Financial Times columnist Martin Wolf argues that the current financial crisis and global recession is best viewed through a Keynesian lens, and it's the lens of a pragmatist. Wolf sees three Keynesian themes, or lessons, that policy makers would be wise to heed.
Keynes: Markets are essential, but not perfect
The first: if you expect markets to be self-correcting and self-policing, there's trouble up ahead. Wolf: Mistakes occur, even among those who were following standard operating procedure. A market filled with bankers -- or other participants -- following standard operating procedures that were flawed leads to ... what we have today, pretty much -- a global recession and constrained credit.
The second: It's o.k. for a corporation to become more efficient, but it's not necessarily a good thing if a society or nation (or world) does so all at once. This reinforces one of Keynes's tenets: It's a good thing to have consumers amass savings, but if everyone saves everything all the time it would be a disaster.
Or, for the globalization version of the above, economist Richard Felson told BloggingStocks: "We need people in the United States to save more money, but if people in Europe, China, India, Japan, Brazil and Russia do the same thing simultaneously, the global economy will remain in a recession for a very long time."
The third: Economies are not morality tales, Wolf agreed with Keynes, but technical challenges. Technical challenges suggest a need for pragmatism: markets are neither infallible nor dispensable, so strict ideologues need not apply for leadership positions. Economist Felson asks: And hasn't case examples throughout history born Keynes out?
One could make the case that they have. Anyone who offers a Marxist, centrally-planned strategy for the bulk of an economy today would be laughed out of a seminar room (or classroom), Felson argues. For a case example, see Cuba's economy. Now, as a result of the events of 2007-2008 (financial crisis, global recession), anyone who advocates 'the market is always right' market absolutist position would be laughed at too.
Economic Analysis: Wolf, via Keynes, shows us the way home: we can preserve the market economy -- in the U.S.'s case, mixed capitalism -- but not with a minimum social safety net and not with a belief that laissez-faire leads to the best outcomes. Clearly, a pragmatist is needed, and Wolf says there's good news ahead because the people of the U.S. have elected Obama.
The view from here argues that Obama is a good sign, as well, but he'll need the help of Congressional Democrats and a few Republicans too. And not all of Obama's decisions will please some old-guard Democrats. But if Obama's pragmatism gets the U.S. economy on the path to sustainable growth, the sense here is that the American people will take it, and run with it.
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