John Maynard Keynes

2 cards

1. 01

   The comfort of long-run explanations helps no one who must decide now: economic policy and choices are judged by what they do in the present storm, not by the equilibrium beyond it.

   A Tract on Monetary Reform · 1923

   Waiting for long-run equilibrium does not undo the transfers of wealth happening now, in the storm.

   Keynes attacks the habit of economists who wave away urgent problems with the promise that, in the long run, markets equilibrate by themselves. People live the effects of inflation, unemployment, and monetary instability now, he argues, and postponing remedies has real costs distributed unfairly. The mechanism he sees is that prices and fixed debts transfer wealth between generations and classes during the storm, and waiting does not undo those transfers. His example is post–World War One Europe, where inflation eroded small savers' holdings while holders of real assets came out ahead.

   “In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.”

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2. 02

   When people get scared and suddenly stop spending, the economy can get stuck at a low level, and the government can help by spending itself.

   The General Theory of Employment, Interest and Money · 1936

   In the absence of private spending, public spending can break the spiral of recession.

   If all your neighbors suddenly decide to stop buying anything, shops sell less and lay people off. Those people then spend even less. Keynes showed that at such moments, the government can break this cycle by paying for roads or schools, putting money back into people's pockets.

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