LONDON – Niall Ferguson begins his rejoinder to my rejoinder to his interpretation of the results of the United Kingdom’s recent general election by citing an apocryphal Keynes quote: “If the facts change, I change my opinion. What do you do, sir?” But should the fact that the British economy grew last year by 2.6% have caused Keynesians to change their minds? Would it have caused Keynes to rewrite his General Theory of Employment, Interest and Money?
Ferguson seems to think so. I do not.
Keynes never thought that an economy, felled by a shock, would remain on the floor. There would always be some rebound, regardless of government policy. What he emphasized was the “time-element” in the cycle. With depressed profit expectations, an economy could remain in a semi-slump for years. There would be alternating periods of recovery and collapse, but this oscillation would occur around an anemic average level of activity.
Neither the suddenness of the financial collapse of 2008-2009 nor the sluggishness of the recovery since then would have led Keynes to change his mind; nor has it discredited the claims of today’s Keynesians. While Ferguson includes several quotes from my past commentaries, he omits a very important passage: “All economies recover in the end. The question is how fast and how far.” The task of government was – and remains – to strengthen whatever “natural forces” of recovery exist, if necessary by providing businesses with a larger market, and, beyond this, to offset the inherent volatility of private investment through a stable program of public investment.