Thanks to Anglefish for the ensuing flurry of opinion.
He's been reading about Gordon Brown's "return" to Keynesianism. Without having read the article and basing the following on pure jingo I splutter:
PPPPPPPPPHHHHHHWHAAAT!!!!!! (---tea --- biscuits - - - hitting your shirt).
Let's get this clear. Keynesianism is the doctrine that one reigns in spending in good times and plumps it up in the bad. Brown and Blair pumped in masses of money when things were on the up, increased the throttle just as things were looking really good and didn't hold back as it peaked. Brown all but claimed to have beaten the trade cycle by laughably readjusting just when it was that it would end.
The trade cycle cannot be appointed a distinct time, it's only really clear it's precise topography once it has happened. However, if GDP growth is at 3.5% when the 200 year average for the economy is nearer 2.0% you have to be a pretty massive sense of your own Divine Blessedness to think you're the one that's cracked it.
Did Brown really believe this? Let's presume he's a little clear-headed. Chances are he knew exactly what was going on - knew that the opening of international markets was keeping inflation extremely low (by essentially doubling the labour pool the West had access to in less than two decades) and knew that the balance of trade was way in Britain's favour (because of demand for knowledge products at which Britain excels) - Brown knew all of this but due to an overwhelming lack of spine (not to piss off voters) did not reign in spending or raise taxes when times were hot.
Brown operated exactly the opposite to Keynes's common sense recommendations, created at the time to rail against doctrinal madness.
Now let's get this clear. The chancellor is not in charge of the economy. He's more like a shepherd in charge of a very unruly flock. One of several shepherds, acting against some vey large wolves. However his actions do matter. The conventional wisdom in economics says that a budget deficit induces a trade deficit. This is because higher spending at home means people have more money to spend on a greater amount of imports, thus creating a negative trade balance. Last week in the commons, Brown was blaming the entire credit crunch on unruly bankers while Cameron was blaming the whole thing on Mr Brown. Neither was correct but Cameron more so.
Just as the the trade deficit is influenced by government spending so are conditions of credit. If the government is spending profligately (and let's not forget this is only the spending we know about) borrowing huge sums year on year, then so will the people. Borrowing in the UK and abroad reached such hysterical levels that one has to have some sympathy for bankers given such vast amounts of debt, that they wouldn't go hog wild.
The bankers hysteria reflects that of the people and that of the government. It cannot be meaningfully separated.
The crisis is broadly the result of financial markets losing touch with reality, just as consumers and government have done. This detachment is now being made plain in the environment and social breakdown. There is a clear and honest need for the economy to re-embed itself in the workings of a more desirable world.
There are signs this is happening. Consumers are leading the way, and as elsewhere commented, the ensuing regulation of financial markets - although it may take time to get right - is a most welcome development.
There's a move towards authenticity. I heard recently of the move from an information economy to an "economy of meaning". It's a move so subtle as to be completely all-pervasive.
We are in need of thinkers of economists and thinkers to reinterpret this situation for us. Just as Keynes reconnected economic theory with the requirements of relaity, we need academics to throw off the old paradigms and see without such restricting goggles. For it's the way the world is going anyway, economics would do well to catch up.