Conserving Keynes

Paul Krugman swats aside my naive plea for a New Keynesian consensus on fiscal policy, suggesting that conservatives have always been opposed to Keynes.  But I stand by it.  I think our Conservatives [UK, big C] were tethered by those views.  Else why be so gentle, 2010-2015 and now?  Not all of them, for sure.  There’s audible commentary complaining that the job was only half-done.  The job being deficit reduction.

And if we go back further in history, say to the post-war period, there was essentially a consensus about Keynesian demand-management.  In my view this was never really ditched, either, in the 1970s and 1980s.  It’s just that we came to understand the inflation process better, how to do monetary policy and fiscal policy together.  There are some notable contradictions to this view, of course, like the March 1981 Geoffrey Howe budget that prompted the 364 economists letter.  But, later on in that period of Tory hegemony, there were Keynesian flavours.  Nigel Lawson, despite believing that low-taxes/small state was good for long-run growth, also knew that cutting taxes was stimulative in the short run, and would help them get elected.

Actually, I think I’ll stop there.  After all – applying one of the lessons of the initial exchange here to myself – I’m not a historian and should stick to economics.

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2 Responses to Conserving Keynes

  1. Ben Birnberg says:

    An interesting post, Tony. My ears prick up whenever I see Keynes invoked! Ben

    Date: Wed, 20 May 2015 09:20:49 +0000 To:

  2. I think there is a significant difference between the UK and the US here. The Conservative party in the UK (at least until 1979) was certainly not opposed to Keynesian economics: in particular Harold Macmillan had been Keynes’s publisher, and his key adviser on economic issues, Roy Harrod, was certainly a Keynesian economist. As far as I know there was no attempt in the UK to exclude Keynesian teaching and textbooks from universities (as happened in the US during the Cold War). There was also no equivalent of Milton Friedman to act as a role model for ‘anti-Keynesian’ economics. So it was only after Mrs Thatcher came to power that there was any real change. Even here, the conflict could be interpreted in terms of a switch towards a policy stance which placed a much higher weight on reducing inflation, whatever the cost in terms of higher unemployment, rather than a rejection of the Keynesian analytical framework.
    What is new in the UK context, and leads inevitably to the explicit rejection of Keynesian policy prescriptions, is the focus since 2010 on the debt to GDP ratio. But I think that those who see this as a smokescreen to justify moving towards a US-style society in which the only legitimate form of redistribution is the cosseting of the elderly (Medicare and Social Security in the US, ‘triple-locked’ pensions and pensioner bonds in the UK) have got it right. UK politicians don’t really care what economists think is the appropriate macroeconomic theory following a major financial crisis: their interest in economics is in redistributing resources towards their supporters, and exploiting the political business cycle to ensure re-election.

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