What would John Maynard Keynes Tell Us to Do?

Monday, October 24, 2011

New Yorker staff writer John Cassidy talks about the economic philosophy of John Maynard Keynes and whether it can work to pull us out of the economic recession. Today, many regard Keynes as the economist whose sweeping theory remains the best solution to our current woes, but conservative economists insist that Keynes’s ideas have failed to work. Cassidy’s article “The Demand Doctor” appeared in the October 10, 2011, issue of The New Yorker.


John Cassidy

Comments [25]


Here's the correct url for the Ron Paul/Paul Krugman comparison:

Oct. 28 2011 12:22 PM

Here's the difference between the "scary" Ron Paul and his economics (Austrian) as compared to the "progressive" Paul Krugman and his economics (Keynesian) that has been creating all of the boom-and-bust cycles that we've experienced for the last 60 years.


Remember: The same people whose economic policies brought us the housing bubble in the first place are the same people who are advising us how to solve it.

Oct. 27 2011 08:53 PM

Here's a recent Wall Street Journal article confirming what I said about most people's incomes not going up as the cost of products has gone up. In fact, the article states that incomes have actually FALLEN in the past decade:

"From 2000 to 2010, median income in the U.S. declined 7% after adjusting for inflation, according to Census data. That marks the worst 10-year performance in records going back to 1967."

Oct. 26 2011 11:45 PM

Marcel: But the information I wrote about Ron Paul and the Austrian School economists predicting the current crisis years before it happened, while the Keynesian economists were all saying there was no bubble and no crash coming is true. This you can check for yourself on the internet.

Oct. 26 2011 11:41 PM

That's weird, Marcel, because I could have sworn when I did it the other day, it came up with the numbers I posted. (I obviously wouldn't lie about it since I linked to the site for everyone to check for themselves.) Maybe I misread it? Who knows?

But even so, you will agree that most middle-class and lower class people did NOT see a 23% rise in their annual incomes in the last decade as compared to the 23% rise in the cost of the things that they have to buy.

(Thanks for catching that, BTW.)

Oct. 26 2011 11:37 PM
marcel from new hampshire

David (Oct. 25 2011 02:18 AM) wrote:

2) Leonard's guest says that inflation hasn't been a problem. I guess the guest is a multimillionaire. Here is an inflation calculator:

Put in $1.00 as the amount. Put in 2001 as the starting date. Put in 2010 as the most recent date. You will notice that what cost YOU $1.00 back in 2001 now costs $1.81,

This is nonsense. Both the BLS CPI for all urban consumers (, and his westegg site indicate that in 2010, $1.23 buys what $1 bought in 2001.

The difference is 2.3% inflation per year, for 9 years, vs. 6.8% inflation per year, for 9 years. It is substantial. I imagine that the rest of that post is equally wrong and wrong-headed.

Oct. 26 2011 10:05 PM

And here's something that explains why gold standard (which Leonard mention, but certainly doesn't know anything about) is the friend of poor, working, and middle class people, and the enemy of bankers, politicians, and warmongers:

Oct. 25 2011 04:56 PM

CORRECTION: I meant Evelyn de Rothschild.

Oct. 25 2011 04:53 PM

It was fascinating to hear a guest who, like the vast majority of Keynesian "economists," has zero understanding of economics.

I don't want to waste space refuting every lie that he stated, but I want to present to you two items for you to mull over.

1) He says he is afraid of Ron Paul (who is a follower of the Austrian school of economics—as opposed to the David Rockefeller/Evan de Rothschild Keynesian school of Bankster economics). Considering that Ron Paul back in 2003 [sic] was predicting that the government/Federal Reserve super low interest rates were eventually going to cause a housing crash, while ALL of the "knowledgeable" Keynesian economists such as Nobel Prize winners Stiglitz and Krugman (plus Fed chair Bernanke) were saying that things were just fine—even up to A FEW MONTHS before the housing collapse in 2008—how does Leonard's guest rationalize being "scared" of the economic ideas of someone (Ron Paul) who predicted EXACTLY what eventually occurred as compared to economists who not only did not see it coming, but continue to promote the same horrible KEYNESIAN economic policies that got us into this mess to begin with?

2) Leonard's guest says that inflation hasn't been a problem. I guess the guest is a multimillionaire. Here is an inflation calculator:

Put in $1.00 as the amount. Put in 2001 as the starting date. Put in 2010 as the most recent date. You will notice that what cost YOU $1.00 back in 2001 now costs $1.81, i.e., 80% MORE than what it cost you ten years ago. Let me ask you something: Has your salary gone up 80% in the last ten years as your expenses have? I think not. Yet this ignoramus on Leonard's show thinks that inflation is not a "problem." Sure—to Warren Buffet and David Rockefeller.

If you want to understand why things have been getting worse in the last 10 years, click on this link to learn about REAL economics:

(But don't tell Leonard's guest—or David Rockefeller, for that matter—that you did. It might upset the 1% who are screwing all of us thanks to Keynesian "economics" for the last 60 years.)

Oct. 25 2011 02:18 AM
Rick from Manhattan

jgarbuz, Everything looks bleak in a downturn. I am sympathetic to your point of view because it is unrealistic for the US to expect to maintain its post-WW II position in the world, when it was the only country left standing, after the first world has recovered and (not to open any new debates over symantics) after the world has flattened. But with the added demand and economic vigor that balanced trade would provide all the competative measures people recommend, infrastructure, education, etc, would again seem affordable. The problem with our current situation, which is being exploited by those who opposed the public sector, is that nothing seems affordable. The Reps in Congress scream debt-debt-debt and refuse to let anything pass that will reflect well on Obama, and they get away with it because of the apparent debt "crisis." With proper trade policies (and less reliance on foreign oil), we could have a robust recovery with a return to more equitably distributed wealth as the middle class would receive a greater share. I note that the kind of excess wealth you describe as not coming back is not necessarily a good thing, and is largely the result of the loose monetary policies that have made financial engineering more profitable than electrical engineering and have produced one bubble after another.

Oct. 24 2011 02:16 PM
Anthony from Jackson Heights from Jackson Heights, NYC

A point of diction: Cassidy is a knowledgeable and lucid expositor of Keynes's economic theory, but I don't believe he used the right word when he said Keynes "prevaricated" on a particular subject. To prevaricate means "evade the truth; equivocate" (Webster's New World Dictionary). The most common synonym for the word is "lie." Cassidy later said Keynes "flip-flopped," which conveys Cassidy's point that Keynes's view changed radically. I didn't check the Oxford English Dictionary. Perhaps British English is somewhat different than [from] American in its definition of "prevaricate."

Oct. 24 2011 02:08 PM
jgarbuz from Queens

To Rick again,

I still believe in free trade, but we will accept the fact that we will no longer dominate economically as we did in the halcyon decades after WWII. We'll have a bumpy ride down to a level we can sustain. We will still be an important economy for many decades to come, but we will no longer be the biggest rooster in the pen. We will still have a decent standard of living in the end, but the "Golden Age" of oversized homes and such are behind us.

Oct. 24 2011 02:03 PM
Rick from Manhattan

jgarbuz, Your most recent post describes the problem quite well. We helped create an open international economy with the naive notion that all barriers between countries could be removed and that we could move to a one-world kind of trade regime, without providing any controls. I think this is wrong. It prevents nations from forming successful monetary and fiscal policies. So long as the world is made up of numerous economies, they need to be able to define and impliment effective national policies. My suggestion, already provided, would reintroduce an element of control, by simply requiring balanced trade in order to benefit from free trade, which is free-trade friendly (promotes the law of relative advantage) but which limits abuse.

Also, I agree that Dems are as implicating in creating the problems as Reps and business, but not all Dems. Clinton and the New Democratic Coalition were very interested in proving how big-business-friendly the Democrats could be.

Oct. 24 2011 01:58 PM
Amy from Manhattan

Terminology again: what *is* the older, British sense of nationalism Mr. Cassidy means?

And thanks, Rick, for giving the explanation I asked for earlier.

Oct. 24 2011 01:54 PM
Rick from Manhattan

Amy, Fiscal policy relates to government spending, taxes and budget supluses and deficits. The thought here is that government can add or remove demand from the economy and affect the employment level through adjusting these things.

Monetary policy has to do with supplying money to the private economy and controling interest rates. Providing more money and lowering interest rates is thought to stimulate the private sector. Some would argue that now we are in a Keynesian "liquidity trap" where the monetary authorities have reduced interest rates so low and provided so much money (with little apparent effect) that there is not much more they can do.

Oct. 24 2011 01:47 PM
jgarbuz from Queens

To Rick again,

We insisted on having a World Trade Organization, believing it will help us increase trade. Clinton supported China's bid to enter the WTO.
We supported most "free trade" initiatives believing our companies would gain the advantage. Alas, it boomeranged on us.

We worked hard to change the trade rules and bring tariffs and other barriers down. But when we succeeded, we found we were not as competitive and cost-effective as say China or India, or Brazil.

There is a saying, be careful what you wish for! If you want to change the rules of the game, and then find out your not winning, you can't just change them back because, well, you're not winning :)

Oct. 24 2011 01:45 PM
Joe Mirsky from Pompton Lakes NJ

As a very important source of strength and security, cherish public credit. One method of preserving it is, to use it as sparingly as possible; avoiding occasions of expense by cultivating peace, but remembering also that timely disbursements to prepare for danger frequently prevent much greater disbursements to repel it; avoiding likewise the accumulation of debt, not only by shunning occasions of expense, but by vigorous exertions in time of peace to discharge the debts, which unavoidable wars may have occasioned, not ungenerously throwing upon posterity the burthen, which we ourselves ought to bear.
— George Washington, Farewell Address, September 17,1796.

Oct. 24 2011 01:42 PM
Rick from Manhattan

jgarbuz, regarding your second comment, your point is only right if there are a finite number of jobs that a resurgent economy is taking away from the established one. Better that we create enough jobs to go around by requiring the resurgers to buy as well as sell.

Oct. 24 2011 01:41 PM
Amy from Manhattan

I thought Al Gore's lockbox was supposed to be specifically for Social Security funds, which have been siphoned off to pay for general budget items, & didn't apply to gov't. assets in general.

Oct. 24 2011 01:41 PM
jgarbuz from Queens

To Amy

Fiscal policy means adjusting government budgets and tax rates to try to get the economy going.

Monetary policy means the Federal Reserve's manipulation of the money supply and interest rates to try to stimulate the economy that way, by increasing or decreasing credit.

Trade policy means tariffs or not tariffs, or other means of boosting our trade surplus, or at least reducing trade deficits.

Oct. 24 2011 01:40 PM
Rick from Manhattan

jgarbuz, I have to disagree. What government should do is renegotiate trade agreements to introduce the principle of balanced trade. Provide that a party to a treaty reducing trade barriers that runs a persistent large trade deficit will lose the benefit of the treaty. This gives that country the option of buying from other economies or dealing with the world on a disadvantageous basis. Countries should have the freedom to follow their own policies, but the rest of us should not subsidize them and penalize ourselves by allowing them the benefits of free trade which they abuse.

Oct. 24 2011 01:38 PM
jgarbuz from Queens

TO Rick

It's not so much a world problem as it is a western problem created by the resurrection of the East. The East fell down a few centuries ago, and its rise was kept back by colonialism, then communism, and socialism, and all kinds of "isms" that kept the East down. Those shackles have been removed, and the East has risen and continues to rise, and the West is being hit by a economic tsunami that has set it aback.
It will take a generation or two for equilibrium to return, but one thing for sure, 4.5% of the world's population (i.e, the US) will at the end will no longer produce nor consume 20% of the world's output. It's consumption and production will shrink dramatically.

Oct. 24 2011 01:37 PM
Amy from Manhattan

For those of us on the 101 level, could you define monetary vs. fiscal policy?

Oct. 24 2011 01:35 PM
Rick from Manhattan

We currently have a Keynesian demand shortfall, but the problem is international, not national. Trade surpluses in the open international economy act like taxes in a national economy, they are a fiscal drag. The problem with applying the label "Keynesian" to our current situation is that because it is an international problem the usual "Keynesian" solutions do not help. If Keynes were alive today, I would like to think that he would think outside his own box and help convince us to attack trade surpluses as a flaw in the trade system.

Oct. 24 2011 01:30 PM
jgarbuz from Queens

Keynes himself only considered his "prime pumping" as a temporary measure, to cushion the hard edge of recessions and depressions. He never envisioned fiscal interventions as a silver bullet or fix.
And what we have now is a total restructuring and the reduction of the US standard of living in response to the rise of 3 billion competitors in Asia and elsewhere. It will be a painful reduction in altitude, but there is little any kind of gov't intervention can do other than try to soften the blows just a bit.

Oct. 24 2011 01:28 PM

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