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What Would Keynes Say Now?

One hopes that governments will not have to choose between higher prices and increased taxes to finance efforts to combat the COVID-19 pandemic. But it’s not too early for policymakers to start thinking about how to pay for this particular war.

LONDON – The United Kingdom’s new Chancellor of the Exchequer, Rishi Sunak, has done what Prime Minister Boris Johnson wanted him to do following the forced resignation of Sunak’s predecessor, Sajid Javid, in February. In his March 11 budget, Sunak turned on the spending taps by unveiling a stimulus package worth £200 billion ($235 billion) over five years.

“It was a budget of which […] J.M. Keynes could have approved,” wrote political commentator Matthew Parris in The Times. And there was even more praise for Sunak’s March 17 announcement of an extra £350 billion to support UK businesses through the coronavirus pandemic. UK fiscal policy, it seems, has at last been restored to its proper place after years of austerity.

But I am skeptical about these latest “return of Keynes” stories. This is partly because there has been no principled repudiation of austerity, and partly because most of the new converts simply equate Keynes with budget deficits. In fact, Keynesian arithmetic can also point to surpluses.

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