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Raising Keynes: An old economist finds new rock-star status

Keynesian economics is being hailed as key to ending the collapse.

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Sales of books based on his theories have risen in recent months. An acclaimed three-volume biography of Keynes himself is regarded as recommended reading for a new generation of policymakers.

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“John Maynard Keynes has been restored to life,” wrote its author, Robert Skidelsky, last month in the British center-left journal, The New Statesman. “Rusty Keynesian tools – larger budget deficits, tax cuts, accelerated spending programmes and other ‘economic stimuli’ – have been brought back into use the world over to cut off the slide into depression.”

But there has been no greater testament to the faith placed in Keynesianism than the course charted by Britain’s prime minister, Gordon Brown. Last week, Mr. Brown unveiled plans for public works spending meant to ease recessionary pain by creating up to 100,000 jobs. Drawing a direct comparison with the public works projects undertaken by FDR, Brown also wants to tackle climate change by investing in rail, electric cars, wind power, and wave power.

Despite his reemergence as a policy rock star, voices arguing against a Keynesian response to the financial crisis remain unsilenced.

“I am surprised at how many Keynesians were in the woodwork on both sides of the Atlantic,” says Chris Edwards, an economist at the Cato Institute, a US free-market think tank. Mr. Edwards, who talks of a resurgence of “kindergarten Keynesianism,” expresses amazement at the number of PhD economists who, he says, are now reversing previous pronouncements.

“I think Friedman’s biggest concern right now would be how central bankers are putting so much money into the system,” he adds, warning that younger Americans will be saddled with debt from boosting the economy. “Keynes was a brilliant guy, but his main policy thrust was to respond to the short-term crisis. Obama’s advisers are buying into the idea that the short term is the only thing that matters.”

Elsewhere, even admirers of Keynes question whether attempts to stave off a new recession are truly Keynesian. Vincent Cable, a member of parliament and the economics spokesperson for Britain’s third largest party, the Liberal Democrats, suggests the Keynesian tag is being misused to describe British government measures.

“What Obama is proposing to do is far more ambitious than what is being done in the UK, and Keynes would recognize that,” says Mr. Cable, who studied economics at Cambridge in the 1960s under the “disciples” of Keynes, including Richard Kahn, Joan Robinson, and Nicholas Kaldor.

Cable concedes, however, that Keynes’s work is far from bedtime reading: “His writing is pretty impenetrable.... Adam Smith and ‘The Wealth of Nations’ is a good read. Keynes is not easy.”

Keynes’s nephew, Stephen, says his uncle would approve of the economic policies being pursued by US President-elect Obama, describing them as “very clearly Keynesian.”

Stephen Keynes adds, “It does give me pleasure that the ridiculous Thatcher years now seem so absurd.... The whole world admires Obama’s steadfastness and self-confidence.”