DON’T REJECT KEYNES.

DON’T REJECT KEYNES. Kids, you will be reading claims in the future that Keynes should be ignored because his ideas were unsuccessful in dealing with this great recession. I know you will be reading that because many people are saying that now. My opinion is that Keynesian thinking has not been tried. I say Keynesian thinking advisedly, for the reasons I gave in the last posts. (Remember that I am a Keynesian.) I have looked at macroeconomic developments through Keynesian glasses since 1961, and the Keynesian explanations of those developments always seemed plausible. I think that I have lived through two successful applications of Keynesian policies during those 50 years: Kennedy’s and Reagan’s. (Reagan did not say his policy was Keynesian, but there was a combination of fiscal easing and monetary tightening.) Both Kennedy and Reagan included measures to encourage increased investment. Kennedy had an investment tax credit and Reagan had accelerated depreciation. There has been little discussion of encouraging investment in the last couple years. I think that the uncertainties about future health care regulations, financial regulations and tax rates for 2011 and beyond have had a discouraging effect on new investment and new hiring. Of course, I can’t prove it, but I don’t think that the case against Keynes has been proved or can be proved either. The next time there is a recession, look at Keynes to help you understand what’s happening.