by Mario Rizzo
Paul Krugman raises a very good point: “Is it too much to ask that someone criticizing Keynes actually, you know, read Keynes…?” However, I suggest that the point also be applied to those who use Keynes to support their own ideas today. This latter group may be in for some surprises.
Consider, for example, the idea of public works, like infrastructure spending, as a stimulus to the private economy. The non-partisan Congressional Budget Office has estimated that most of this spending will take quite a long time to have an impact. According to an Associated Press report:
“Overall, only $26 billion out of $274 billion in infrastructure spending would be delivered into the economy by the Sept. 30 end of the budget year, just 7 percent. Just one in seven dollars of a huge $18.5 billion investment in energy efficiency and renewable energy programs would be spent within a year and a half.”
Now listen to Keynes in 1942:
“Organized public works, at home and abroad, may be the right cure for a chronic tendency to a deficiency of effective demand. But they are not capable of sufficiently rapid organisation (and above all cannot be reversed or undone at a later date), to be the most serviceable instrument for the prevention of the trade cycle.”
(Keynes, Collected Writings, vol. XXVII, p.122 ).
People need to pay more attention to Keynes’s mature policy ideas of the late 1930s and 1940s and less to his simple advice of the early ‘30s.