velasco107_Tim GidalPicture PostHulton ArchiveGetty Images_keynes Tim Gidal/Picture Post/Hulton Archive/Getty Images

Are We All Keynesians Again?

A common refrain nowadays is that after COVID-19, Milton Friedman is out and John Maynard Keynes is in. But if, as the famous quote often attributed to Richard Nixon puts it, “we are all Keynesians now,” we must remember what Keynes taught: fiscal policy should be tightened during good times, precisely so that it can be expansionary during bad times.

LONDON – Among the pieties repeated at every online COVID-19 conference, one is universally acknowledged: the pandemic has ushered in an era of larger, more robust state intervention in the economy. But what does this mean for the future? In what areas of economic life should and can the state do more?

Many believe that governments should address inequities and redistribute more income, or that they should fight climate change more aggressively. Those are two urgent priorities. But, given that COVID-19 is a shock that caught almost every country unprepared, the natural starting point is to prod governments to provide more and better social insurance against shocks.  

Walter Bagehot, one of the earliest editors of The Economist, called on governments and central banks to be lenders of last resort. The current crisis has confirmed that when confronted with a shock this large, governments are also to be insurers of last resort. No private entity could simultaneously provide and finance the indispensable public-health response, pay furloughed workers’ wages, save jobs by lending to cash-strapped firms, and make emergency transfers to vulnerable families. Only states can do that.

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