It is widely assumed that the renewed fashionability of Keynesian economics means, by implication, that public policy will drift to the left. Much of this thinking stems from the still widely held misconception that post war economic policy was based on a consensus, established by the Attlee Government, around the use of Keynesian mechanisms to even out the economic cycle and maintain full employment.  

In fact Keynesian economics is a broad church. My fellow blogger Sam Talbot-Rice reminded me today of a story about Keynes attending a dinner with Keynesian economists in Washington in 1944. After dinner he told his wife that ‘I was the only non-Keynesian there.’ Keynesian economics can be used to justify fundamentally different economic policies. In his memoirs Rab Butler, one half of the supposed personification of consensus ‘Mr Butskell’ wrote that there was no such thing as Butskellism. While both he and Hugh Gaitskell ‘spoke the language of Keynesianism’ Butler added, however that they ‘spoke it with different accents and with a differing emphasis.’ Indeed there was sustained argument about the use of physical controls, monetary policy, the level of public expenditure, the convertibility of the pound and the benefits of a multilateral trading system. Not much of a consensus.  

Today, the Government wants to present a Keynesian solution as one dependent on ‘public works’, where all public spending is presented as ‘investment’ and where the size of the state will continue to grow regardless of economic conditions. But there is an alternative vision based on stimulating economic activity through targeted tax cuts. As 12 economists, led by Andrew Lilico, wrote in a letter to the Sunday Telegraph, a solution based on spending is likely to be inexact and ineffective due to time lags. Targeting tax relief to small business and people on modest incomes, both of whom are most likely to spend this extra income and so pass the benefits on to the wider economy, would have a much greater effect. By taking less money out of people's pockets we can also establish a momentum for a smaller, not an ever bigger state.