By Peter Clarke  

For more than 20 years after his death in 1946, the name of John Maynard Keynes achieved a sort of posthumous veneration that mythologised him as not just a great economist but an infallible prophet. This happened on both sides of the Atlantic and across party lines. It was US president Richard Nixon who declared: “We are all Keynesians now.” Well, times change. Myths become vulnerable to debunking – and, if you wait long enough, to rebunking too. The Keynesian era came to grief in the 1970s. For about 30 years Keynes’s reputation languished. Then, in about 30 days, it has apparently been restored. Continue reading "In the long run we are all dependent on Keynes"

By Roger Farmer

The US recession that began in December 2007 resulted in 403,000 lost jobs in September, 320,000 in October and 533,000 jobs in November. Projections for 2009 are ominous. Continue reading "How to prevent the Great Depression of 2009"

We are all Keynesians now. When Barack Obama takes office he will propose a gigantic fiscal stimulus package. Such packages are being offered by many other governments. Even Germany is being dragged, kicking and screaming, into this race. Continue reading "Keynes offers us the best way to think about the financial crisis"

By Niall Ferguson

In the Old Testament Book of Leviticus, God commands the children of Israel to observe a jubilee every 50 years. Nowadays we tend to associate the word with celebrations of royal anniversaries such as Queen Elizabeth’s golden jubilee in 2002. But the biblical conception of a jubilee was more precise: that of a general cancellation of debts.

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By Nariman Behravesh

The full fury of the two shocks that have hit the world economy - the financial crisis and record oil prices - is beginning to dissipate. Unfortunately, the full impact of these shocks on the real economy has yet to be felt. Continue reading "A deep recession but a strong recovery"

By John Muellbauer

The world economy is suffering from a Keynesian shortage of demand. Worse, it is trapped in a dangerous downward spiral of falling asset prices, rising bankruptcies, foreclosures and unemployment feeding into more of the same, along with falling commodity and now goods prices. Since no country is exempt, international co-ordination is needed and made easier because of the obvious common interest. The rapidity of the current contraction also means that fiscal solutions, though helpful, are not timely enough and create obvious free rider problems.

That is why monetary policy should be the first line of action. But conventional monetary policy has gone almost as far as it can in the US and Japan. The failure of the European Central Bank and the Bank of England decisively to respond in October was very damaging, but that is now history*. Policy rates will fall further in December, but may make only a modest contribution to stabilising demand, given the further decline in bank balance sheets and rising levels of fear. It is therefore time for unorthodox policy, but one that is far better than Milton Friedman’s helicopter drops of money, because it is reversible.

Continue reading “The world’s central banks must buy assets”

By Richard Portes

Expectations for the G20 meeting on November 15 are excessive. It will not agree on changes to the institutions of global governance, nor will it come up with an ‘n-point plan’ for dealing with the crisis. Continue reading "Capitalising on the crisis"

By Arvind Subramanian

Getting countries with persistent current account surpluses to adjust obsessed Keynes because he was acutely aware of the limited leverage that could be exerted against such countries. Sixty years later, that problem continues to haunt the international financial system. The ongoing global crisis originated predominantly in poor national policies and regulation. But large current account surpluses, stemming in part from undervalued exchange rates, and the resulting liquidity surfeit was a facilitating factor.

Failure to address this issue by the Bretton Woods II process would be a serious abdication of responsibility by the financial system. Few issues are as central to the system or as much in need of multilateral cooperation.

Adding to the urgency of multilateral action will be US politics. If the US economy takes a downturn and the dollar continues to strengthen, a resurgence of protectionist pressures is likely. This time around, these pressures could well take the form of unilateral action against competitive currencies. It is noteworthy that President-elect Obama has actively and repeatedly supported action against “currency manipulation.”

Continue reading "Imbalances and undervalued exchange rates: Rehabilitating Keynes"