Over at Cafe Hayek, economist Russ Roberts of George Mason University has a really great blog post explaining the resurgence of Keynesian economics. He thinks economists have embraced Keynesian economics in recent years not because the theory is correct, but because they wanted to be part of the game that is played in Washington.
There is truth in both of those arguments but I think it is useful to add some public choice as well with economists as rent seekers–if you want to be a player, you have to be willing to play. So those economists who argue for the virtues of intervention get a chance to play. Those who oppose intervention remove themselves from any chance of riding the government gravy train.
It’s a bootlegger and baptist argument–economists favored discretion and ad hoc intervention to save the economy knowing it is good for their own income and power. There’s also some groupthink involved. When everyone is touting the virtues of job creation via fiscal policy, you feel a little lonely suggesting it’s a sham. Finally, there is some risk aversion. Once you have some input into the policy process, better to do something than do nothing. Did Ben Bernanke really want to preside over the next real Great Depression while doing nothing? Better to do something, even if it’s flawed. The fact that you gain enormous power along the way would help any mortal man come to the view that doing something is better than doing nothing.
Economist John Taylor likes that theory. However, he sees the Keynesian resurgence as a sign that, ultimately, politics trumps economics, and also that there may have been a lack of research on the “no stimulus” side.
I tend to think that these movements are cyclical. It is easy to believe that government is the solution to everything, in spite of decades of evidences that it isn’t.