New(ish) column: The Comeback Keynes

jmickle?

I can't help thinking that "Keynes" is no longer a useful economic theory touchstone -- especially when it comes to "cheap money." The speed at which changes in Fed fund rates are absorbed into the market by arbitrageurs has rendered the economic stimulus provided by interest rate reductions practically non-existent -- whatever "new capital" is created by lower rates goes immediately into pre-existing investment vehicles, and is simply "churned" until a new risk/benefit equilibrium is reached.

Nor are "deficits" created by cutting taxes the answer (although cutting the lowest rates may have some "stimulatory" effect in general, when people think bad economic times are coming, their first reaction is to lower their debt load).

So the only smart approach is creating jobs (revitalizing low cost urban and inner-ring suburban housing and public transit infrastructure, and converting forclosed outer ring suburban McMansions into duplexes) that can be spread out throughout the country, but targeted to the most depressed areas.

In other words, JOBS, JOBS, JOBS....

that's the way i prefer it

Justin Mickle Fox,
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It is my belief that Keynesiology has never really gone away it has just taken a break every now and then from being fully embraced. Exactly when in the last 20 years have we not engaged in deficit spending with the idea of not increasing taxes and maintaining government expenditure?

Good to see that Keynes's interest in monetary as well as fiscal policy gets a mention, and some hint that Keynes was less like the post-war "Keynesians" than sometimes presented. He was also very concerned with the international context of economic policy - the need for internationally coordinated policies, and for international economic institutions that support appropriate domestic policies and helped to lessen the negative impact of economic rivalries between countries. While there's been international action in the present crisis, and global economic summits called (with calls for a 'new Bretton Woods'), I wonder if this international side has been given enough attention. For the background to Keynes's thinking on this, check out Donald Markwell's "John Maynard Keynes and International Relations: Economic Paths to War and Peace". Also worth reading the biographies of Keynes by Robert Skidelsky and Donald Moggridge.