Keynes, Krugman, and Austerity
So, is there ever a good time for austerity?

Paul Krugman, columnist for the New York Times


Awkwardly, a Keynesian more vulgar than even Dick Cheney turns out to be . . . John Maynard Keynes. The sentence Krugman recently quoted about booms, slumps, and austerity appeared in a series of three articles Keynes wrote for the Times of London on “How to Avoid a Slump.” It’s full of advice on fine-tuning an economy. Anticipating 1937 to be a year of economic vigor, for example, Keynes urges authorities to postpone planned infrastructure projects so that they’ll be “available for quick release at the right moment.”

Discerning that right moment is tricky. It’s “much easier to check a recession if we intervene at its earliest stages,” but Keynes never makes clear who constitutes this “we.” It does not appear to be a democratically representative or accountable group: “If we are to be successful we must intervene with moderate measures of expansion before the decline has become visible to the general public.”

Keynes does envision two constellations of experts collaborating to stabilize and widen prosperity in order to attain “a decent level of consumption for every one.” The first would be a “board of public investment to prepare sound schemes against the times when they are needed,” compiling and sifting “acts of constructive imagination by our administrators, engineers, and architects” so that “large and useful projects” can be “launched at a few months notice.” Once this inventory of stimulative infrastructure projects is on the shelf, waiting to be green-lighted at the first signs of a recession, the second group, consisting of financial authorities, can exercise “the discreet handling of the market of which they have shown themselves to be masters,” to adjust long-term interest rates to the level “required to make profitable a flow of new projects at the proper pace.”

Does the idea of academic experts and civil servants coordinating disparate endeavors while perceiving, promptly and subtly, inflection points in the business cycle sound far-fetched? If you think so, then you and Keynes have something in common, since he concludes his call to arms by asking plaintively, “Is there the slightest chance of a constructive or forethoughtful policy in contemporary England?” Probably not, since he introduced his plan by acknowledging that it might be “absurd to expect Englishmen to think things out beforehand.”

Krugman acquitted himself as a good Keynesian, then, when he ruefully observed how widely divergent are the paths of economic wisdom and political necessity. In the late 1990s our nation “actually started to have an almost responsible fiscal policy,” he wrote in 2000, “but it was mainly an accident, the result both of an unexpected surge in revenues and of a deadlock that prevented either party from dissipating those revenues.” That both parties treated this happy accident as a windfall to be exploited instead of the basis for a new era of deliberate fiscal sobriety argues that America “just wasn’t ready for the hard thinking that would have let us act responsibly. Maybe better politicians could have made a better case for the right policies. Or maybe the fault is not in our politicians but in ourselves.”

But maybe some of the fault also lies with our Keynesian economists. The guidebook they’ve compiled is highly useful — for telling philosopher-kings how to use their limitless wisdom and power to continuously recalibrate public policy. While writing that manual may have been an intellectually stimulating exercise, what we really need is advice that gives self-government the best chance to succeed, rather than a pretext for disparaging the citizens’ inability to grasp esoteric economic theory. Hectoring politicians who favor what Krugman calls “premature austerity” is not an instance of such advice, especially coming from a columnist for whom austerity is always premature, not to mention “savage,” “truly cruel,” an “outrage,” and an exercise in “penny-pinching, future-killing absurdity.”

— William Voegeli is a senior editor of the Claremont Review of Books, author of Never Enough: America’s Limitless Welfare State, and a visiting scholar at Claremont McKenna College’s Salvatori Center.


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