THE DEMAND DOCTOR
What would John Maynard
Keynes tell to do now – and should we listen?
By JOHN CASSIDY
Half a decade has passed since the bursting of a
huge asset-price bubble, and the U.S. economy is still depressed. More, than
ten million Americans are jobless, and many more are working part time. The
gross domestic product has yet to recover its pre-bust level. In Florida and
other areas where the speculative frenzy ran hot, vast developments stand
empty. Overseas, things are no better, and in some places they're worse.
Britain looks much like America. In Continental Europe, a debt crisis is
wreaking havoc. Democratically elected governments appear powerless to turn
things around. Political extremism is on the rise.
So conditions are grim
when, on New Year's Day, 1935, the English economist John Maynard Keynes mails
a letter to George Bernard Shaw. "I believe myself to be writing a book on
economic theory which will largely revolutionize ̶ not, I suppose, at once but in the course of the next ten
years—the way the world thinks about economic problems," Keynes tells his
friend. "I can't expect you, or anyone else, to believe this at the
present stage. But for myself I don't merely hope what I say,—in my own mind,
I'm quite sure." Keynes is right. When "The General Theory of
Employment, Interest and Money" appears, in February, 1936, it provides an
intellectual justification for the large-scale public-works programs that
Keynes has been advocating for years, and that F.D.R.'s Administration has
recently launched as part of the New Deal. Keynes argues against the idea that
the economy will recover on its own, and in favor of active measures—the
manipulation of public expenditures, taxes, and interest rates—to spur growth
and employment. His theory will become the keynote of a new era of economic
policy-making. The main impediment to such policies, Keynes writes, is the
lingering influence of outmoded theories:
The ideas of economists and political
philosophers, both when they are right and when they are wrong, are more
powerful than is commonly understood. Indeed the world is ruled by little else.
Practical men, who believe themselves to be quite exempt from any intellectual
influences, are usually the slaves of some defunct economist. Madmen in authority,
who hear voices in the air, are distilling their frenzy from some academic
scribbler of a few years back
Today, some regard Keynes
himself as that academic scribbler, entrancing a generation of mindless
followers. For many others, he's the economist whose sweeping theory, shaped by
a Great Depression, remains the surest guide out of our current woes. In the
wake of the global financial crisis of 2007-09, President George W. Bush and
President Barack Obama both launched tax-relief and spending initiatives
designed to stimulate growth. Nicolas Sarkozy, in France, and Gordon Brown, in
Britain, proclaimed the end of the free-market era. We were all Keynesians, and
knew it—for about five minutes.
In 2010, Britain's new
government turned away from expansionary policies and introduced major budget
cuts, making arguments that harked back to Keynes's opponents in the
nineteen-thirties, such as Friedrich Hayek, an Austrian economist who taught at
the London School of Economics. Soon Greece, Ireland, and other debt-burdened
European countries were launching ever more Draconian austerity programs. On
this side of the Atlantic, with unemployment remaining stubbornly high,
conservative economists insisted that the Keynesian medicine had failed to cure
the patient and had perhaps even worsened the disease—an argument seized upon
by Republican politicians.
"Keynesian policy and
Keynesian theory is now done," Governor Rick Perry, of Texas, declared
during a Republican Presidential candidates' debate last month. "We'll never
have that experiment on America again." The following night, however,
President Obama proposed what, in all but name, was another Keynesian stimulus
package: a four-hundred-andfifty-billion-dollar jobs program, consisting of
tax cuts and increases in federal spending.
Seventy-five years after
the publication of “The General Theory,” there is a fierce and consequential
argument about what, in Keynes’s economic theory, is living and what, as Perry
would have it, is "done." Has the global economy's stuttering
progress since 2008 demonstrated the limitations of Keynesian policies—or the
dangers of abandoning them prematurely?
The publishing industry, at least, has been
bullish on Keynes in the past few years. Robert Skidelsky, the author of a
monumental three-volume Keynes biography, responded to the financial crisis
with a new primer titled "Keynes: The Return of the Master." Another
eminent English historian, Peter Clarke, followed up with "Keynes: The
Rise, Fall and Return of the 20th Century's Most Influential Economist,"
while new collections on Keynes and Keynesianism have appeared from Cambridge
University and M.I.T. This fall, there is "Capitalist Revolutionary: John
Maynard Keynes," by Roger E. Backhouse, an economic historian at the
University of Birmingham, and Bradley W. Bateman, an economist at Denison
University; "Keynes Hayek: The Clash That Defined Modern Economics,"
by the British journalist Nicholas Wapshott; and "Grand Pursuit," a
history of economics by Sylvia Nasar, the author of "A Beautiful
Mind," which devotes many pages to Keynes and his contemporaries.
So what was the core of his
message? Before the Great Depression, most economists adhered to a Newtonian
conception of the economy as a self-correcting system. When the economy entered
a slump, businesses laid off workers and shut down factories—but these negative
trends contained their own remedy. The trick was to look at price changes.
Unemployment drove down wages (the price of labor) until firms found it
profitable to start hiring again. Idling factories drove down interest rates
(the price of borrowing) until entrepreneurs found it worthwhile to take out
loans and re-start production. Before very long, prosperity would be
restored. Attempts to hasten this process were liable to interfere with
the natural forces of adjustment and make things worse. As Hayek wrote in
“prices and Production” (1931), “The only way permanetly to ‘mobilize’ all
available resources is . . . not to use artificial stimulants—whether during a
crisis or thereafter—but to leave it to time to effect a permanent cure."
In "The General
Theory," Keynes took aim at this view of the world. His central insight
was that the economy was driven not by prices but by what he called
"effective demand"—the over-all level of demand for goods and
services, whether cars or meals in fancy restaurants. If car manufacturers
perceived that the demand for their products was lagging, they wouldn't hire
new workers, however low wages fell. If a restaurateur had vacant tables night
after night, he would have no incentive to borrow money and open a new venture,
even if his bank was offering him cheap loans. In such a situation, the economy
could easily remain stuck in a rut, until some outside agency—the government
was Keynes's favored candidate—intervened and spurred spending. Only then would
private businesses be emboldened to expand production and hire workers.
Nasar, in her capacious and
absorbing book, makes the key point well:
What made the General Theory so radical was Keynes's proof that it was possible for a free market economy to settle into states
in which workers and machines remained idle for prolonged periods of time. . .
. The only way to revive business confidence and get the private sector
spending again was by cutting taxes and letting business and individuals keep
more of their income so they could spend it. Or, better yet, having the
government spend more money directly, since that would guarantee that 100
percent of it would be spent rather than saved. If the private sector couldn't
or wouldn't spend, the government would have to do it. For Keynes, the
government had to be prepared to act as the spender of last resort, just as the
central bank acted as the lender of last resort.
For three decades after the
Second World War, Keynes's theory provided the framework for policymaking on
both sides of the Atlantic. The West enjoyed a time of rapid growth and rising
standards of living, and although it would be simplistic to ascribe these
trends solely to the prescriptions of policymakers, economists who balked at
Keynesian doctrine were often cast aside.
Three-quarters of a century
later, Keynes’s notion of “effective demand,” nowusually called
“aggregate demand,” is stilll a mainstaty of policy making around the world.
Whenever the economy stumbles and unemployment starts climbing, discussion
inevitably centers on what can be done to boost spending and investment. Few
economists, on the left or the right, seriously advise the government to sit on
its hands and let the price system work its magic. Rather, the conversation
turns on what methods the authorities should use to stimulate the economy,
besides cutting interest rates. Liberal economists, like Paul Krugman and
Joseph Stiglitz, usually favor infrastructure spending. Conservative
economists, like Greg Mankiw and Glenn Hubbard, tend to prefer tax cuts. But
neither group questions the need for the government to step in and bolster
demand.
In the course of his career, Keynes advocated tax cuts and
interest-rate cuts, but he didn't limit himself to those measures. During the
nineteen-twenties, when the unemployment rate reached double figures, and
British monetary policy was hamstrung by the gold standard, Keynes called for
additional spending on public housing, roadworks, and other civic projects.
"Let us be up and doing, using our idle resources to increase our
wealth," he wrote in 1928. "With men and plants unemployed, it is
ridiculous to say that we cannot afford these new developments. It is precisely
with these plants and these men that we shall afford them."
With the onset of the Great
Depression, Keynes stepped up his calls for action. But, as outlays on
unemployment benefits increased and tax revenues declined, the budget deficit
ballooned, generating alarm at His Majesty's Treasury. In the summer of 1931,
the government made deep spending cuts, intending to restore confidence in
government finances. Keynes warned that the effect would be to worsen the
slump, throwing more people out of work. He said that budget deficits were a
by-product of recessions, and that they served a useful purpose. “For
government borrowing of one kind or another is nature’s remedy, so to speak,
for preventing business losses from being, in so severe a slump as the present
one, so great ass to bring production altogether to a standstill.”
As the Depression deepened,
seeming to confirm his warnings, Keynes sharpened his theoretical arguments. In
1933, drawing on an article by his student Richard Kahn, he made the case that
one dollar of additional government spending—on a new railway station,
say—could ultimately generate two dollars, or even more, in additional output
and income. This was the so-called "multiplies'' effect. As the unemployed
were set to work on public projects, he reasoned, they would spend their wages
on other goods and services, which would prompt businesses to take on more
workers. Those workers, in turn, would spend more, leading to further hiring,
and so on. What's more, all of these newly employed workers would be paying
taxes, which would bring down the budget deficit. "It is a complete
mistake to believe that there is a dilemma between schemes for increasing
employment and schemes for balancing the Budget," Keynes wrote.
"There is no possibility of balancing the Budget except by increasing the
national income, which is much the same thing as increasing employment."
In Keynes's day, many
people—including politicians sympathetic to Keynes—were suspicious of the
multiplier. The whole thing smacked of sophistry. Wapshott, in a long overdue
and well-researched book that usefully gathers together much hitherto scattered
information, recounts Keynes's 1934 visit to the White House, where he
expounded the logic of the multiplier to F.D.R. After he left, Roosevelt remarked
to Frances Perkins, his Labor Secretary, "I saw your friend Keynes. He
left a whole rigmarole of figures. He must be a mathematician rather than a
political economist." Despite the enormous public-works projects of the
New Deal, F.D.R. didn't formally adopt deficit spending as a policy tool.
Indeed, he kept a keen eye on the red ink. In 1937, with the economy on the
mend, he ordered tax hikes and spending cuts, which caused the economy to
crater again. President Truman was even more suspicious of Keynesian
theorizing. “nobody can ever convince me that Government can spend a dollar
thatit’s not got,” he to Leon Keyserling, a Keynesian economist who chaired his
Council of Economic Advisers. "I'm just a country boy."
The multiplier continues to
spark controversy. Echoing the arguments that Keynes's opponents at the
Treasury made during the nineteen-thirties, conservative economists like Robert
Barro, at Harvard, argue that it is close to zero: for every dollar the
government borrows and spends, spending elsewhere in the economy falls by
almost the same amount. Whenever individuals see the government boosting
spending or cutting taxes on a temporary basis, Barro maintains, they figure
that these policies will eventually have to be paid for in the form of higher
taxes. As a result, they set aside extra money in savings, which cancels out
the stimulus.
Barro's caution may apply
in certain conditions—say, a highly indebted economy with close to full
employment. It's certainly true that the Keynesian multiplier varies according
to how stimulus funds are spent; how the central bank reacts to higher
government spending (if it raises interest rates, interest-sensitive spending
will fall, reducing the multiplier); and, most important, whether workers and
machinery are lying idle. But Keynes didn't advocate deficit spending for an
economy at full employment. It was only when the economy was in a deep slump,
he thought, that higher output "could be provided without much change of
price by home resources which are at present unemployed."
This jibes with history.
Immediately before and during the Second World War, the U.S. government
borrowed unprecedented sums to finance the military buildup, and the economy
finally recovered from the Great Depression. In 1937, one in seven American
workers was jobless; in 1944, one in a hundred was. A wartime economy may
present a special case, but a recent working paper by the National Bureau of
Economc Research looked at data going back to 1980 and found that government investments
in infrastructure and civic projects had a multiplier of 1.8—pretty dose to
Keynes's estimate.
So why didn't the Obama Administration's 2009
stimulus package usher in a true recovery? Keynes would have pointed out that,
with households and firms intent on paying down debts and building up their
savings in the aftermath of a credit binge, large-scale deficit spending is
needed merely to prevent a recession from turning into a depression. With
interest rates already close to zero, Keynes would have argued that the economy
was stuck in a "liquidity trap," greatly limiting the Federal
Reserve's scope for further action. He would also have noted that the stimulus
was—especially compared with the devastation it meant to address—rather small:
equivalent to less than two per cent of G.D.P. a year for three years. Even
this overstates its magnitude, given that much of the increase in federal
spending was offset by budget cuts at the state and local levels. In its
totality, government spending didn't increase much at all. Between 2007 and the
first half of this year, it rose by about three per cent in real dollars.
Besides, recovering from a
financial meltdown requires more than government spending: the banking system
has to be recapitalized (in the nineteen-nineties, Japan's cash-hoarding
"zombie banks" were a drag on its stimulus programs); bad debts have
to be written down; sector-specific problems must be addressed. Following the
crisis of 2008, both the Bush and the Obama Administrations moved promptly to
shore up the banking system, but they neglected to deal with the housing
debacle. A more effective mortgage-modification program for homeowners who are
under water on their loans would have helped. In 2009, when the Obama
Administration launched a refinancing program, it predicted that between three
and four million people would get some relief, but so far fewer than one
million mortgages have been modified. The lingering effects of the housing
crisis continue to weigh down the rest of the economy.
Finally, Keynes would have
directed our attention to international problems. A confirmed internationalist,
Keynes would undoubtedly have supported the head of the Chinese central bank's
call, in 2009, for the creation of a new global reserve currency to be issued and
controlled by the International Monetary Fund. (Keynes proposed almost
precisely the same thing in 1944, at Bretton Woods, where he helped design a
new international economic system, but the Americans ruled it out.) The
rationale is that if the issuer of the reserve currency acts irresponsibly, the
rest of the world is at its mercy, so it might be better to have an
international currency that no single country controls. For now, the Chinese
proposal has gone nowhere; the world's focus is elsewhere. But, as the Asian
economies continue their rise, it is sure to come back onto the agenda.
And Keynes would have had
strong views about the European sovereign-debt crisis. The U.K. economy of his
day, like the current U.S. economy, was dependent on global capital flows, and
Keynes knew what excessive government debts could do to an economy. In 1919, he
was an adviser to the British delegation at the peace talks in Paris, which
saddled Germany and Austria with crushing debts. Outraged by this
Carthaginian settlement, he wrote his first best-seller, "The Economic
Consequences of the Peace," warning that the Versailles Treaty would prove
disastrous for the victors as well as for the defeated. Today, he would be
advocating major debt write-downs for countries like Greece and Portugal. The
so-called "rescue packages" that these nations have received in
recent years have barely reduced their debt, while the austerity policies
imposed on them have plunged their economies deeper into the abyss, exactly as
Keynesian theory would predict.
Indeed, these days the
strongest evidence for Keynesianism has been negative. The recent slowdown in
the U.S. economy occurred just as Obama's 2009 stimulus package was running
dry. The U.K. economy provides an even more striking case study. As in this
country, the authorities reacted to the 2008 financial crisis by cutting
interest rates, boosting public expenditure, and allowing the budget deficit to
rise sharply. In 2009 and in the first part of 2010, the economy began to
recover. But since the middle of last year, when the Conservative-Liberal
coalition announced substantial budget cuts to balance the budget, growth has
virtually disappeared. "The reason the current strategy will fail was
succinctly stated by John Maynard Keybes,” Robert Skidelsky and the economist
Felix Martin wrote in the Fiancial
Times recently.
"Growth depends on aggregate demand. If you reduce aggregate demand, you
reduce growth."
Yet Keynes was anything but a spendthrift. When
deficits and debts reached historically high levels, he believed, it was
necessary to spell out how they would be reduced in the long term. As Backhouse
and Bateman observe in their timely and provocative reappraisal, Keynes never
said that deficits don't matter (the lesson that Dick Cheney reportedly drew
from President Reagan). He believed not only that large-scale deficit spending
should be confined to recessions, when business investment was unusually
curtailed, but that it should be directed mainly toward long-term capital
projects that eventually would pay for themselves.' When some of his followers,
by way of postwar planning, advocated using tax cuts and deficit spending to
"fine-tune" the economy on an ongoing basis, Keynes struck a note of
caution. "If serious unemployment does develop, deficit financing is
absolutely certain to happen, and I should like to keep free to object
hereafter to the more objectionable forms of it," he wrote.
If Keynes was scarcely the
deficit dove some take him to be, efforts to portray him as some sort of
socialist are even more risible. When he wasn't busy writing, teaching, or
advising governments, he wagered on the global markets in the manner of a
modern hedge-fund manager. He also sewed as the director of an insurance
company and as the portfolio manager of the King's College endowment. An Old
Etonian and the son of a Cambridge economist, he never made any pretense about
his privileged background, or where his social and political sympathies lay.
"If I am going to pursue sectional interests at all, I shall pursue my
own," he wrote in the nineteen-twenties. "The Class war will find me on the side of the educatedbourgeoisie."
As the Depression
proceeded, and some of Keynes's colleagues and students turned to Comunism,
Keynes declared the theory of Marxism to be “complicated hocus
pocus." When Beatrice and Sidney Webb, the Fabian grandees, went to
Russia and returned proclaiming Stalinism to be the way of the future, Keynes
was, as Nasar recounts, aghast. Asked to contribute to an essay collection for
Beatrice's eightieth birthday, he said the only sentence that came to him was
"Mrs. Webb, not being a Soviet politician, has managed to survive to the
age of eighty."
Astute conservatives have
sometimes acknowledged that, fundamentally, Keynes was one of them. He came not
to bury free enterprise but to save it from itself. "It is certain that
the view inevitably associated with present-day capitalistic
individualism," he wrote in his magnum opus. "But it may be possible
by a right analysis of the problem to cure the disease whilst preserving
efficiency and freedom." During the Second World War, some economists
hailed the introduction of price controls and central planning; Keynes viewed
this policy as a temporary expedient that shouldn't be sustained. He even had
praise for Hayek's controversial book "The Road to Serfdom" (1944),
which compared wartime Britain to Soviet Russia and Nazi Germany. "Morally
and philosophically," he wrote to Hayek, "I find myself in agreement
with virtually the whole of it."
Keynes's Republican
critics, as you'd guess, have more in common with him than they let on.
Representative Paul Ryan, who is now railing against "the discredited
economic playbook of borrow-and-spend Keynesian policies," was, as the
commentator Jonathan Chait has pointed out, a strong supporter of cutting taxes
on classic Keynesian grounds—to boost spending and reinvigorate a struggling
economy. In a February, 2001, hearing devoted to the fiscal proposals of the
recently elected George W. Bush, Ryan said, "I like my porridge hot. I
think we ought to have this income tax cut fast, deeper, retroactive to January
1st, to make sure we get a good punch into the economy, juice the
economy to makesure that we can avoid a hard landing.”
Both Democratic and Republican
Administrations have supported stimulus programs; what they disagree on is how
to structure and pay for them. Democrats, while pointing out that such programs
generate additional tax revenues, have stopped short of claiming that they are
entirely self-financing. Republicans have respected no such limits in selling
the tax cuts they favor. Going back to the writings of Arthur Laffer, a
Stanford-trained economist who advised President Reagan, some of them have
claimed that tax cuts, by prompting people to work harder and invest more, can
actually reduce the deficit. And where did Latter get this idea? In a 2004
article entitled "The Laffer Curve: Past, Present, and Future," he
cited a passage of "The Means to Prosperity" in which Keynes
wrote:
Nor should the argument seem strange that
taxation may be so high as to defeat its object, and that, given sufficient
time to gather the fruits, a reduction of taxation will run a better chance
than an increase of balancing the budget. For to take the opposite view today
is to resemble a manufacturer who, running at a loss, decides to raise his
price, and when his declining sales increase the loss, wrapping himself in the
rectitude of plain arithmetic, decides that prudence requires him to raise the
price still more.
Reaganomics, too, was a
species of Keynesianism.
But any attempt to
categorize Keynes along traditional left-right lines is apt to founder. In his
life and in his theorizing, he delighted in paradox. As a young man, he had
affairs with men, like the Bloomsbury exquisite Duncan Grant; at forty-two, he
married a Russian ballerina and settled down with her until his death, twenty
years later. A critic of the British financial establishment in the twenties
and thirties, he ended his days as one of its pillars.
Even his great intellectual
contribution—the notion that economies can remain in an "equilibrium"
state with mass unemployment—defies easy explanation. How exactly does it come
about? Not simply because, as textbooks often suggest, prices and wages get
"stuck," maybe asa result of union contracts, Keynes was convinced
that, even if wages and prices are flexible, the economy could remath mired.
Any economy was capable ofwhat modem economists call "multiple
equilibria"; different stable points of functioning, at levels, ranging
from penury to prosperity.
In particular, Keynes
understood how a financially driven economy, like ours, can go into
self-sustaining downward spirals (and upward spirals) under the influence of
crowd psychology and chronic uncertainty about the future. In the classical
scheme of things, banks and financial markets are treated as abstractions,
which effortlessly convert savings (money) into investment (forms of capital
like factories or computers). Keynes pointed out that the link between savings
and investment was far from straightforward. It relied on people who are
looking to make quick profits, and who are susceptible to shortsightedness,
herd behavior, and panic. "Speculators may do no harm as bubbles on a
steady stream of enterprise," he commented. "But the position is
serious when enterprise becomes a bubble on the whirlpool of speculation. When
the capital development of a country becomes a by-product of the activities of
a casino, the job is likely to be ill-done."
The problem isn't that Wall
Street traders are reckless or stupid; Keynes had a wary respect for their
smarts. The problem is that our investment choices can never be truly
rationalized. "If we speak frankly," Keynes wrote, "we have to
admit that our basis of knowledge for estimating the yield ten years hence of a
railway, a copper mine, a textile factory, the goodwill of a patent medicine,
an Atlantic liner, a building in the City of London amounts to little and
sometimes to nothing." Keynes distinguished this sort of incalculable
uncertainty from quantifiable risk—the risk, say, that your straight flush will
be trumped by four of a kind, or that you will be killed at Russian roulette.
When you decide to build a factory or take a flyer on the stock market, the arithmetic
of probability and rational decision theory provide no real guidance. Such
decisions can be taken, Keynes wrote, only as a result of "animal
spirits—of spontaneous urge to action rather than inaction, and not as the
outcome of a weighted average of quantitative benefits multiplied by
quantitative probabilities."
In a boom, when animal
spirits are high, businesses and entrepreneurs are brimming with investment
projects, which banks and other financial institutions are all too eager to
finance. After a bust, the opposite applies. In Keynes's words, "If the
animal spirits are dimmed and the spontaneous optimism falters, leaving us to
depend on nothing but a mathematical expectation, enterprise will fade and
die—though fears of loss may have a basis no more reasonable than hopes of
profit had before." Five years ago, banks were extending mortgages to
anybody who walked in the door; today, many good borrowers can't get credit.
Corporate America, after jettisoning workers by the millions to preserve profits,
is sitting on billions of dollars of cash. American households, known
everywhere for their prodigal ways, have discovered the virtues of saving and
thrift.
Keynes's recognition of the
irreducible role played by "animal spirits" points to the vanity of
supposing that the economy could be wholly mastered—the dreams nurtured by the
postwar generations of economic policymakers of playing the economy like an
organist at his console. Keynes himself underestimated the difficulties of
trying to maintain expansionary, full-employment policies for long periods. In
"The General Theory," he wrote that the remedy for the business cycle
"is not to be found in abolishing booms and thus keeping us in a
semi-slump; but in abolishing slumps and thus keeping us permanently in a
quasi-boom." When governments tried to adhere to this advice, they
eventually ran into problems. In the nineteen-seventies, inflation and
unemployment rose simultaneously, a phenomenon known as stagflation. Keynesian
economists and policymakers struggled to respond, giving Milton Friedman and
other conservative economists the opening they needed to market a modestly
updated version of the pre-Keynesian free-market paradigm.
There was another problem
that Keynes didn't deal with adequately: preventing the sort of asset-price
bubbles—that "whirlpool of speculation"—experienced in the
nineteen-twenties. When policymakers signal that they will respond to any
setback by pumping more cheap money into the economy, they encourage
irresponsible risktaking—something Alan Greenspan discovered to our detriment.
(To be sure, many economists take inspiration from Keynes when they argue for
taxes on financial transactions in order to curb such speculation.)
Yet Keynes's own theory
should have cautioned us about its practical limitations. To revive animal
spirits and jolt an economy out of its rut, he tells us, the only option is to
bring in the government, which, because it doesn't have to answer to worried
stockholders or anxious relatives, can insure a ready demand for the output of
small and large firms: "for if effective demand is deficient not only is
the public scandal of wasted resources intolerable, but the individual
enterpriser who seeks to bring these resources into action is operating with the
odds loaded against him." All this remains true. It's just that knowing
the principle is not enough. The dutiful Keynesian policymaker must decide on a
certain level of borrowing and spending and also on when to withdraw the
stimulus. But how much additional demand does it take to make businessmen feel
optimistic when they get up in the morning? And how much debt can be sustained
without roiling markets with self-fulfilling anxiety?
There's no straightforward
calculation that will yield the ideal policy for shifting an economy from a
"bad" equilibrium to a "good" one. Writing with his
high-table air of assurance, Keynes could make it sound deceptively easy to be
a Keynesian. At the heart of his vision, however, there is an elusive combination
of boldness and humility. It calls mot merely for the management of risk
but something politically far more demanding: the acknowledgement of
uncertainty.■
