From Paul Krugman’s review of Skidelsky’s latest book on Keynes:
“At research seminars, people don’t take Keynesian theorising seriously anymore; the audience starts to whisper and giggle to each other”. So declared Robert Lucas of the University of Chicago, writing in 1980. At the time, Lucas was arguably the world’s most influential macro-economist; the influence of John Maynard Keynes, the British economist whose theory of recessions dominated economic policy for a generation after the second world war, seemed to be virtually at an end.
But Keynes, it turns out, is having the last giggle. Lucas’ “rational expectations” theory of booms and slumps has shown itself to be completely useless in the current crisis. Not only does it offer no guide for action, but it more or less asserts that market economies cannot possibly experience the kind of problems they are, in fact, experiencing now. Keynesian ecocnomics, on the other hand, which was created precisely to make sense of times like these, looks better than ever.”
Worth pondering as we see Chicago school followers of the 1980s such as Brash and Wilkinson exhumed to finish the job left incomplete by Roger Douglas under the mantra of achieving parity with Australia by 2025. The late 1980s and early 1990s was when we fell behind Australia – now that Australia is following Keynes with a significant stimulus programme and we are still following the likes of Lucas the most likely effect is that we will fall back again.