Tuesday, October 14, 2008

John Maynard Keynes

Robert Skidelsky, a John Maynard Keynes biographer, writes in the Washington Post:
So mainstream theory has no explanation of why things have gone so horribly wrong. To understand how markets can generate their own hurricanes we need to return to John Maynard Keynes.
I wonder if this author is an economist, because I do not think he knows what he is talking about. For example, take the following passage:
...Keynes's insights should not be tossed away as old garbage. At the very least we can say that we have no warrant for basing economics on assumptions that are so often discredited by events.
The reason that "Keynes's insights" regarding monetary policy were "tossed away like old garbage" was because they were "discredited by events".

Furthermore, even though its true that economist have forsaken Keynesian monetary policy, America has had an unbroken string of 70+ years of Keynesian fiscal policy. In fact, small parts of the Keynesian fiscal policy might have been the cause of this financial crisis. Additionally, regardless of whether it was the cause, Keynesian fiscal policy has robbed America of the flexibility it needs to address this problem.

Hopefully, this crisis will be the final nail in the coffin of Keynesian fiscal policy. However, that is unlikely. Instead, America is likely to see a rapid expansion of Keynesian fiscal policy.

Update: Apparently, he is an economist, and a very accomplished one at that. Which makes his defense of Keynes bizarre.