The writer is an FT contributing editor and former chief economist at the Bank of England
The conjoined crises of the Great Crash of 1929 and the Depression of the 1930s left lasting scars on households and businesses. The resulting desire for safety through saving led to economic stagnation — what John Maynard Keynes dubbed the “paradox of thrift”. “Keynesianism” emerged as an emergency response.
In this environment, Keynes reasoned that government needed to act as spender and risk-taker of first resort. Doing so could revive the animal spirits of the private sector and, with them, growth. And when put into practice, this Keynesian multiplier largely worked, helping reflate the world out of the Depression.
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