A new article by David Marquand for the Guardian speculates that Keyne's economic theory is in need of revision, and that we in fact need a replacement for the Bloomesbury gent himself. I'm not so sure about that.
I think Marquand's siren call rests on an unscientific view of economics. If economics was like literary theory, or politics, then we should be able to throw away all previous understandings of economy and start over completely every few years or decades. Surely this is at least in part what happens with art and fashion?
Four legs good, two legs bad.
But economics is depicted by most practitioners as a social science. A scientific endeavor doesn't renounce all previous knowledge every few years. An alternative hypothesis, once tested and accepted and replicated, has to be accounted for in new theory. Science builds on itself. Despite having far more room for opinion-izing, and far more connections to politics, than most other scientific endeavors, economics lays claim to scientific authority, and even carries all of the trappings of science as it does its work. Hypothesis formulation and testing, statistical significance, peer review, all are widely used. To just toss out all of the thinking of Keynes, or indeed, any scientific economist, even Hayek or Friedman, would be to reduce economics to an absurdity as a rational field of inquiry.
And isn't this in fact what we've done, especially starting January 20th, 2001, when we threw away what was then a de-facto Clinton-Blair-EU operated, New Keynesian/Neoclassical/social democratic consensus. We meaning George W. Bush. And instead instituted a c-average, B-school version of Hayek and Friedman. Without even a hint of scientific conservatism. Even Reagan's attempt to do much the same was bolstered by economists of decent if not Nobelite reputation.
I won't bother to list the other sciences we threw out that day. Funny too, how Reagan managed to reverse himself by his second term and run up the biggest deficit since WW2.
Deficit spending? Isn't that Keynes?
When I studied ecological economics at the University of Maryland, the primary concern of my mentors was to take economics and reunite it with science, particularly ecology, to in fact correct a few scientific mistakes in economics. That still seems to me to be a useful endeavor, as climate change and oil depletion appear to me to be harbingers, if not perfect density-dependent indicators, of the planet approaching or exceeding carrying capacity for humans.
Infinite growth on a finite planet is as unscientific as Bishop Usher.
But it would be very silly to toss out all of economics in this endeavor. More appropriately, the two contrasting explanations of how the planet works, the ecological and the economic, have to be carefully reconciled, as scientifically as possible. They also have to be guided by moral principles capable of withstanding the trend towards various forms of xenophobia and fascism that will accompany any widespread recognition of planetary carrying capacity.
For a model of intellectual morality and moral bearing, we could do far worse than study Keynes, one of the architects of the United Nations, the theorist of the Marshall Plan, the father of the IMF and World Bank, and a humanist and thinker whose reputation is far beyond reproach, and whose General Theory shows how the relationship between governments, commercial firms, and households, the business cycle, can and should be stabilized by government regulation.
If George Bush had read and understood this and a few other more serious books at Yale or Harvard Business School, instead of the sorry platitudes about free markets, personal leadership, entrepreneurship, and, of course, infinite growth on a finite planet, that pass for theory in far too many MBA programs, we might be better off right about now.
We should treat the Bush era as a replication of the Reagan experiment, accept the null hypothesis that New Keynesian remains in fact correct, or at least the best explanation of business cycle regulation we have for now, and use this hard-won knowledge to shit-can neoliberalism once and for all.
Marquand, otherwise an impeccably left-of-center theorist, should join with a few other folks whose particular personal well-being is perhaps closely connected to the market cycle right now, should take a long weekend and cool off. There'll still be an economy on Tuesday. No-one has demolished a single house or a factory. In fact, because of the speed of the collapse, it hasn't had time to affect production yet. Mines are still mining, production lines still running, crops are still growing in the fields or waiting in barns and silos to be eaten. The only indicators that went south were a) house prices, which any fool could tell you were too high for ordinary folk, and b) a few mortgages, primarily because the house prices underlying the mortgages were too high.
This too shall pass. Along with George Bush.
By the time the US election is done, there'll be trillions of dollars of investment potential sitting in far-too-safe havens looking to make a better buck. Half the industrial capacity in the world will be undervalued by up to 50%, compared to its potential.
And Keynes will still be the theorist who explained how to get out of a Great Depression.
Not Mr. Marquand.