Obama Gives A Shout-out To Keynes

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THE PLANK JANUARY 20, 2009

Obama Gives A Shout-out To Keynes

I think I detected some good old Keynesianism in this passage:

Our workers are no less productive than when this crisis began. Our
minds are no less inventive, our goods and services no less needed than
they were last week or last month or last year. Our capacity remains
undiminished. But our time of standing pat, of protecting narrow
interests and putting off unpleasant decisions--that time has surely
passed.

Orthodox economic thought held that recessions were necessary to purge unproductive elements from the syste-- bad investments would go bust, wages would fall, uncompetitive businesses woud cease to exist, and only then could sustainable growth resume. Keynesianism held, by contrast, that in a recession there firms and workers are idle who could otherwise be producing needed goods and services, and that it was the responsibility of government to restore adequate demand to the marketplace. This is now conventional wisdom among economists, though many conservatives outside of academic economics (such as in elected politics) still hew to some version of the old pre-Keynesian orthodoxy.

That passage in Obama's speech was a confident-sounding note, but I think there was more at work there than mere cheerleading for the U.S. economy.

--Jonathan Chait

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