Jeffrey Sachs’ Keynesian man of straw
A curious critique of Keynesianism from Jeffrey Sachs in the Financial Times today.
Sachs finds fault with all the “simplistic stimulus” measures taken by governments in recent years, from car scrappage schemes, to tax cuts and implies that monetary policy, or “adroit central banking”, would have been enough on its own to deal with the recession.
Better qualified people than me will doubtless take this argument on. But when Sachs says it was a “dubious proposition” that “a short-run fiscal boost would jump-start the economy” he’s surely erecting a straw man.
The Keynesian argument was that a fiscal boost was necessary to halt a perilous downward economic spiral (with interest rates already at virtually zero), not that it would set economies neatly back on the pre-recession growth path and enable us all to return to business as usual as if nothing had happened.
Most Keynesians are just as concerned about excessive private consumption in certain developed nations and mounting sovereign debt as Sachs is. And they want these problems to be addressed over the medium term. Their argument is that in a Keynesian moment – zero interest rates, a collapse in private sector demand – Keynesian stimulus is called for.
UPDATE: I said better qualified people would take on Sachs. And they have. Here’s Brad DeLong, of UC Berkeley.Tagged in: Jeffrey Sachs, keynes
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