Keynes is back!

It seems to be an age ago that we could mention the name of John Maynard Keynes without howls of derision. Now, though, Keynes - a liberal intelligence of the highest order - appears to be back in fashion. If you don't believe me, have a look at the New Stateman for this week in which, with extraordinary zeal, the likes of Noreena Hertz claim him for their own.

Now, I don't know about you but as one of those for whom the bankruptcy of monetarism, then supply-side economics, then neo-liberal market economics and (that famous phase) 'post-neoclassical endogenous growth theory' came and went as so much froth and fluff, I am glad that the old boy is due for a serious examination again. But it should be a serious and sensitive rehabilitation - not a 'hero-fest' for socialists.

Let's be clear. Keynesianism (or the moderated neo-Keynesianism of the late eighties) isn't for softies. It is for real, thoughtful and purposeful liberals. Socialists beware. There are no easy rules for state management of recessions, and intervention is not - genuinely not - the simple prescription anywhere in Keynes. Keynes was, and remains, a difficult - sometimes even an unpalatable - thinker and that great trinity of works (The Treatise, the General Theory and How to Pay for the War) evolves an approach to economic analysis that is subtle and powerful.

What he did not offer was the sort of simple panaceas that Labour politicians seem to want and socialist commentators insistently believe are at least palliative in effect (never enough for them of course, but a means of mollifying the voters that usually eject Labour when recessions strike).


What he did offer was a thoroughgoing analysis of how, by concerted action allied to confident and assertive government leadership in the face of business apathy and loss of confidence, an economy like our own could be coaxed back to health.

Keynes knew that his prescription would allow capitalist economies to retain their liberal freedoms, but that other (similar but by no means identical) prescriptions - from the authoritarian left and right - were available. In the General Theory he wrote:

"The authoritarian state systems of to-day seem to solve the problem of unemployment at the expense of efficiency and of freedom. It is certain that the world will not much longer tolerate the unemployment which, apart from brief intervals of excitement, is associated - and, in my opinion, inevitably associated - with present-day capitalistic individualism. But it may be possible by a right analysis of the problem to cure the disease whilst preserving efficiency and freedom."

Keynes saved liberals the fate of sinking with the classical system that demanded constraints on the demand side of the economy in a recession, but more than that he outlined an economic liberalism that is still relevant today.

Oh, and if Mervyn King happens to read this, he also said - as Mervyn will know - "a decline in the rate of interest will be a great aid to recovery and, probably, a necessary condition of it". Go to it, Mervyn!

News coverage and recessions

The BBC is at it again. Cataclysmic economic disaster is just around the corner, the soup kitchens will be open this weekend and sales of Down and Out in London and Paris are set to skyrocket...

News broadcasters are insensitive - or, more worryingly, hypersensitive and very, very aware -to the power they exercise over the fate of the economy during recessionary episodes. Research seems to suggest that news plays an important effect in actually shaping our economic behaviour - and it is an effect more pronounced in periods of recession than in periods of prosperity or boom. Two studies worth reading are this one by Goidel and Langley from 1995 and this one by Wu et al. Both analyse the impact of news during the recessions of the 1990s. Both conclude that the reporting of 'bad' economic news has an effect, and that it can exacerbate behaviour, which must include 'dis-saving' (as Keynesians used to call it) and putting off purchases.

What does this mean for the BBC? Well, it must mean that this great public service institution is currently doing all of us a tremendous disservice. It is actually stoking the recession gleefully. Interviews during news bulletins today have included 'vox pops' insisting that a largely bemused public shares stories of 'how the downturn has affected them this lunchtime'. Not only is this editorially silly, it is potentially damaging.

Yes, the economy is faltering. Jobs will be lost. Businesses will go to the wall. But this is a cyclical phenomenon we have lived with for centuries. That, of course, is the BBC's argument - they proclaim that they are holding a mirror up to nature, not shaping it.

My point is that, with evidence showing so strongly the very real effect of news coverage in exacerbating the recession, should they take the risk?

Or are ratings worth that much to the BBC?

Lembit for Party President?!?

Like thousands of others, I have received an email from Lembit Opik soliciting my vote for the position of President of the Liberal Democrats. I have to say almost the first line put me off voting for him: "I have always believed the Party President is the ideal job for me", he writes, as if that is a recommendation. Hmmmm. Modesty? Evidence of fitness? Strategy? No, just vote for me to make me happy. Encouraging, isn't it?

No, spelled with a 'B'...

Bankers. Don't you just love 'em? Not content with creating a crisis in their own industry by mispricing risk on doubtful derivative instruments and accumulating them to the point of near destruction, they have the temerity to wonder whether the taxpayer is 'doing enough' to bail them out of the mess. Moreover, after a helpful and well coordinated move by the central banks to cut interest rates as an assistance to them - not taxpayers and savers, by the way - they have the further effrontery to say that they 'might not pass the benefit on' to mortgage borrowers. Yet more indifference to the rest of us comes from the 'shock' that the governments of the western world are apparently not saving all of their banking bretheren, and are not quite prepared to back the hunch that interbank lending might get going again with borrowed cash and taxpayers' money to the tune of 1.5 times GDP.

Can we get this right for once? Banks are the servants of our economy, not the masters of it. The government has to assert the basic principle - which voters have now clearly realised and politicians should quickly understand - that our finance system is too important, should be made less important, and should be placed in the hands of people with common sense. Spivs, self-regarding quants and 'masters of the universe' need not apply this time.

As winter comes on, and pensioners on low incomes face hypothermia again, bankers railing at the rest of us for our 'indifference' will be an affront.