President Lyndon Johnson asked John Kenneth Galbraith to write him a speech on economic policy. After glancing at it LBJ said 'You know Ken, the trouble with economics is it's like peeing in your pants. It feels hot to you, but leaves everyone else cold'.He follows that nugget with a nice essay about Keynes, J.A. Hobson and Karl Marx in light of recent economic history. This discussion of how Keynes linked his theory of fluctuations in The General Theory to his essay on economic growth, Economic Possibilities for Our Grandchildren, was particularly interesting:
However, by 1943, he had sorted out his thoughts on the matter. He now envisaged three phases after the war. In Phase I, which he thought might last 5 years, investment demand would exceed full employment saving, leading to inflation in the absence of rationing and other controls. In this phase consumption should be restricted in order to reconstruct the war damaged industries.In phase 2, which he thought might last between 5 and 10 years, he foresaw a rough equilibrium between full employment saving and private plus public investment, with the state pursuing an active investment policy.In Phase 3, i.e. by about 1960, he thought that investment demand would be so saturated that it would not be able to match full employment saving without the state having to embark on wasteful and unnecessary programmes. In this phase, the aim of policy should be to encourage consumption and absorb some of the unwanted surplus of saving by increasing leisure and more frequent holidays. This would mark the entrance to the 'golden age' of capital abundance. Eventually Keynes thought that 'depreciation funds would be almost sufficient to provide all the gross investment that is required'.
On a related note, John Quiggin recently had an interesting essay on Keynes' prediction in Economic Possibilities, of much greater leisure time (Matthew Yglesias suggests it is coming true, a little bit).
