What’s not to like about a book that starts with David Hume’s contribution to economics. In Keynes: Useful Economics for the World Economy by Peter Temin and David Vines begins with a chapter on Hume’s essay ‘Of the Balance of Trade’. They argue that not only was economics born in 18th century Britain, but so too was the first economic model with Hume’s price-specie flow mechanism. This classical tradition of thinking in terms of internal and external imbalance formed the background to Keynes’s thinking about global imbalances – and, this book argues, is an essential prism on today’s global economy.
This short book (and I like a short book) aims to re-introduce the Keynes who thought with such clarity about international links to a modern audience. It includes the historical context, including Keynes’s membership of the Macmillan Committee in 1930-31 and his early thinking about the gold standard, as well as (relatively brief) mention of Bretton Woods. It goes on to walk through the basics of Keynesian international macroeconomics – the IS-LM framework, the Swan diagram showing schedules of internal and external balance, and aggregate demand and supply. There is a final chapter on ‘An International Paradox of Thrift’ which argues there is a parallel between 2014 and the fag end of the gold standard in the 1920s-30s, with too many countries trying to increase savings.
What would Keynes recommend now, they ask, answering that all of Germany, China, the US and UK should expand their domestic economies. Of course, there’s nothing novel about suggesting that Germany and China need to acknowledge the harm their ever-increasing export surpluses have been causing – I’m more surprised by the advice to the US and UK to expand their external deficits further. The book justifies this on the basis that both countries have significant stocks of overseas assets and low interest rates.
This would be a useful book for students starting out on their international macro – it’s a very clear exposition of the basic models. I’m sceptical that one can find all of the wisdom needed to solve today’s problems in re-readings of Keynes, not least because of his trite remark that “in the long run we are all dead.” We’re in Keynes’s long run now, and the flaws with a framework that has looked only at flows (GDP) and not assets (natural, physical capital) are all too plain. Still, the international Keynes is more relevant to today than the domestic Keynes, and the pre-2008 global imbalances problem is still a problem today.
Keynes: Useful Economics for the World Economy Selected Essays (Oxford World’s Classics)
Update: I’ve been reprimanded on Twitter for misrepresenting Keynes. It’s true that his “long run” comment was a reference to how useless it is to think about equilibrium outcomes when the world never gets to equilibrium. However, whenever I’ve seen it quoted, it has been in the sense of there being no need to worry about long-run consequences of a favoured action. Still, to be accurate, I should indeed have attributed the triteness not to Keynes but to subsequent uses of the remark.