Keynesianism isn’t the answer

From their vantage point in the celestial senior common room, John Maynard Keynes and John Kenneth Galbraith must be observing current events, if not with pleasure, then at least with the satisfaction of those whose ideas have unexpectedly been retrieved from history’s wastepaper basket.

Having watched financial markets repeat the spiral of recklessness, delusion and collateral damage that he first observed in 1929, Galbraith will no doubt have recalled his condemnation of ‘the euphoria of self-conceit’ and his view that free-market economics were never more than a rationalisation of vested interests by a greedy elite. Keynes will have been particularly pleased by Gordon Brown’s nationalisation of Royal Bank of Scotland and controlling investment in the proposed merger of Lloyds TSB and HBOS — together with his declaration that banks in which the state invests must stop paying bonuses to senior executives and dividends to ordinary shareholders, and must carry on lending to first-time buyers and small businesses through the coming recession.