Welcome back, John.
"We are all Keynesians now," said President Nixon in the early 1970s, as he came to terms with deficit financing and prices and incomes policy, inspired by the economic doctrines of the great Cambridge economist, John Maynard Keynes. In fact, he couldn't have been more wrong: Keynesianism was past its intellectual high watermark and was about to cease to become a guide for economic policy makers. Its death knell was sounded by the double whammy of the election of Margaret Thatcher in Britain (1979) and Ronald Reagan in America (1980).
That was then, this is now -- and the newspapers, in full "capitalism-in-crisis" mode, are carrying little potted biographies of Keynes while Chancellor Alistair Darling is resorting to some old-fashioned Keynesian pump-priming by talking about bringing forward some major capital spending projects.
"We are all Keynesians now," to coin a phrase and, indeed, there will not be much objection to starting huge public spending programmes earlier than planned, such as Crossrail under London or the two new Queen Elizabeth class aircraft carriers for the Royal Navy, if it helps to mitigate the impact of an inevitable economic downturn (a little history will be made on Friday when officials announce an almost certain downturn in economic growth between July and September, for the first time in 16 years).
But how much pump-priming Mr Darling can do will be limited by the country's traditional slowness in implementing big capital spending projects and by how much more he can borrow, when net public sector debt is already set to double from previous projections. More important, expectations of just what Keynesian economic policy can achieve should be limited.
Its original exponent (other than Adolf Hitler) was Franklin D Roosevelt who, though elected in 1932 on a promise to balance the budget, quickly saw the nonsense of that and started to try to lift America out of the Great Depression with a public works programme financed by federal borrowing. Though this did wonders for America's morale (and helped get FDR re-elected three times!) it's effect on the economy and unemployment was marginal. US dole queues only started to plummet when Roosevelt went on to a war economy footing as Hitler's War raged in Europe and he knew America could not forever avoid engagement in it.
The most recent exponents of a Keynesian boost to the economy are the Japanese: they embarked on pump-priming on a massive scale undreamt of by FDR or Keynes in the aftermath of their banking crisis in the 1990s, which pushed the economy into a severe deflation. But no matter how much the Japanese government borrowed and spent -- current net debt is still an incredible 195% of Japan's annual national wealth (our borrowing is around 43%) -- the economy stayed mired between deflation and sluggish growth for years (it still is).
Perhaps that's why British politicians are currently looking for quicker fixes to ameliorate what could be a very nasty downturn, especially for small businesses (Guardian economics editor Larry Elliott, who is always worth reading on such matters, says this morning that "the next two years could be among the worst Britain has experienced since 1945"). Conservative leader David Cameron said this morning that government should and offer a VAT holiday while the Government is apparently considering delaying or scrapping new flexible working rights due to come into force in the Spring (which would cost small business most). On the Daily Politics today we'll be looking at the rival plans with leading economic commentator, Will Hutton.
Also on the show: is Bill Clinton the real man to blame for the banking crisis? Dennis Sewell thinks so and he'll be arguing the case with Will. We'll also be taking a look at the new immigration minister's coming to Britain and asking the Conservatives why they're not convinced.
And as parliamentary bigwigs investigate options for relocating MPs for urgent work on the House of Commons, we take a look at possible temporary homes for our politicians with property expert Jo Eccles. All that on the Daily Politics on ³ÉÈË¿ìÊÖ2 from Noon -- for Keynesians, neo-Keynesians and non-Keynesians alike!
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