Outlook: The irony of the financial crisis is that policymakers rediscovered Keynesian interventionism just in time to prevent a recession from turning into a slump, but that the one economic philosophy that has gained strength since then is its polar opposite.
These days all the kids want to be Hayekians. Margaret Thatcher's favourite economist, Friedrich Hayek, has never been so popular – adherent Congressman Ron Paul is an internet rock star, and the winner of a Republican presidential debate is the one who can put the best sneer into the word "stimulus".
With unemployment here still at nine per cent and job insecurity, cratered house prices and tough credit terms combining to suppress our animal spirits, we desperately need Keynes's prescription for using government as a demand generator of last resort. Yet it's Republicans who are up in the polls and blocking action in Congress, and budget deficits that dominate people's fears.
The spectacle of Greece, and now Italy, buckling under their debts is used as supporting evidence for the Hayekian case: that stimulus spending is useless (or worse) in the long run. You can tell people that the US – with a floating exchange rate and the privileged position of having the world's reserve currency – is in no danger of being "the next Greece", but it makes no difference.
So the participants in a lively "Keynes vs Hayek" debate at the Asia Society in Manhattan this week largely talked past each other. The Keynes side, led by James Galbraith, son of the late Keynesian economist JK Galbraith, argued that "the sunken ship won't refloat itself"; the Hayekians, under Nobel prize winner Edmund Phelps, presented the non sequitur that because the effects of the $787bn (£490bn) federal stimulus package in 2009 were disappointing, austerity must be more effective.
A year from now, we will know the winner of a presidential election whose debates will be the very distillation of "Keynes vs Hayek", brought to you in the voter-friendly language of "create jobs vs support the job creators". It promises to be lively.
I know which economic prescription I support, but will we ever really settle the question of which philosophy is best? Most of the 300-strong audience at the Asia Society voted for Keynes as the best guide to action in perilous times, but, of those who changed their minds after listening to the debate, a majority had been turned on to Hayek.
After the event, Nicholas Wapshott, author of Keynes Hayek, offered the suggestion that there was a psychological element to picking your camp. Keynes, he suggested, was for the can-do folk – the optimists. Hayek, with his "leave it to the market" philosophy, is the refuge of the sad sacks, the fatalists.
In these grim economic times, fatalism is on the rise – and fatalism can only make them grimmer.Reuse content