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[Editor’s Note: This interview was difficult to obtain because Mr. Keynes is a very private person who does not like to speak on the record about his work or current economic events. Also, he has been dead for over 60 years.]
Because of the severe nature of the current economic crisis and its implication for the entire globe going forward, The Dismal Political Economist felt that the most helpful thing he could do would be to obtain the views of John Maynard Keynes on the subject. Mr. Keynes is probably the most important economist of the past 100 years.
This interview is presented as a public service.
- Welcome Mr. Keynes, to start off how would you characterize the difference between the Great Recession of 2008 and the Great Depression?
Mr. Keynes: Well the Great Depression was caused by an asset bubble in the stock market and the collapse of the financial services and banking sectors brought on by mismanagement and lack of sufficient regulation. The Great Recession of 2008 was caused by an asset bubble in real estate and real estate financing and the collapse of the financial services and banking sectors brought on by mismanagement and lack of sufficient regulation.
- Your home country,
England
Mr. Keynes: Well yes, if you want to continue to economic conditions of low growth and high unemployment. I assume Conservatives have taken over the Government.
- Well yes, but they say this will restore business confidence and they say that will lead to investment, hiring and economic growth.
Mr. Keynes: Increases in Aggregate Demand lead to higher economic growth. Didn’t they read the book? Business doesn’t invest and hire because they feel good, they invest and hire because they think someone will buy what they are making and selling.
- By book I assume you mean The General Theory of Employment, Interest and Money. Is that material still relevant.
Mr. Keynes: Yes, you people do still read don’t you? For example, it warns against a liquidity trap where monetary policy essentially becomes useless as an expansion tool. I don’t suppose you avoided that, did you.
- Well no, we didn’t. In fact some economists and policy makers are trapped as we speak. How do we get out of the Liquidity Trap?
Mr. Keynes: You use fiscal policy to increase Aggregate Demand. Increasing government spending is the best way to do this, since you can target specific areas, specific industries and specific pockets of unemployment. Once you get the economy jump started, investment and growth will start to take the economy to full employment. Just make sure you do it long enough and strong enough.
- Well Conservatives in the U. S. Congress want to cut government spending and decrease taxes on the very wealthy. Will that work.
Mr. Keynes: Well, not on this planet, maybe in some other solar system. How exactly does firing government employees and firing employees in the private sector who provide service and goods to government return an economy to full employment? And you need tax cuts directed at people who need the money and who will spend it on consumer goods to stimulate, you know, that Aggregate Demand thing again.
Why would you let people like that into government?
- Well, they were voted in because voters disliked Democratic plans to provide universal health care for everyone at an affordable price.
Mr. Keynes:
Why would you let people like that vote?
Greece Greece
Mr. Keynes: Didn’t they read the book? Sounds like they are trying to create a post World War I Germany in Greece
- By book I assume you mean The Economic Consequences of the Peace
Mr. Keynes: Yes, so I assume they didn’t and things are not going all that well.
- Well, the Greek economy is experiencing recession, high unemployment civil unrest, an intense dislike of its own government and other ones and a lot of misery. Is that what you would have expected?
Mr. Keynes: How could anyone expected anything else?
- What would be your final comment to those economic policy advisors and creators in 2011?
Mr. Keynes: Haven’t you people learned anything in 75 years?
This is really good but I don't think JMK would say "solar system."
ReplyDeleteExcellent; it's too bad that post-Keynes the economics profession (so-called) has largely abandoned ethics and common sense.
ReplyDeleteNext Q: Why hasn't Keynsian economics worked in the last 3 years then?
ReplyDelete@Gregory,
ReplyDeleteBecause it hasn't been tried. There was a very watered down stimulus package, but not what Keynsian economics would require. And that stimulus package did work to the extent Keynsian economics would expect. Since it worked a little, logic would dictate you try again with more resources. Instead, the insanity of budget cutting is now at the forefront despite ample evidence that it will only make matters worse.
Can you calculate stimulus levels from a basic model? Have yet to see one. In an economy about 14 trillion, why doesn't a trillion or two do much?
ReplyDeleteIt would seem like you could, but the economy is so complex and so dynamic basic or even advanced models just will not do the job. You can do a simulation but you end up with an unacceptable answer, like a 95% confidence limit that unemployment will be between 3.8% and 11.2%.
ReplyDeleteThe stimulus did stop the decline in the US economy, but that is about all it did.
Love this blog, keep up the great work wish you all the best.
ReplyDeleteSelling home tips
@Gregory,
ReplyDeleteFrom Macro concepts G multiplier
dy/dg= 1/[1-C'(1-t')]
Oh wait!! u arleady knew that