Sunday, March 22, 2020

WWKD (What Would Keynes Do?)

If only John Maynard were still here to advise us! But we can still try to imagine how he might have approached a crisis like this one.
Zachary Carter, author of a forthcoming biography of Keynes, had a very interesting take on this question in the Post's Sunday Outlook section. Carter starts by stressing that Keynes' approach was far deeper and more profound than simply pump-priming through deficit spending to jump-start a stalled economy (though of course that is an important tool).
"Keynes wasn’t just a prophet of numbers. His insights were much broader, folding psychology, ethics and even military strategy into a unique body of work that, if deployed correctly today, can do more than lift the Dow. For Keynes, economics was not a science of dollars and cents, interest rates and inflation. It was about the way people think and live. Economics is large-scale therapy to calm anxious minds — in other words, exactly what we need today....
For Keynes, action meant bolstering the confidence not only of investors but of ordinary people. He advocated direct aid to working families and called for the government to create thousands of new jobs on public-works projects. These were intended to increase gross domestic product, yes, but also to make people believe in the prospect of better times ahead. In the 1940s, he even worked as the financial architect for the plan to socialize British medicine into the National Health Service. For Keynes, this was partly a question of general welfare — but it was also about making markets work. If ordinary people didn’t have to worry about their health care disappearing in a financial crisis, the crisis itself would be less severe.
In the coronavirus crash, Keynes would advocate immediate, direct financial aid and health-care benefits to working families. He would be gladdened by exhortations from members of Congress from both parties, not to mention the White House, for cash payments from the government to Americans. He would also no doubt endorse government support for corporations. When the interwar economic crisis came to a head in Britain in 1926 with a ruinous general strike, Keynes called for government support of businesses and workers alike — through exchange rate relief and monetary policy, if no other means could be negotiated....
Today, the United States is plagued not only by a devastating virus but by decrepit infrastructure, a broken health-care system, and an obvious shortage of medical supplies and capacity for treating the coming calamity. Keynes would envision an almost militarized government response of hospital-building and health-care delivery, including refurbished roads and bridges, sanitized public transport, and all-hands-on-deck training for nurses and health-care providers, accompanied by generous pay to encourage people to sign up for what will no doubt be dangerous work.
This would all be very expensive — trillions of dollars. But Keynes insisted that governments that controlled their own currencies had far more to worry about from a collapse in confidence than a spike in debt. Take care of confidence, and the economic rebound will take care of the debt. “The idea that [a large deficit] represents a desperate risk to cure a moderate evil is the reverse of the truth,” Keynes wrote in 1929. “It is a negligible risk to cure a monstrous anomaly”....
Over the coming weeks, economists and politicians will put forward dozens of plans to boost output, salvage struggling industries and encourage consumer spending. But the most important lesson from Keynesian economics is not about money — it’s about belief. What matters now is the collective faith in a better future. There are many avenues to securing this faith, but it can be supplied only by politicians.
One of Keynes’s most famous aphorisms is his declaration that “in the long run, we are all dead.” But he also wrote that “in the long run, almost anything is possible.” That is the spirit our leaders must now harness."
Amen. I might also recommend James Crotty's new book, Keynes Against Capitalism: His Economic Case for LIberal Socialism, very nicely reviewed by Gary Mongiovi in the latest issue of Catalyst, Jacobin's theoretical journal.
And let's keep asking ourselves: WWKD?
John Maynard Keynes, the best proponent of deficit spending, understood that economics is about making people feel secure.

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