As economists grope for a way out of the current financial mess, two theorists from the past are taking center stage. John Maynard Keynes and Ayn Rand, both long dead, stand at opposite poles of the debate over what to do about it.
Mr. Keynes (pronounced “canes”) argued in the 1930s that heavy government spending was the way to fight the Great Depression. That was the essence of President Franklin D. Roosevelt’s recovery policy.
Ms. Rand, known best for her books “Fountainhead,” published in 1943, and “Atlas Shrugged,” 1957, stood for quite the opposite. She promoted individualism and limited government. She attracted many government and industrial leaders including former Federal Reserve Chairman Alan Greenspan and U.S. Rep. Ron Paul, the Texas Republican presidential candidate.
Both theorists have their present-day disciples, who differ sharply over whether the Roosevelt policies helped or hindered recovery from the Great Depression. They now tilt daily over whether big government or free enterprise and normal market forces can bring us out of the current mess.
Keynesian economics, which grew out of Mr. Keynes’ 1936 book, “General Theory of Employment, Interest and Money,” held that the aggregate demand for goods might be insufficient in an economic downturn and that government spending could increase the demand and lead to increased economic activity.
The Keynesians favored deficit spending in bad times and increased taxes in good times. As one advocate put it, after recovery the government “should tax to the bone and even take some of the bone.”
As the current stimulus plan takes shape with emphasis on major public works to create new jobs, the rather general bipartisan support has given rise to a frequent statement that “we’re all Keynesians now.”
But Keynesianism is not for everybody. The Ayn Rand movement is flourishing even more with an Ayn Rand Institute and even an Ayn Rand Dating Service. As recently as 1991 readers rated “Atlas” as the second most influential book in their lives behind only the Bible. It still sells 200,000 copies annually.
Alex Epstein, an analyst at the Ayn Rand Center for Individual Rights in Washington, says that Republicans who support the stimulus plan show that “they buy into socialist ideas just as much as the Democrats.” An economics writer for The Wall Street Journal’s conservative editorial page, Stephen Moore, wrote on Jan. 9 that “our current politicians are committing the very acts of economic lunacy that ‘Atlas Shrugged’ parodied in 1957.”
So we are in for a national debate like that of the Roosevelt years. Keynes and Rand devotees are struggling over whether big government is a cure or a curse and whether we should rely on government spending or the supposed corrective action of private markets.