On the evening of The Chancellors’ Debate, The Knife was delighted to read a quite brilliant piece by Tim Congdon. Like most people who claim an interest in politics, I have only a veneer of knowledge of classical economics, and like most people, gut instinct comes into play.
Given who was saying it (Gordon, Blinky and chums) I had a deep rooted suspicion that Keynes was being badly misused for nefarious party political ends. Congdon clarifies the topic superbly:
“Naïve Keynesianism has its roots in some work from John Maynard Keynes, including the central chapters of his celebrated 1936 book The General Theory of Employment, Interest and Money. However, Keynes also wrote articles critical of large budget deficits and sometimes warned that monetary financing of excessive deficit could cause inflation. He specifically repudiated the idea of mechanical contra-cyclical deficit financing – labelled ‘functional finance’ by the American economist, Abba Lerner – as ‘directly contrary to men’s natural instincts about what is sensible……
……The blunders under Brown and Darling have been intellectual in origin. Contrary to its label, New Labour has looked backwards to the past to find its motivating ideas. It has resuscitated the failed interventionist nostrums associated – perhaps falsely associated – with a leading left-of-centre thinker of the early twentieth century, John Maynard Keynes. The experience of the 25 years from the announcement of the medium-term financial strategy was that monetary influences on demand, output and employment were far more powerful than fiscal, and that sound money and robust public finances are good for the economy. This was one of the most important lessons from the Thatcher years. It needs to be learned and understood by the current generation of politicians. Large budget deficits and naïve Keynesianism are a threat to Britain’s national prosperity; they should be replaced in the next government – whether Conservative or not – by a clearly-stated medium-term financial strategy and a money-focussed approach to analysing the economy. The medium-term strategy must include a pledge to restore a balanced budget over a credible and practically viable time scale.”
Come to think of it ” directly contrary to men’s natural instincts about what is sensible” says it all really. You almost feel sorry for Alistair Darling having to be His Master’s Voice.