PEN World Voices Report: The Neo-Keynsian Smackdown

May 8, 2009 | 3 books mentioned 1 3 min read

The Met Museum’s Rogers Auditorium last Thursday night resembled one of Rush Limbaugh’s paranoid fantasies come to life; if a bomb had gone off, much of the braintrust of American liberalism would have been wiped out. To explore “The Economic Crisis and How to Deal With It,” The New York Review of Books had convened a powerhouse panel: former senator Bill Bradley, historian Niall Ferguson, billionaire George Soros, and economists Paul Krugman, Nouriel Roubini, and Robin Wells. Nor was the starpower confined to the stage. Among an audience of 800, I spotted distinguished academics, novelists, and finance guys with their telltale khaki raincoats. Indeed, the event seemed to highlight the porousness of the borders separating finance, government, and the academy in America. The panelists and many audience members had a foot in more than one camp. And everyone, it seemed, was out for neoliberal blood.

In his opening remarks, moderator Jeff Madrick noted that “green shoots” of potential recovery had begun to appear (or to appear to appear) in the economic data of the previous few weeks. Then Bradley, having retired from politics to – surprise! – head a bank, delivered a five-minute speech on the theme, “This is not a recovery.” Without ever mentioning the word “nationalization,” he essentially advocated nationalizing the banks – the neat rhetorical trick of an ex-politician.

coverThe real excitement started, however, when Ferguson, the author of The Ascent of Money: A Financial History of the World, began pontificating on the incompatibility of Keynesian fiscal policy with Friedmanite monetary policy. The prescriptions of Dr. Keynes have “an expiration date of 1936,” he said, echoing neoliberal orthodoxy about the failure of the New Deal. Ferguson was apparently counting on the penumbral glamor of his plummy English accent to hide the holes in his macroeconomic argument.

coverBut Nobel laureate and noted neo-Keynesian Krugman, seated to his right, was visibly champing at the bit to respond. When his turn to speak arrived, he essentially pantsed Ferguson, delivering a 45-second explanation of why a global savings glut won’t dry up the market for U.S. government bonds, in terms a toddler could understand. According to Krugman, the Keynesian stimulus package and the Friedmanite actions at the Fed are compatible and appropriate responses to the economic crisis.


Roubini, known as “Dr. Doom” for predicting the financial meltdown several years early, spoke next. He seemed to feel that the possibility of a full-blown depression had been reduced, thanks to vigorous government action, to “maybe five percent.” But he predicted a long recession, with an anemic recovery. And Soros pointed out that the financial system had not come close to collapsing – that, in fact, it had collapsed last September. It will be impossible, he suggested, to rebuild the financial system without also reinventing it.

Notable at this panel were a few areas of consensus. First, all of the panelists, save Ferguson, seemed to feel that while this contraction will be the worst since the 1930s, the intervention of the Fed, the Treasury, Congress, and the IMF have staved off something far worse. (Indeed, it kind of makes you wonder whether the proposed Obama budget is so expansive partly because it contains some of the extra stimulus spending people like Krugman and Larry Summers were calling for months ago – and which would have created a stimulus bill too large to be politically viable. I seem to remember the number 5 percent of GDP being thrown around.) The panelists also seemed to agree that, at the point at which recovery starts to take hold, both the Obama Administration and the Fed are going to have to do an immediate 180-degree turnaround, shrinking the budget and the money supply without stifling growth. Because, in a sense, Ferguson is right. You can spend your way out of a recession – in fact, you have to – but you can easily spend your way right into another one. Nor are happy days going to be here again anytime soon. As Krugman put it, it’s not that things are now getting better, but that they “are getting worse less quickly.”

Bonus link: Listen to audio of this event at the PEN website.

is the author of City on Fire and A Field Guide to the North American Family. In 2017, he was named one of Granta's Best Young American Novelists.

One comment:

  1. Ferguson was right. Keynesian economics doesn't work, and didn't work in the Depression. And we can't spend our way out of this recession no matter how many trillions we spend.

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