ECONOMY-KEYNES

Global meltdown: Is it the exit of Keynesianism or its revival?

By Gurdip Singh

New Delhi, Jan 18 (UNI) It is now a clash of titans from the world of economics on the argument as to whether recent global experience testifies to the exit of Keynesianism or its revival. A scintillating debate on the subject took place at a recent seminar in the capital where divergent views were expressed on the subject by two giants from economics--Lord Meghnad Desai, Professor Emeritus at the Centre for the Study of Global Governance at the London School of Economics and Lord Robert Skidelsky, Emeritus Professor at the University of Warwick. Dr Sudipto Mundel, Emeritus Professor at the National Institute of Public Finance and Policy, gave insights into the little known side of Keynes. Lord Desai, who is also a member of the House of Lords, said while Keynes did develop an elaborate theory on unemployment and underemployment in a state of depression, he, however, did not delve at any great length on the riddle of inflation. He said Keynes spoke about full employment and how demand could be generated to reach this state, the missing link being the present day phenomena in many economies of tackling inflation. Visualising this, classical monetary economists like Milton Friedman put the blame of inflation on the doorsteps of excessive money supply and slow growth for the lack of it. He, however, acknowledged the great contribution that Keynes had made to macroeconomic theory by developing tools of analysis which remain useful till today, such as the investment curve, the consumption function and the concept of Marginal Propensity to Save or its mirror opposite Marginal Propensity to Consume. The other big concepts that Keynes gave to economics included liquidity preference and the Aggregate demand and Aggregate Supply model. Dr Skidelsky said while Keynes did not develop a well worked out theory on inflation, the monetarist school did not give any significant answer to the problem of unemployment, a curse which plagues the developing world and now and then the developed economies. He said Keynesianism has witnessed a remarkable come back in the immediate aftermath of the global financial crisis which witnessed governments the world over instituting fiscal stimulus packages to stop the economic slide getting into depression. The event was organised jointly by the New Delhi-based Shri Ram Centre for Industrial Relations and Human Resources and Federation of Indian Chambers of Commerce and Industry (FICCI). The theme of the seminar was ''Global Economic Crisis: Back to Keynes?''Lord Skidelsky is the celebrated author of the three-volume biography of John Maynard Keynes, entitled ''Keynes:The Return of the Master''. It was during the Great Depression of the 1930s that Keynes in his General Theory had argued for a large scale public works programme to stimulate demand and by doing so had put the Apple Cart upside down of the classical economists who opined that supply will create its own demand or consumption. In a state of depressed economic activity, private enterprise could not be expected to undertake investments due to poor demand. It was thus for the government to step in and create demand by giving employment to people by undertaking huge public works programmes. Lord Desai said during the recent global crisis ''two dogs did not bark''. In India, there was no clamour for going back on liberalisation and integration of the Indian economy with the global economy. Secondly, the Left in Europe did not make a mark anywhere.The entire debate globally centred on reforming the global institutions and economy. The arguments advanced favoured immediate revival of the global economy and also on setting up regulatory mechanisms to bring checks and balances in the system. He said this was also the theme of the G20 meetings in which India played a prominent role and suggested ways and means to step up economic activity relating to the global economy and reform of the international institutions and the prevailing order. Lord Skidelsky described the resort to fiscal stimulus packages by various countries of the world as a ''remarkable second coming back of Kenynesianisms''. He spoke of the ''enduring power of the common sense of Keynes'', for its applicability never ceases to exist. Lord Skidelsky said, ''although the financial crash has been an iconic example of the importance of 'uncertainty' in economic life, the volatility of financial markets, the speed of change of output and the sluggishness of wage and price adjustments, the Keynesian model has not yet been fully rehabilitated. The economist said the present global capitalist set up has been much more favourable to capital than for labour.