Keen on Keynes

With the year winding down, that inevitable question is doing the rounds again: who has been the most influential person? Time magazine would seem to have given the obvious answer on Wednesday, naming US president-elect Barack Obama. For those who judge such matters by media profile and popularity, this is a good choice. But if impact is to be the yardstick, we would do better to look beyond the land of the living to the place of economic theory - the late, great, British economist John Maynard Keynes.

There is no disputing that Mr Obama has stolen the headlines this year. Not since John F. Kennedy has the US had a politician with such charisma and public speaking ability. I would not for a moment make light of his achievements, either: he roundly beat the Republicans and the Clintons, used technology more innovatively than any other American presidential candidate, raised a record amount of funding and mobilised younger voters to the polls as never before. On him, the world has pinned its hopes to banish the Bush years, ushering in, in their place, global co-operation, peace and harmony.

We must remember, of course, that he is not yet president. He ran a good election campaign, but his qualities as a leader are yet to be revealed. The high and mighty rhetoric of the hustings may not readily be turned into sound policies. Only at the end of his four-year term can we make a firm assessment of his abilities.

This is not the case with Keynes, however. He may have died 62 years ago, but his thinking is alive and well and being widely practised. Amid the global economic turmoil, belief that free markets will get us out of the mess by self-correction have firmly given way to the principles espoused in Keynesian economics. These are, in essence, that in times of economic recession, depression or boom, government interventionist policies through fiscal and monetary measures are essential to steer the way.

Mark Thirlwell, the director of the international economy programme at the Australian Lowy Institute think-tank, told me yesterday that Keynes was about 'saving capitalism from itself'. Keynes determined that market economies were unstable and governments would have to step in from time to time to keep them in check. That is exactly what the majority of governments the world over have been doing this year to restore financial calm. A host of prominent economists and some financial secretaries - Britain's Chancellor of the Exchequer Alastair Darling chief among them - have even invoked Keynes' name in responding.

Keynes' philosophy is evident in the string of government bailouts of private institutions that began in September last year with the Bank of England giving emergency financial support to the subprime-crisis-hit British mortgage lender Northern Rock. It was firmly on display three months ago when Washington nationalised the two giant firms that oversaw the US subprime mortgage market, Fannie Mae and Freddie Mac.