Riding in on a white horse, Keynes makes a comeback

My apologies to David D. Friedman, whom I admire greatly, but John Maynard Keynes is back in vogue. It is of course obvious, but now official, that Keynesian economics has returned over the past month and with a vengeance.

According to an article in this morning's New York Times, even groups that normally lobby for a balanced budget have declared that now is not the time. We will borrow and spend our way out of the current economic crisis. Purchasing direct ownership positions in the major banks is an even more dramatic step. What all this amounts to is a rebirth of Keynesian economics, the theory of macroeconomics that dominated the twentieth century but which, since the time or Regan, had been discredited, primarily through the work of Milton Friedman and the Chicago School, who argued for small government and free markets. One element of Keynesian theory, which became the driving principle behind American and European economic policy after the great depression, was that deficit spending is actually a good thing, and that in times of economic crisis governments and institutions should borrow money to inject into the economy. That is exactly what we are doing now. The supply-siders are running for cover. But the really interesting thing is that there are now very few supply-siders out there. Everybody seems to be arguing for more deficit spending to shore up our economy. Even George W. Bush.