The New Old New Economics

In a 1925 essay entitled "The Economic Effects of Mr. Churchill," John Maynard Keynes warned of the depressing effects on the British and world economies that would stem from the then Chancellor of the Exchequer's plan to follow his orthodox economic advice and put Britain back on the gold standard. Keynes was right; it was a major contributor to the Great Depression. The new orthodoxy of the 1990s, adopted by the Clinton administration in a reversal of traditional Democratic Keynesian economics, returns to old shibboleths by stressing balancing the budget and restraining inflation at all costs. The results may be similar to the 1920s. For now, these policies have helped bring about growing inequality and social malaise in the United States, and high unemployment in Europe. The policies stem in large measure from misinterpretation of the oil-shock-dominated economy of the 1970s, and from the deliberate attempt by David Stockman and other Reagan-administration officials to reverse economic policies going back to the New Deal. The paper suggests reopening of balanced budget issues. (This paper is a longer version of an article in the July 1996 issue of The Atlantic Monthly entitled "The Economic Consequences of Mr. Clinton.")