"Bring Back Keynes" by Robert Skidelsky, in Prospect (May 1997), 4 Bedford Sq., London WC1B 3RA.

All but dead as a practical force in the councils of Western governments during the last 20 years, Keynesian economics may be ripe for revival, says Skidelsky, the biographer of John Maynard Keynes (1883–1946). But bringing that about would require a very un-Keynesian-sounding step: massive cuts in the budgets of Western governments.

Keynes himself would not have shrunk from such a step, Skidelsky suggests. Indeed, he would have been somewhat dismayed by what Keynesianism became. (One of his disciples, Joan Robinson, once famously said, "We sometimes had difficulty getting Maynard to see the point of his revolution.") At once creative, cautious, and flexible, Keynes would not have succumbed to the hubris that affected his followers during the 1960s, when Keynesian ideas seemed a foolproof guide to prosperity. He would have responded to the flaws that emerged in his General Theory (1935) simply by modifying his theories. After all, they were only a response to the problems of a particular time.

Those flaws were exposed by the wrenching "stagflation" of the 1970s and by a fierce intellectual assault led by the economist Milton Friedman. Keynesianism had no real theory of inflation and no concept of the "natural" rate of unemployment, which gauges the relationship between inflation and unemployment. Worst of all, in Skidelsky’s view, it had no theory of politics. Keynes counted on politicians to maintain a balanced budget over the course of each economic cycle, running deficits to stimulate the economy in slack times and surpluses when it started to overheat. He had nothing to say about how politicians and bureaucrats would behave once Keynesianism gave them a license to run deficits—a lacuna later addressed by the distinctly non-Keynesian "public choice" economics pioneered by Nobel prizewinner James Buchanan.

Post-Keynesian economic policy has been reduced chiefly to the control of money and prices, accomplished in the United States through the Federal Reserve Board. Especially in Europe, where unemployment is stuck at high levels, the case for reviving Keynesian "demand management" is strong, Skidelsky argues. That would involve cautious use of tax cuts or deficit spending. The problem is that most Western governments already run chronic deficits. During Keynesianism’s golden age, balanced budgets were the norm and government spending averaged 30–35 percent of gross domestic product (GDP). That, says Skidelsky, suggests that a modern Keynesian cure would have to begin with budget cuts equal to between five and 15 percent of GDP—not the kind of medicine Keynes’s earlier inheritors were known for.