Keynesian economics

"The same people who would never touch deficit spending are now tossing around billions. The switch from decades of supply-side politics all the way to a crass Keynesianism is breathtaking."

"Economics is a difficult subject, because we cannot conduct controlled experiments. There are not two or three Argentina's, one following the experiment that I described above, and another adopting the policies that I prefer. But we do have a wealth of experience from which to draw inferences. This wealth of experience all points in one direction: Keynes's teachings are still very much alive, and Argentina today would be in far better shape if his lessons had been taken to heart."

"The hostility between these alternative schools was so strong that when I studied and taught in Cambridge, in the mid and late 60s, Keynes’ disciples’ “secret seminar” was still an ongoing institution—a seminar from which Robertson and his followers were deliberately excluded."

"After all, in today’s context, the pursuit of Keynesian policies looks even more profitable than the pursuit of market fundamentalism!"

"Nearly all modern business-cycle analysts follow the same course, though few as consciously as Schumpeter. The ‘Keynesians’ for example, pay little attention to subjectivevalue problems except when they speak ex professo of ‘pure theory,’ which, since it is furthest removed from real problems, is naturally the last stronghold of obsolete ideas. Demand plays a very important role in their analysis, but what they have to say about it is dominated by the distribution of income, that is to say by the existing relations of production. It is perhaps no exaggeration to say that the importance of the Keynesian contribution stems largely from the fact that here for the first time since Ricardo orthodox economics accords to the real relations of capitalist production reasonable weight in the analysis of the capitalist process. It would be a further step forward if the Keynesians could be brought to realize that this is what they are doing."

"Monetarism—both of the older Friedman version stressing adherence to money stock targets and of the newer rational expectations variety—has been badly discredited. The stage has been set for recovery in the popularity of Keynesian diagnoses and remedies. I do not mean to imply, of course, that there is some Keynesian truth, vintage 1936 or 1961, to which economists and policymakers will or should now return, ignoring the lessons of economic events and of developments in economics itself over these last turbulent fifteen years. I do mean that in the new intellectual synthesis which I hope and expect will emerge to replace the divisive controversies and chaotic debates on macroeconomic policies, Keynesian ideas will have a prominent place."

"Keynesian economics at a minimum provides a licence for welfare state measures and other government efforts towards redistribution of wealth. The license is the faith that macroeconomic stabilization and prosperity are compatible with a wide range of social policies, that modern capitalism and democracy are robust enough to prosper and progress while being humane and equitable. That faith conflicts with the visions of extreme Right and Left, which agree that extremes of wealth and poverty, of security and insecurity, are indispensable to the functioning of capitalism. Keynesian policies helped to confound those dismal prophecies in the past; I think they will do so again."

"Keynesian economics was, in the context of those times, essentially conservative. The message was that capitalism was not doomed; its major failing, chronic large-scale unemployment, could be remedied fairly easily, by intelligent use of the fiscal and monetary instruments governments already had at their disposal. This message was not welcome news to Marxists committed to the view that the system was no longer structurally capable of prosperity and progress."

"If we are to grasp the dynamics of this unforecasted storm, we have to move beyond the familiar cognitive frame of macroeconomics that we inherited from the early twentieth century. Forged in the wake of World War I and World War II, the macroeconomic perspective on international economics is organized around nation-states, national productive systems and the trade imbalances they generate. It is a view of the economy that will forever be identified with John Maynard Keynes. Predictably, the onset of the crisis in 2008 evoked memories of the 1930s and triggered calls for a return to “the master.” And Keynesian economics is, indeed, indispensable for grasping the dynamics of collapsing consumption and investment, the surge in unemployment and the options for monetary and fiscal policy after 2009. But when it comes to analyzing the onset of financial crises in an age of deep globalization, the standard macroeconomic approach has its limits. In discussions of international trade it is now commonly accepted that it is no longer national economies that matter. What drives global trade are not the relationships between national economies but multinational corporations coordinating far-flung “value chains.” The same is true for the global business of money. To understand the tensions within the global financial system that exploded in 2008 we have to move beyond Keynesian macroeconomics and its familiar apparatus of national economic statistics. As Hyun Song Shin, chief economist at the Bank for International Settlements and one of the foremost thinkers of the new breed of “macrofinance,” has put it, we need to analyze the global economy not in terms of an “island model” of international economic interaction—national economy to national economy—but through the “interlocking matrix” of corporate balance sheets—bank to bank. As both the global financial crisis of 2007–2009 and the crisis in the eurozone after 2010 would demonstrate, government deficits and current account imbalances are poor predictors of the force and speed with which modern financial crises can strike. This can be grasped only if we focus on the shocking adjustments that can take place within this interlocking matrix of financial accounts. For all the pressure that classic “macroeconomic imbalances”—in budgets and trade—can exert, a modern global bank run moves far more money far more abruptly."