The Owl of Minerva takes flight at dusk:The anti-Keynesian era is drawing to a close

The Owl of Minerva takes flight at dusk: The anti-Keynesian era is drawing to a close

By Harold R. Chorney, Professor of political economy, Concordia university, Montreal.( I originally submitted this to the New York Times as an op ed .They chose not to publish it so I am presenting it here.)

The recent  debate over debts, economic growth and the flawed work of two Harvard economists Carmen Reinhart and Kenneth Rogoff has in the clash of ideas, theories and interpreted facts yielded very bright sparks of enlightenment. It should now be clearer that the road to renewed prosperity cannot lie with a policy that has been discredited by what we have witnessed in Europe over the past five years. No one in their right mind could judge 27% unemployment in Spain and Greece, 17.5 % in Portugal and 11.0% unemployment in France, 11.5% in Italy and an overall unemployment rate of 12 .1% in Europe, as a policy success. Youth unemployment at 59 % in Greece, 56% in Spain, 38.2 % in Portugal and 37.8 % in Italy five years after the crash is clear evidence of destabilizing policy failure. (data from Eurostat)

The anti Keynesian economics of the mainstream identified with fiscal orthodoxy and austerity.  Economists called this approach “new classical macroeconomics” to remind us of the pre- Keynesian classicals who had emphasized the perfect rationality of markets and their ability to recover from a crisis without government intervention and counter cyclical deficit spending. This school and its solutions is now shown to be a chimera just as it was during the 1920s and 30s. Increasingly, the long silenced minority of economists who in the past were intimidated by the economics establishment and the control over grants, degrees and jobs have begun  aggressively to question the wisdom of this now old orthodoxy  that first arose in response to the monetarist counterrevolution led by Milton Friedman  and the neo-cons in the 1960s and 1970s.Young graduate students born after the Keynesians had been banished are keen to learn as much as possible about Keynesian doctrine and the new economics of low unemployment.

I know something of this counterrevolution because I was trained by Keynesians at the University of Manitoba in the 1960s including one who had done graduate work at the University of Chicago and another who knew the work of Hyman Minsky whose work predicted the kind of financial crisis and crash we experienced. I then was taught by monetarists like Harry Johnson as well as more heterodox thinkers like A. Sen and Michio Morishima in the early 1970s at the LSE. During my career I witnessed the triumph of the anti- Keynesians to the point that I sought refuge in a department of political science. I also witnessed the beginning of the rise of Margaret Thatcher while I was a graduate student in the U.K. But Milton Friedman, Margaret Thatcher, and Harry Johnson who coined the phrase the monetarist counterrevolution are all history now. It is more than forty years later.

An epoch is coming to a close. Like all epochs birthing a new one is often unclear, confusing  and painful as it unfolds but unfold it must. The intellectual supports for this old anti-Keynesian epoch are no longer viable. Inflation is nowhere the threat for the moment despite a substantial experiment with quantitative easing and deficit finance over a period of more than four years. The results have been less that hoped for . But that is not because the theories are flawed but because adjustments are needed in the strategy. Pressing on the brakes through austerity while at the same time seeking to stimulate through deficit spending does not work efficiently and results in unnecessary frictions and too slow a process of recovery. Entrepreneurial animal spirits are reawakening. New innovations, products and technologies are developing. American real estate markets are slowly recovering. Distributional reforms are actively being discussed. Globalization and offshoring continue to be a complexity. The body politic is awake and increasingly vigilant. Some of the self- limiting and self-directing qualities of the market driven cycle are returning.

The liberal humanist hour is nearly upon us. As the old epoch recedes the new one is taking shape to replace it. It simply needs a boost from the fiscal tax and expenditure side to enable it to do the necessary work. If this were to be done the unemployment rate would continue its downward path and fall below 6 %. In North America with the help of the Fed, the Bank of Canada and the Bank of Japan this kind of stimulus would be enough to assure the likelihood of the path to a faster recovery. If Europe were to switch from austerity to stimulus the path would be accelerated. According to several prominent members of the French Government, Chancellor Merkel is one of the last remaining holdouts opposed to a switch in policy. There are big stakes in play here. Germany and France are at the heart of the European project. It is important for the decision takers to understand that the future of the EU common currency and the future well being of millions of Europeans as well citizens from all over the globe are in play. The pendulum is swinging. All it needs is one last powerful push in the Keynesian direction.


About haroldchorneyeconomist

I am Professor of political economy at Concordia university in Montréal, Québec, Canada. I received my B.A.Hons (econ.&poli sci) from the University of Manitoba. I also completed my M.A. degree in economics there. Went on to spend two years at the London School of Economics as a Ph.D. student in economics and then completed my Ph.D. in political economy at the University of Toronto. Was named a John W.Dafoe fellow, a CMHC fellow and a Canada Council fellow. I also was named a Woodrow Wilson fellow in 1968 after completing my first class honours undergraduate degree. Worked as an economist in the area of education, labour economics and as the senior economist with the Manitoba Housing and Renewal Corporation for the Government of Manitoba from 1972 to 1978. I also have worked as an economic consultant for MDT socio-economic consultants and have been consulted on urban planning, health policy, linguistic duality and public sector finance questions by the governments of Manitoba, Saskatchewan,the cities of Regina and Saskatoon, Ontario and the Federal government of Canada. I have also been consulted by senior leaders of the British Labour party, MPs from the Progressive Conservative party, the Liberal party and the New Democrats on economic policy questions. Members of the Government of France under the Presidency of Francois Mitterand discussed my work on public sector deficits. I have also run for elected office at the municipal level. I first began to write about quantitative easing as a useful policy option during the early 1980s.
This entry was posted in austerity, business cycles, deficit hysteria, deficits and debt, European debt crisis, European unemployment, fiscal policy, France politics+economy, full employment, Greek sovereign debt crisis, Italian debt crisis, J.M.Keynes, Keynesian multiplier, monetary policy, Uncategorized and tagged , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s