The Case for Keynes

Obama’s election has left the Conservative movement more deflated than a leaky air mattress. In truth, many of the ideas associated with conservatism have grown stale. For instance, the recent financial meltdown discredits the idea that free markets are self-regulating. Simply, put Keynesian economics is making a comeback, while the ideas of Milton Friedman and Friedrich von Hayek are in retreat.

There’s a certain irony in all this; the Chicago school was once viewed as a corrective to the excesses of Keynesianism, but now policy-makers recognize that Keynes’s thought explains how we got into the current crisis, and how we might get out of it.

In a nutshell, Keynes believed that a culture centered on the ‘love of money’ sowed the seeds of its own dissatisfaction and dissolution. Keynes viewed wealth as a means, not an end. The purpose of prosperity, Keynes insisted, was that it allowed individuals to embark on projects of ethical improvement.

Keynes viewed economics as a moral science, not a natural science. He continually questioned the assumptions economists made. He thought it inappropriate, for instance, for financial wizards to use the same risk-management tools that life insurers do. After all, insurers utilize actuarial data where the future invariably resembles the past. Insurance markets have seen failures, but they are rare. Business and politics, are different matters altogether; the future rarely mirrors the past and a single unforeseeable event, a Black Swan, can alter the economic landscape in unpredictable ways.

Uncertainty was a key idea for Keynes. He believed the future was unpredictable. Consequently, money was not a neutral store of value, but “a subtle device for linking the present with the future.” In times of crisis, individuals tend to hoard cash, which prolongs downturns. Money is an emotional repository; when optimism reigns, then economies thrive, but when fear dominates, they wither.

Keynes insisted that governments had an obligation to reduce uncertainty. ‘Cheap money, wise spending’ was his motto. He would approve of universal healthcare because a healthy workforce would be a more optimistic and productive workforce. Von Hayek viewed government programs as a prelude to serfdom, buy Keynes believed totalitarian movements were nurtured in the soil of uncertainty. Therefore, reducing uncertainty had a double virtue; less uncertainty allowed more scope for moral improvement and it reduced the appeal of political extremism. The case for Keynes is comparatively airtight.