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What Would John Maynard Keynes Do Now?

Posted by Larry Doyle on June 8, 2010 7:41 AM |

John Maynard Keynes

What now?

As G20 nations around the world retreat from policies of continued coordinated fiscal stimulus, the question begs, what does the future hold for a world awash in crushing levels of overwhelming debt? Is the United States the only nation willing to stick to the script of classic Keynesian economics?

If only we could go back in time and ask John Maynard Keynes, the economic giant amongst economic giants, what he would propose now? Would Keynes stick to his classic Keynesian economics script at this juncture? Could Keynes ever have envisioned a world awash in so much debt?

As I highlighted yesterday, (G20 and US: Going Separate Ways Highlights Prisoner’s Dilemma), a bevy of central bankers outside of the U.S. are discarding Keynes like yesterday’s news. Today we see more of the same from the money management community as Bloomberg highlights, Pimco’s Crescenzi Sees ‘Endpoint’ in Devaluations:

Nations have reached a “Keynesian endpoint” as exhausted balance sheets leave policy makers with few options to bolster economic growth, according to Anthony Crescenzi, an investor at Pacific Investment Management Co., the world’s largest bond-fund manager.

“Time, devaluations, and debt restructurings might be the only way out for many nations,” Crescenzi wrote in an e-mailed note. Debt-fueled spending programs aimed at combating the global financial crisis of 2008 are among policy tools now “being seen as a magic elixir that has morphed into poison.”

That’s it? You mean for all the weight and impact Keynes has brought to bear on the world of economics over the years, this go round is relegated to a year’s worth of bubbly and it’s over? Clearly, Keynes must have a few more goodies in his bag or tricks up his sleeve?

Are we to believe that at a certain level of global indebtedness, Keynesian economics no longer works? Keynes never broached those points? Did the giant amongst giants not know when the debt/GDP levels reach such unprecedented levels that the benefits of incremental government spending are actually offset by the costs of the borrowing?

Has the intoxicating and illusory effects of the Keynesian elixir truly changed from potion to poison?

What would Keynes do now?

LD

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  • Lou

    I think Keynes would likely say, “you figured out how to get yourself into this mess, you can figure a way out of it.”

    Then he’d roll back over in his grave and say, “Wow, what a mess!!’

  • Well, having followed laissez faire capitalism, through Ayn Rand(!), and the Chicago School of Milton Friedman all the way to out-and-out, every-man-for-himself nihilistic-capitalist greed-faust.
    Yes, they might want to try JMK to rebuild the system, after all there’s nothing left to steal.
    These captains of industry all need to go away to their private islands and STFU. Once they and their flunkies in Congress (and the White House) are gone, we can start cleaning up the gigantic mess they have left:

    Bring back Glass-Steagal, build a 14-mile high fence between Wall Street and any public money, electrified, with poison gas vents, and a moat filled with alligators.
    Start a public works program to put people back to work – Robert Reich just suggested providing oil cleanup jobs for hundreds of thousands of out of work young people, with BP footing the bill.
    We should extend that to a national program of building a high speed rail system using Interstate rights-of-way. Rebuild our infrastructure (Duh!) so the world can see we care enough about our own country for them to feel like they might want to invest in us again.
    Put a moratorium on foreclosures, set up a government program to provide extension loans to keep people in their houses and off the streets…
    …and on and on and on. Keynes would know what to do in an instant, so do we.
    The problem isn’t ‘what do we do?’ the problem is: have we finally had enough of the lying bastards who raped this country? Are we finally ready to do the things that are necessary to prevent these predatory monsters from doing it all over again or shall we just go on as usual? To quote Bernie Madoff (prison hero) “F**k my victims!”

    I’m pretty mad about this because, from what I see, the Madoff crowd is winning.

    • fred

      craigdp,

      I would add that bank IRR hurdles now favor prop trading and leveraged borrow short-invest long spread trading over traditional lending.

      Is this why banks are given a competative advantage by society? Keynes would not approve of this turn of events in bank profit generation.

  • Dismal

    Instead of Keynes, think Milton Freidman who famously said, “Economics can be summarized thus: There is no such thing as a free lunch. Everything else is details.” Check, please!

  • disenchanted

    The Madoff crowd is winning with the help of gov’t and the regulators. The regulators are putting on a good front now, but where were they when the country was being bilked?






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