John Maynard Keynes

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John Maynard Keynes : biography

5 June 1883 – 21 April 1946

Economist Robert Shiller had begun advocating robust government intervention to tackle the financial crises, specifically citing Keynes.

Nobel laureate Paul Krugman also actively argued the case for vigorous Keynesian intervention in the economy in his columns for the New York Times.

Other prominent economic commentators arguing for Keynesian government intervention to mitigate the financial crisis include George Akerlof, Brad Delong, Robert Reich, and Joseph Stiglitz.

Newspapers and other media have also cited work relating to Keynes by Hyman Minsky, Robert Skidelsky, Donald Markwell

and Axel Leijonhufvud.

A series of major bail-outs were pursued during the financial crisis, starting on 7 September with the announcement that the U.S. government was to nationalise the two government-sponsored enterprises which oversaw most of the U.S. subprime mortgage market – Fannie Mae and Freddie Mac. In October, the British Chancellor of the Exchequer referred to Keynes as he announced plans for substantial fiscal stimulus to head off the worst effects of recession, in accordance with Keynesian economic thought.

Similar policies have been adopted by other governments worldwide. 

This is in stark contrast to the action permitted to Indonesia during its financial crisis of 1997, when it was forced by the IMF to close 16 banks at the same time, prompting a bank run.

Much of the recent discussion reflected Keynes’s advocacy of international coordination of fiscal or monetary stimulus, and of international economic institutions such as the IMF and the World Bank, which many had argued should be reformed at a "new Bretton Woods" even before the crises broke out.

IMF and United Nations economists advocated a coordinated international approach to fiscal stimulus.

Donald Markwel argued that in the absence of such an international approach, there would be a risk of worsening international relations and possibly even world war arising from similar economic factors to those present during the depression of the 1930s.

By the end of December 2008, the Financial Times reported that "the sudden resurgence of Keynesian policy is a stunning reversal of the orthodoxy of the past several decades."

In December 2008, Paul Krugman released his book, The Return of Depression Economics and the Crisis of 2008, arguing that economic conditions similar to what existed during the earlier part of the 20th century had returned, making Keynesian policy prescriptions more relevant than ever. In February 2009 Shiller and George Akerlof published Animal Spirits, a book where they argue the current US stimulus package is too small as it does not take into account Keynes’s insight on the importance of confidence and expectations in determining the future behaviour of businessmen and other economic agents.

In a March 2009 speech entitled Reform the International Monetary System, Zhou Xiaochuan, the governor of the People’s Bank of China came out in favour of Keynes’s idea of a centrally managed global reserve currency. Zhou argued that it was unfortunate that part of the reason for the Bretton Woods system breaking down was the failure to adopt Keynes’s bancor. Zhou proposed a gradual move towards increased use of IMF special drawing rights (SDRs).

Although Zhou’s ideas have not yet been broadly accepted, leaders meeting in April at the 2009 G-20 London summit agreed to allow $250 billion of special drawing rights to be created by the IMF, to be distributed globally. Stimulus plans have been credited for contributing to a better than expected economic outlook by both the OECD

and the IMF,

in reports published in June and July 2009. Both organisations warned global leaders that recovery is likely to be slow, so counter recessionary measures ought not be rolled back too early. 

While the need for stimulus measures has been broadly accepted among policy makers, there has been much debate over how to fund the spending. Some leaders and institutions such as Angela Merkel