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Keynes' Economic Theories Back In Vogue

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Keynes' Economic Theories Back In Vogue

Keynes' Economic Theories Back In Vogue

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RENEE MONTAGNE, host:

A name from the past has been coming up an awful lot lately: John Maynard Keynes. He's the British economist who, back in the Depression, came up with the ideas that are now inspiring President-elect Barack Obama's plan to get our economy out of this recession. We thought it would be worth getting to know this man, Keynes, who, 63 years after his death, has suddenly become central to the thinking of an incoming president. NPR's Adam Davidson has been studying Keynes' life and writings, and he joins us. Good morning.

ADAM DAVIDSON: Good morning.

MONTAGNE: Let's start with a quick - a thumbnail biography.

DAVIDSON: John Maynard Keyes is an absolutely fascinating character, and lots and lots of contradictions there. On the one hand, he's the quintessential British elitist. He was a graduate of Eton and Cambridge, and he really spent his life believing that people who had gone to Cambridge were really the only people worth knowing or spending time with. But at the same time, you know, while he lived in very high society, very cultured, the peaks of British society, he also was a shocking figure. He was openly gay, in the early 1900s. He was - would bring his boyfriends to dinner parties and talk about being married to them. He loved writing the most stunning things. I mean, you're - just reading his writing, you can just tell there's nothing that made him happier than really...

(Laughing) Freaking everybody out, if I can use that phrase.

MONTAGNE: Give us a sense of really what made him so influential.

DAVIDSON: He wrote on everything. He was a fast writer; he was a very good writer; he owned his own magazine; he published his own books. And frankly, I think, even Keynes' strongest supporters would say most of what he wrote was - can I say? - just nuts.

(Soundbite of laughter)

MONTAGNE: You can.

DAVIDSON: He was...

(Soundbite of laughter)

DAVIDSON: OK.

MONTAGNE: Is that accurate?

(Soundbite of laughter)

DAVIDSON: Yeah. I mean, just all over the place. Constantly contradicting himself. One day he's a free market extremist; the next day he's almost a socialist. Some of his writings are, frankly, very disturbing to read today. He did not like Jews. He didn't like the French. He really found Americans to be stupid. He didn't think they had any right to have as much power as they had in the world. And he really did not care for the working class at all.

MONTAGNE: Well, as you describe him, he sounds like quite an unpleasant guy. How could President-elect Obama turn to him and his thinking now?

DAVIDSON: The reason we're talking about him now is because of a book he published in 1936 called "The General Theory of Money, Employment and Interest." And that book literally transformed economics from one kind of way of thinking to a different way of thinking. It was absolutely radical, even though for most of us now, in a post-Keynesian world, it's a commonplace. But you have to understand, before Keynes, the central idea of economics was that markets are self-regulating. They are fully able to correct any problem from within the economy itself; the government should just get out of the way.

Now, this is obviously a familiar thought, because there are many people who are not persuaded by Keynes' radical idea, and there are many people who still believe that. But what Keynes theorized was that markets can reach a point where they cannot, within themselves, correct themselves. Unemployment will stay high for a very long time; the economy will not grow for a very long time. And Keynes actually came up with a solution, too, which should sound pretty familiar. When all else fails, the government can step in where the private sector failed and kick-start the economy. And basically, you could say that the economics profession since 1936 has been a huge battle over the implications of Keynes' ideas.

MONTAGNE: Well, what about it? It sounds like, you know, a sort of last-chance idea, but does it work?

DAVIDSON: If only it were so easy to answer that question, does Keynes work? Now, you can find plenty of strong Keynesians - you know, Paul Krugman would be a famous example - who say, yes, he was proven to work in the Great Depression, the fact that World War II, all the spending then got us out of the Great Depression, proves that Keynes was right. Others say, absolutely not, he wasn't proven at all. In fact, Kennedy and Nixon, who misused Keynes, proved that Keynesianism doesn't work. The fact of the matter is we don't know. The problem is it's hard to find other ideas, so at least some are saying, hey, I guess we've got to give this a try.

MONTAGNE: NPR's Planet Money correspondent Adam Davidson, thanks very much.

DAVIDSON: Thank you, Renee.

MONTAGNE: And for more on John Maynard Keynes, you can check out our Planet Money blog and podcast at npr.org/money.

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