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Tuesday, 28 June 2016

Get over it

Stop with the cult of Keynes

John Maynard Keynes may be the greatest economist of the 20th century. Some people, opponents as well as followers, also seem to think he is the most important thinker for the current economic malaise. They want to know, “What would Keynes have done?” They’re wasting their time.

Niall Ferguson is the latest pundit to take the great man’s name in vain. The popular Harvard professor, a sworn opponent of big fiscal deficits, has suggested that Keynes’ defence of government borrowing was influenced by his sexuality. Ferguson later apologised for implying that gay people don’t care about the future, but has continued the discussion of Keynes’ sexual economics with a reference to a supposed “strong attraction… for the German banker Carl Melchior”.

Ferguson’s fixation with Keynes is widely shared. Axel Leijonhufvud of the University of Trento wrote about “Keynes and the Crisis” in May 2008. In December 2011, the Cato Institute, an American think-tank, ran a series entitled: “Will the real John Maynard Keynes please stand up?” And in May 2012, the Financial Times let economists Marcus Miller and Robert Skidelsky explain “How Keynes would solve the euro zone crisis”.

But while Keynes was important then, times have changed. He wrote long ago, when cultural despair and moral rebellion were in the air. He wrote about monetary economics when the gold standard was, well, standard thinking. He was responding to a war-ravaged world and truly Great Depression. In comparison to the decades of political and economic cataclysms that defined Keynes’ era, the current stagnation in the developed world is minor.

There are other huge differences. As Keynes predicted, prosperity is far greater now. As he might have hoped, governments play a much larger economic role. Attitudes towards sexuality have also changed, almost wholesale. In the unlikely event Keynes’ preferences were ever relevant, they are categorically irrelevant now.

What policies would Keynes have offered for this vastly different world? His most important suggestion, that government spending should compensate for lost demand in the rest of the economy, has become conventional wisdom. Fine. Beyond that, no one can know. And no one should care.

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On May 2, Niall Ferguson spoke at the Altegris Investments’ Strategic Investment Conference in California. During the subsequent question-and-answer session, blogger Lance Roberts quoted him as saying: “Keynes was a homosexual and had no intention of having children. We are not dead in the long run…our children are our progeny. It is the economic ideals of Keynes that have gotten us into the problems of today.”

Ferguson is the Laurence A. Tisch Professor of History at Harvard University. He is also a Senior Fellow at the Hoover Institution, Stanford University, and a Senior Research Fellow at Jesus College, Oxford.

On May 7 he published “An open letter to the Harvard Community”, in which he said, “The comment was doubly stupid. First, it is obvious that people who do not have children also care about future generations. Second, I had forgotten that Keynes’ wife Lydia miscarried.”

He also wrote: “Keynes’ sexual orientation did have historical significance. The strong attraction he felt for the German banker Carl Melchior undoubtedly played a part in shaping Keynes’ views on the Treaty of Versailles and its aftermath.”

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