Financial and Economic Meltdown: Austerity, Recession, Growth- What would have Keynes suggested?

: Written by: Kamran Mofid; Published: 23 July 2012; Hits: 3912

What would John Maynard Keynes, one of the most influential economists of the 20th Century, have made of the current economic situation, ponders philosopher John Gray.

“The influential Cambridge economist has figured prominently in the anxious debates that have gone on since the crash of 2007-2008. For most of those invoking his name, he was a kind of social engineer, who urged using the power of government to lift the economy out of the devastating depression of the 30s…

…But would Keynes be today what is described as a Keynesian? Would this supremely subtle and sceptical mind still believe that policies he formulated long ago - which worked well in the decades after the World War II - can solve our problems now?...

Intimately familiar with the history of economic thought and widely read in many fields, producing a major treatise on the nature of probability alongside his famous General Theory of Employment, Interest and Money and a host of penetrating essays, Keynes had a depth of culture that few economists could claim today…

…Influenced by the Cambridge philosopher GE Moore, they thought the only things that had value in themselves were love, beauty and the pursuit of knowledge.

Keynes viewed his early philosophy as being entirely rational and scientific in character. Yet it was also his religion, he tells us - the faith by which he and his friends lived. And, in many ways, it was not a bad faith to live by. It armed him against idolatry of the market, which he described as "the worm that had been gnawing at the insides of modern civilisation... the over-valuation of the economic criterion". To identify the goods that can be added up in an economic calculus with the good life was for Keynes - young and old - a fundamental error. The market was made for human beings - not human beings to serve the market.”

The big question is: would Keynes today have sanctioned the increased government expenditures to stimulate the economy and returning it to growth?

“It's hard to imagine Keynes sharing such a simple-minded view. As he would surely recognise, the problem isn't just a deepening recession, however serious. We face a conjunction of three large events - the implosion of the debt-based finance-capitalism that developed over the past twenty years or so, a fracturing of the euro resulting from fatal faults in its design, and the ongoing shift of economic power from the west to the fast-developing countries of the east and south.

Interacting with each other, these crises have created a global crisis that old-fashioned Keynesian policies cannot deal with. Yet it's still Keynes from whom we have most to learn. Not Keynes the economic engineer, who is invoked by his disciples today. But Keynes the sceptic, who understood that markets are as prone to fits of madness as any other human institution and who tried to envisage a more intelligent variety of capitalism…

I suspect Keynes would be just as sceptical about the prospect of returning to growth. With our ageing populations and overhang of debt, there's little prospect of developed societies keeping up with the rapid expansion that is going on in emerging countries. Wouldn't we be better off thinking about how we can enjoy a good life in conditions of low growth?

Keynes's most important lesson is to let go of inherited ideas. If we cling to the panaceas of earlier times, we risk losing the civilisation we have inherited. This is the truly Keynesian insight that our leaders - airily floating above the dangerous undercurrents of popular feeling like the water-spiders of Bloomsbury - have yet to grasp.”- John Gray

Keynes had a depth of culture that few economists could claim today…

…Influenced by the Cambridge philosopher GE Moore, they thought the only things that had value in themselves were love, beauty and the pursuit of knowledge.

I am delighted and honoured for Keynes influence on me:

… It was at this difficult time that I came to understand that I needed to bring spirituality, compassion, ethics and morality back into economics itself, to make this dismal science once again relevant to and concerned with the common good. It was now that I made the following discoveries:

•Living happily is “the desire of us all, but our minds is blinded to a clear vision of just what it is that makes life happy”. The root of happiness is ethical behaviour, and thus the ancient idea of moral education and cultivation, is essential to ideal of joyfulness.

•The focus of economics should be on the benefit and the bounty that the economy produces, on how to let this bounty increase, and how to share the benefits justly among the people for the common good, removing the evils that hinder this process. Moreover, economic investigation should be accompanied by research into subjects such as anthropology, philosophy, politics and most importantly, theology, to give insight into our own mystery, as no economic theory or no economist can say who we are, where have we come from or where we are going to. Humankind must be respected as the centre of creation and not relegated by more short term economic interests.

•‘Economic rationality’ in the shape of neo-liberal globalisation is socially and politically suicidal. Justice and democracy are sacrificed on the altar of a mythical market as forces outside society rather than creations of it. However, free markets do not exist in a vacuum. They require a set of impartiality in government, honesty, justice, and public spiritedness in business. The best safeguard against fraud, theft, and injustice in markets are the cardinal virtues of justice, temperance, fortitude, and prudence, and the theological virtues of faith, hope, and charity.

The marketplace is not just an economic sphere, ‘it is a region of the human spirit’. Profound economic questions are divine in nature; in contrast to what is assumed today, they should be concerned with the world of the heart and spirit. Although self-interest is an important source of human motivation, driving the decisions we make in the marketplace every day, those decisions nevertheless have a moral, ethical and spiritual content, because each decision we make affects not only ourselves but others too. We must combine the need for economic efficiency with the need for social justice and environmental sustainability.

The greatest achievement of modern globalisation will eventually come to be seen as the opening up of possibilities to build a humane and spiritually enriched globalised world through the universalising and globalising of compassion. But for ‘others’ to become ‘us’, for the world to become intimate with itself, we have to get to know each other better than we do now. Prejudices have to disappear: we have to see that the cultural, religious and ethnic differences reflect an ultimate creative principle. For this to happen, the great cultures and religions need to enter into genuine dialogue with each other.- Kamran Mofid