Can Keynes Save Us All?

A short answer is no, and that's the conclusion of this interesting piece by Nobel Prize winner in economics (2006) Edmund Phelps in FT.

This bit is my favourite, at the very end of the piece:

Capitalism theory stresses diversity in sources of new commercial ideas, in the pool of entrepreneurs available for their development, in sources of finance – angel investors, venture capitalists and the rest – and in the array of end users.

It also stresses how important it is that owners of financial and business enterprises be accountable to no one (except their own consciences) – thus free to use their intuition – in contrast to the strict accountability rightly required of state employees. Thus a greatly increased presence of the central government in a country’s investment sector could constrict innovation and lower the quality of the innovations that are made. We would be left still in a slump.

At the end of his life Keynes wrote of “modernist stuff, gone wrong and turned sour and silly”. He told his friend Friedrich Hayek he intended to re-examine his theory in his next book. He would have moved on. The admiration we all have for Keynes’s fabulous contributions should not sway us from moving on.