In an interview with the Browser, Niall Ferguson describes the borrow-and-spend policies of the left as “vulgar Keynesianism” – because “Keynes would be rather appalled at the way his name is used these days to justify policies that are reckless.”
Ferguson would, no doubt, approve of the conclusions – and historical sweep – of Raghuram Rajan’s essay for Foreign Affairs (.pdf). Rajan deserves our attention. In 2005, he was one of the few economists to warn the world about the dangers facing the financial system. Furthermore, he did it in style – by delivering what was then a controversial argument at a celebration honouring Alan Greenspan (the soon-to-retire chairman of the Federal Reserve Bank and chief architect of the doomed pre-crash consensus).
So, who does Rajan blame for our economic troubles?
Rajan explains what he means by “politically induced expansion of credit”:
Given that Rajan’s essay is entitled ‘The True Lessons of the Recession’, what are the lessons that he wants us to learn here? Basically, there are two: Firstly, that unsustainable borrowing is what got us into this mess; and, secondly, that our underlying economic problems are about our inability to produce wealth, not our incapacity to consume it.
The "vulgar Keynesians" should stop pretending otherwise.