A Keynesian Down Under
By Ian Kumekawa
Just days after the Australian Parliament passed a (AUD) 42 billion-dollar stimulus package early last month, Australian Labor Prime Minister Kevin Rudd published a sweeping condemnation of neo-liberalism. Dubbing it “that particular brand of free-market fundamentalism, extreme capitalism and excessive greed which became the economic orthodoxy of our time,” Rudd calls for a reevaluation of neo-liberalism’s applicability in today’s world.
Of course, Rudd’s essay is not divorced from short-term political goals. After all, Rudd’s opponent, Malcolm Turnbull, the head of the center-right Liberal Party, spent a good deal of his career working in a corporate bank, one of the very institutions that is blamed for the current economic crisis.
However, Rudd’s message resonates because it takes the form of an inherently ideological treatise. In seven thousand words, Rudd establishes himself as one of the most powerful politicians in the Anglo-American world to call for a clear break with the accepted economic orthodoxy which has been in favor since the days of Reagan and Thatcher in the 1980s. In light of the current economic woes, Thatcherian logic and rhetoric (the slogan “There is no Alternative” comes to mind) seems painfully outdated. Against the backdrop of governments around the world spending billions on economic stimulus packages, it is clear that the edifice of laissez-faire economics is being questioned in profound ways.
Rudd’s article, entitled “The Global Financial Crisis” is impressive largely due to the historical parallels it draws. It reminds us that the neo-liberal economics of today has a powerful analogue in the neo-classical economics that reigned before the Great Depression. Just as Paul Krugman has been doing for the past few months, Rudd looks to the great economist John Maynard Keynes for guidance in fixing the current economic mess. He takes up the Keynesian mantle in the old battle between Keynes and the great neo-classical thinker F.A. Hayek.
And why not? Keynes correctly diagnosed the Depression and prescribed a legitimate solution. And in doing so, Keynes destroyed some of the principal tenets of an accepted economic paradigm. If only world leaders such as Churchill and Roosevelt had taken his advice for heavy deficit spending by the early 1930s, how much suffering could have been averted? It makes sense then that a neo-Keynesian lens should be applied to a neo-liberal problem just as a Keynesian lens was successfully applied to a neo-classical problem nearly eight decades ago.
As Keynes himself said, “practical men who believe themselves quite exempt from any intellectual influence are usually the slaves of some defunct economist.” This state of affairs makes it risky for a politician in Anglo-American culture to attack the free market. People are generally attached to old ideas, however in need of modern adjustment they may be. Kevin Rudd has surely taken a risk – indeed, his political opponents as well as Rupert Murdoch’s The Australian have already retaliated with a variety of refutations and personal attacks – but yet, this is an ideological risk that should be taken.