”).

    In other words the economic pie would grow bigger but each worker’s slice of the pie would grow smaller in both absolute and relative terms.

    Or to put it in even more bluntly: capital would gain and labor would lose — by just how much depending upon the size of the disparities in wealth and population of the countries involved (in other words a lot). See my GATT JUSTICE: Who Gets the Gains of Trade, which I wrote for Lewish Lapham

    [authorial indiscretion: Lapham confided to me that he was looking for someone to replace of Walter Russel Mead 🙁 But when he saw the piece he said to “dumb it down” (his words) and that I needed to show that bad things would result from these trade agreements in the immediate future not over the next several decades. What could I say? He killed it.] ]

    All is not lost for the theory of free trade, however, as Eli Hecksher was quick to point out. There was a subsidiary clause in the theory, generally ignored, known as the principle of compensation. The principle of compensation says that the gains of the winners would always outweigh the losses of the losers — and that therefore it would always be possible to tax the winners and subsidize the losers and still end up with a situation in which everyone was better off than before.

    Which brings us to the nub of the mega-economic challenge we face today: in the literature of economics the only fair and efficient way known to bring about a redistribution of income between labor and capital is by means of a graduated expenditure tax. But implementation such a tax would require (for reason we need not go into here) the active cooperation of all the big industrial democracies (Europe, U.S., Canada, Japan, Australia, Taiwan, South Korea, India, Brazil, Mexico, etc.). It involves shutting down overseas tax havens, outlawing shell corporations, registering all bank and brokerage accounts around the world, and moving towards a cashless economy. In this sense it would require an integration of international banking system to bring it into line with the integration of the international economy of real goods and services.

    This is the diplomatic challenge of the 21st century. It can no longer be ignored.


© The American Interest LLC 2005-2016 About Us Masthead Submissions Advertise Customer Service