Keynes hovers over the Institute for New Economic Thinking

Two recent articles on the second meeting of the Institute for New Economic Thinking had connotations of John Maynard Keynes – Niall Ferguson in Newsweek and Will Hutton in the Observer.

The economic conference, to debate the current crisis, has been likened to Keynes’ farewell speech at the Bretton Woods conference back in 1944. He wanted an end to balanced budgets, public austerity, national sovereignty and freedoms for finance at home and abraod. His desire was regulations that would acknowledge countries’ interdependence and create global institutions and a global currency to give governments room for manoeuvre to act intelligently and creatively to stimulate jobs, trade and growth. For the IMF to now be used as a bailout facility for speculators and overextended banks at the same time that governments introduce draconian budget cuts is exactly was Keynes was NOT in favour of. He was a believer in short-term government deficits to combat depressions and would regard the current state of the US fiscal position as disastrous. The federal debt could hit 344% of GDP by 2050. Interest payments would absorb nearly all federal tax revenues. Furthermore the USA’s reliance on foreigners to finance its borrowing habit is against what Keynes believed in.

The US could keep borrowing US$1 trillion a year but there are two possibilities to try and reduce their dependency on overseas borrowing:

1. Eliminate the deficit largely through deep spending cuts and Medicare reform.
2. Modest tax cuts and tax hikes on millionaires and billionaires.

According to Will Hutton – the good news is that there are a lot of a very good and iconoclastic economists from many countries who want to take up the fight again. It’s a race against conventional thinking – and time.

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