john maynard keynes. those are, it's a great and rich subject. one i'm not as immersed in as i've been in the others. also in part because i wanted to deal with, it's what i doy preoccupation, is the interrelation between -- and these guys,y the way, did a great job of hitting this question. the interrelationship between ideas and practicing politics. now, it's true that i think friedman in particular and later the straussians became very, very important, had a role. but maybe i d have a new york bias. i left chicago. it's a very good point, though, i'm glad you brought it up. >> we'll move over to this side. here. >> zachary davis, carnegie endowment f international peace. my question is -- >> hold your hisses. we won't hold that against you. [laughter] >> firstoff,'d like to thank you for pointing out the vagueness of this, of the son r coervative tendency to point to freedoms. america, individual freedoms i've argued a lot -- well, discussed a lot with friends. they dislike obama because he threatens f

this was a policy that john maynard keynes, greatest economist of his time, warned against. churchill went ahead with the policy in 1925. keene's wrote a seminal piece, the economic consequences of mr. churchill. he warned of the consequences of that policy. he warned there would be a depression. he was correct. the results of recession in the british economy through the 1920's we in this economy severely. it meant that come the 1929 wall street crash, the economy was much more severely affected than would have been the case without that policy, which of course had to be reversed in 1931, and we came off the gold standard for ever. also as chancellor of the exchequer in the 1920's, churchill voluntarily constrained defense expenditure, at the very time when adolf hitler and the nazi party rising in germany. mussolini was in power in italy , and the prospective japanese military threats was already recognized by the british admiralty from 1924. and yet, as late as the summer of 1941, churchill was still saying that britain had no direct threat from japan. for the wilderness y

but it was keynes' central insight that two or three times a century the self- equilibrating properties of markets breakdown, and stabilizing mechanisms are overwhelmed by mutually reenforcing vicious cycles. the right metaphor ceases to be a thermostat and becomes an avalanche. consider some of the vicious cycles we have seen in the last few years. the liquidation cycle when financial assets of our value, which forces there sale by those on margin, which closes the prices even lower. a deleveraging cycle where lower prices on institutions, on assets, cause institutions to have less capital, which leads to less lending, and even more asset devaluation continuing the downward spiral. a credit accelerator cycle in which a weakening economy leads to a weaker financial system, which leads to less lending, which leads to a weaker economy. a keynesian vicious cycle in which lower spending leads to lower employment leads to lower incomes leads to lower spending -- continuing a cycle. and a panicked vicious cycle in which individuals seek financial institutions in trouble, rushed to withdraw th

it is always worth remembering that a great admirer of that book was john maynard keynes and strauss's thinking essentially formed along wit lionel trilling irving kristol's philosophy. it is a great in writs subject one i am not as immersed in as i have been and the oths. also in part, because i wanted to deal with-- it is what i do my preoccupation is e inteelation, and these guys by the way did a great job of hitting this question, the interrelation between ideas and practicing politics. it is true that friedman in particular and later thetrauts ians became important, had a wold but maybe i do have a new york bias. it is a very good book though and i am glad you brought it up. >> we will move over to this side. >> zachary davis, the carnegie endowment for international peace. >> this is an old organization that we won't hold that ainst you. >> first of ali would like to thank you for pointing out that vagueness of the conservative tendency to point to freedoms, america individual freedom but i have argued a lot or discussed a lot with friends who dislike of, because it threatens fre

government is the only actor who can do that, keynes argued and i say that it's u.n. controversy yoel all of the living rmer members of the president's council of economic advisers who served under democratic and republican presidents alike have come out and form of some form of come in favor of refm of the stimulus package. there are some economists that sayt is not a good idea. the archaeolocay narrow group generally not as distinguisheas the broad group that supports. i want to say it is essentially a non-controversy all judgment the camera should be borrowing money, printing moneand taking money from wherever it can get and priming the pump spending on activities that will get the economy going again. but with that said ye spend money having people dig holes and filled them up? what a dumb idea that as if there is in the alternative would be useful than digging them up. does anyone doubt there are ample alternative that would be a more useful? think about the bridge across the mississippi river lie 35 that collapsed as people were driving to minneapolis a few year

government is the only actor who can do that, keynes argued. and i said it's uncontroversial. all the living former members of the presidents council of economic advisers who served under democratic and republican presidents alike have all come out in some form of, in favor of some form of stimulusackage. there are some economists it is not a good idea. they are not as distinguished as the broad group that supports stem despicable to say it is essentially an uncontroversial position that the government should be borrowing money, printing money, taking money and getting activity getting the economy going again. but why spend money on having people dig holes and fill them up? what a dumb idea that is if there is any alternatives that would be more useful than digging holes and filling them up. does anyone doubt that there are ample alternatives that would be way more useful? think about the bridge across the mississippi river on identify that collapse as people were driving into minneapolis a few years ago. people were not expecting the bridge regularly. if they had inspected it

the money in a lot of ways and maybe go drill some holes in an abandoned coal mine, according to keynes and fill it up with garbage and turn the entrepreneurs loose to dig dig up the money, he said he could solve all of the unemployment in america. i know. it sounds bizarre, mr. speaker. i am not making this up. this is the characterization of john maynard keynes, the difference with his approach and president obama's approach anti-free market side of this where the consumer makes a demand by pulling with its invisible hand the loaf of bread off the shelf and let's say there is a good loaf of bread for a buck and the invisible hand will pull it for $1 off that shelf and somebody else comes in and say here's a loaf of bread that's not quite as good for a buck and a quarter. they might just pass up that purchase even though they need the bread and wait until the fresh ones come from the bakery that provides the good bread for a dollar. so the bakery that provides the good bread for a dollar is filling the shelves up with their product and selling a lot of volume and the bakery that sells

but it was keynes in sight the properties of markets breakdown. and stabilizing mechanisms are overwhelmed by a mutually reinforcing the vicious cycles it ceases to be a thermostat and becomes an avalanche. consider some of the vicious cycles we have seen in the last few years same liquidation cycle where financial assets fall which force the sale which porsche the price even more. 80 leveraging cycle where of lower prices on institutions cause institutions to have less capital which the two less lending and even more ass said devaluation continuing the downward spiral. a credit accelerator cycle in which a weakening economy leads to less lending which leads to a weaker economy that keynesian cycle which lower spending leads to lower employment leads to lower income and lower spending continuing the cycle and a panic vicious cycle which individuals the financial institutions in trouble and rush to withdraw the funds putting those institutions and more trouble crossing others to rushmore to withdraw the funds. starting in the summer of 2007, and ac

but it was keynes' central insight that two or three times a century the self-equilibrating propertiesmarkets breakdown, and stabilizing mechanisms are overwhelmed by mutually reenforcing vicious cycles. the right metaphor ceases to be a thermostat and becomes an avalanche. consider some of the vicious cycles we have seen in the last few years. the liquidation cycle when financial assets of our value, which forces there sale by those on margin, which closes the prices even lower. a deleveraging cycle where lower prices on institutions, on assets, cause institutions to have less capital, which leads to less lending, and even more asset devaluation continuing the downward spiral. a credit accelerator cycle in which a weakening economy leads to a weaker financial system, which leads to less lending, which leads to a weaker economy. a keynesian vicious cycle in which lower spending leads to lower employment leads to lower incomes leads to lower spending -- continuing a cycle. and a panicked vicious cycle in which individuals seek financial institutions in trouble, rushed to withdraw their