Smart Keynesianism

Andrew Rawnsley writes well on responding to the recession today in The Observer. Lucky countries will be those that have leaders “who turn the emergency of the moment into an opportunity to equip their countries for the future”. Similarly NESTA are trying to focus debate “on the short-term measures we can take to combat the recession which will feed our longer-term strength as an economy and society”. Rawnsley also appeals to this notion of turning a short-term crisis into a response to long-term challenges. 

“We know this recession will end one day. The oil price is not going to be low for ever. To prepare for the day when it soars again, to make good on commitments to reduce carbon emissions and to be free of dependency on the likes of Russia and Saudi Arabia, we have to get much more ambitious about renewable energy”.

So, like me, NESTA and Al Gore, Rawnsley thinks that now is an opportune moment to realise the immense economic and social potential of environmental technology. Rawnsley also comes out in favour of the NESTA recommendation for “universal, ultra-fast broadband access to all parts of the country”. His third suggestion is “a programme to modernise the railways”, which he convincingly argues is “a no-brainer”. The case for such a programme certainly seems far more clear-cut than the case for an extra runway at Heathrow.

Lindbeck and Snower argue that the key to the success of Keynesian infrastructure investments is whether they increase the marginal product of labour and capital. Part of the attraction of the policies advocated by Rawnsley and NESTA is that they seem likely to satisfy this criterion. They wouldn’t be a “crass Keynesianism” but a smart Keynesianism.