The Keynsian Return

Scot Lehigh in the Boston Globe paraphrases John Maynard Keynes prescient observation "that recessions weren't necessarily self-correcting, as economic conventional wisdom assumed, and that governments needed to intercede to boost economic activity in troubled times. Keynes view on economics took root in America during the struggle against the Great Depression and helped to form the dominant economic outlook of the nation. With the "conservative ascendancy" of Ronald Reagan, Keynesianism was supplanted by supply side economics. An economic theory that was first mentioned by conservative commentator Jude Wanniski in 1975 and was based on the work of Robert Mundell and Arthur Laffer. Commonly referred to as "trickle down economics," Supply Side adherents ridiculed "Keynesian notions of government intervention, and particularly deficit spending to spur economic activity." Although GOP presidents amassed "large budget deficits created by tax cuts" conservative ideologues ignored the debt and "put their rhetorical faith in untrammeled free market economics, (while preaching) the importance of fiscal discipline." With the rush to deregulate the financial markets in the 1990s under President Clinton and a Republican Congress, actions were taken that set the stage for the economic crisis we are currently experiencing. Luckily, Keynesianism has made a return as a viable method to achieving economic recovery. Even George Bush 43, the MBA president, has "been a deficit-spender for almost his entire presidency,.. has now gone further, arguing that the prospect of calamity necessitates wide-ranging government intervention to stabilize the economy. Bush, the Ronald Reagan-inspired conservative free marketer and supply sider, has chosen to take a Keynesian approach to get us out of our current mess. "Meanwhile, amid a growing consensus that only more government spending can stave off a deep recession, President-elect Barack Obama is planning a major stimulus program to inject more demand into the economy ... All in all, it's quite a vindication, one that would both gratify and amuse John Maynard Keynes." We are not quite out of the woods yet, however. We face many uncertainties and better days are years away. The economic policies foisted upon America over the last 30 years by the conservative Reagan Revolution have created conditions that could surpass the damage inflicted by the Great Depression and we can only hope that Keynes return can relieve our economic misery. If we are lucky and Obama's recovery plan succeeds, let us gain from our experience and never allow Keynesian policies to be shoved aside again.