Krugman's Speech at Cambridge in Honor of 75th Anniversary of Keynes's General Theory

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Paul Krugman delivered this speech at Cambridge to honor the anniversary of the publication of Keynes's "General Theory" It is very timely because Keynes had several insights about economics that were derived from his efforts to understand the Great Depression. Unfortunately, his insights violated many of the assumptions held by economists, and by those in government. They were also opposed by free market fundamentalists who viewed any intervention by government into the economy as a movement towards socialism. Ironically, Keynes viewed his work as moderately conservative. He believed that government could moderate some of the problems inherent in capitalism, such as periods of high unemployment. He believed that a better functioning capitalism was superior to the alternatives that were being debated.

The Great Recession has revived many of the debates within economics and government that were common during the Great Depression. This has contributed to many of the problems that governments have had in dealing with a situation that is assumed away by classical economics. Classical theory assumes that the economy would return to full employment, which is its normal point of equilibrium, without government intervention. In fact, government intervention will only makes things worse by taking actions that prevent the forces of supply and demand from working their magic.

Krugman believes that macroeconomics can benefit from the insights that he finds in Keynes, and he refers to those who fail to understand those insights as contributors to what he calls the "dark ages of macroeconomics". In this speech he attempts to show how the insights that he finds in Keynes, and which are poorly understood by his critics, are particularly useful in addressing the needs of an economy in which monetary policy is up against the "liquidity trap" described by Keynes. He recognizes that the resistance to Keynes is deep, and that little can be done in our current political climate. He believes, however, that in the long run, bad ideas eventually give way to better ideas. The dark ages did not last forever.

Krugman's speech is not for everyone. He does a better job of presenting the salient ideas he finds in the General Theory than many others who have attempted to do so. Unfortunately, these ideas are not easily grasped. Those who are interested in understanding the current debates about how to deal with our economic issues, and who are willing to take the time and effort to read his speech carefully, will be rewarded.