In Keynes’s day, many people—including politicians sympathetic to Keynes—were suspicious of the multiplier. The whole thing smacked of sophistry. Wapshott, in a long overdue and well-researched book that usefully gathers together much hitherto scattered information, recounts Keynes’s 1934 visit to the White House, where he expounded the logic of the multiplier to F.D.R. After he left, Roosevelt remarked to Frances Perkins, his Labor Secretary, “I saw your friend Keynes. He left a whole rigmarole of figures. He must be a mathematician rather than a political economist.” Despite the enormous public-works projects of the New Deal, F.D.R. didn’t formally adopt deficit spending as a policy tool. Indeed, he kept a keen eye on the red ink. In 1937, with the economy on the mend, he ordered tax hikes and spending cuts, which caused the economy to crater again. President Truman was even more suspicious of Keynesian theorizing. “Nobody can ever convince me that Government can spend a dollar that it’s not got,” he told Leon Keyserling, a Keynesian economist who chaired his Council of Economic Advisers. “I’m just a country boy.”

The multiplier continues to spark controversy. Echoing the arguments that Keynes’s opponents at the Treasury made during the nineteen-thirties, conservative economists like Robert Barro, at Harvard, argue that it is close to zero: for every dollar the government borrows and spends, spending elsewhere in the economy falls by almost the same amount. Whenever individuals see the government boosting spending or cutting taxes on a temporary basis, Barro maintains, they figure that these policies will eventually have to be paid for in the form of higher taxes. As a result, they set aside extra money in savings, which cancels out the stimulus.

Barro’s caution may apply in certain conditions—say, a highly indebted economy with close to full employment. It’s certainly true that the Keynesian multiplier varies according to how stimulus funds are spent; how the central bank reacts to higher government spending (if it raises interest rates, interest-sensitive spending will fall, reducing the multiplier); and, most important, whether workers and machinery are lying idle. But Keynes didn’t advocate deficit spending for an economy at full employment. It was only when the economy was in a deep slump, he thought, that higher output “could be provided without much change of price by home resources which are at present unemployed.”

This jibes with history. Immediately before and during the Second World War, the U.S. government borrowed unprecedented sums to finance the military buildup, and the economy finally recovered from the Great Depression. In 1937, one in seven American workers was jobless; in 1944, one in a hundred was. A wartime economy may present a special case, but a recent working paper published by the National Bureau of Economic Research looked at data going back to 1980 and found that government investments in infrastructure and civic projects had a multiplier of 1.8—pretty close to Keynes’s estimate.

So why didn’t the Obama Administration’s 2009 stimulus package usher in a true recovery? Keynes would have pointed out that, with households and firms intent on paying down debts and building up their savings in the aftermath of a credit binge, large-scale deficit spending is needed merely to prevent a recession from turning into a depression. With interest rates already close to zero, Keynes would have argued that the economy was stuck in a “liquidity trap,” greatly limiting the Federal Reserve’s scope for further action. He would also have noted that the stimulus was—especially compared with the devastation it meant to address—rather small: equivalent to less than two per cent of G.D.P. a year for three years. Even this overstates its magnitude, given that much of the increase in federal spending was offset by budget cuts at the state and local levels. In its totality, government spending didn’t increase much at all. Between 2007 and the first half of this year, it rose by about three per cent in real dollars.

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Besides, recovering from a financial meltdown requires more than government spending: the banking system has to be recapitalized (in the nineteen-nineties, Japan’s cash-hoarding “zombie banks” were a drag on its stimulus programs); bad debts have to be written down; sector-specific problems must be addressed. Following the crisis of 2008, both the Bush and the Obama Administrations moved promptly to shore up the banking system, but they neglected to deal with the housing debacle. A more effective mortgage-modification program for homeowners who are under water on their loans would have helped. In 2009, when the Obama Administration launched a refinancing program, it predicted that between three and four million people would get some relief, but so far fewer than one million mortgages have been modified. The lingering effects of the housing crisis continue to weigh down the rest of the economy.

Finally, Keynes would have directed our attention to international problems. A confirmed internationalist, Keynes would undoubtedly have supported the head of the Chinese central bank’s call, in 2009, for the creation of a new global reserve currency to be issued and controlled by the International Monetary Fund. (Keynes proposed almost precisely the same thing in 1944, at Bretton Woods, where he helped design a new international economic system, but the Americans ruled it out.) The rationale is that if the issuer of the reserve currency acts irresponsibly, the rest of the world is at its mercy, so it might be better to have an international currency that no single country controls. For now, the Chinese proposal has gone nowhere; the world’s focus is elsewhere. But, as the Asian economies continue their rise, it is sure to come back onto the agenda.

And Keynes would have had strong views about the European sovereign-debt crisis. The U.K. economy of his day, like the current U.S. economy, was dependent on global capital flows, and Keynes knew what excessive government debts could do to an economy. In 1919, he was an adviser to the British delegation at the peace talks in Paris, which saddled Germany and Austria with crushing debts. Outraged by this Carthaginian settlement, he wrote his first best-seller, “The Economic Consequences of the Peace,” warning that the Versailles Treaty would prove disastrous for the victors as well as for the defeated. Today, he would be advocating major debt write-downs for countries like Greece and Portugal. The so-called “rescue packages” that these nations have received in recent years have barely reduced their debt, while the austerity policies imposed on them have plunged their economies deeper into the abyss, exactly as Keynesian theory would predict.

Indeed, these days the strongest evidence for Keynesianism has been negative. The recent slowdown in the U.S. economy occurred just as Obama’s 2009 stimulus package was running dry. The U.K. economy provides an even more striking case study. As in this country, the authorities reacted to the 2008 financial crisis by cutting interest rates, boosting public expenditure, and allowing the budget deficit to rise sharply. In 2009 and in the first part of 2010, the economy began to recover. But since the middle of last year, when the Conservative-Liberal coalition announced substantial budget cuts to balance the budget, growth has virtually disappeared. “The reason the current strategy will fail was succinctly stated by John Maynard Keynes,” Robert Skidelsky and the economist Felix Martin wrote in the Financial Times recently. “Growth depends on aggregate demand. If you reduce aggregate demand, you reduce growth.”

Yet Keynes was anything but a spendthrift. When deficits and debts reached historically high levels, he believed, it was necessary to spell out how they would be reduced in the long term. As Backhouse and Bateman observe in their timely and provocative reappraisal, Keynes never said that deficits don’t matter (the lesson that Dick Cheney reportedly drew from President Reagan). He believed not only that large-scale deficit spending should be confined to recessions, when business investment was unusually curtailed, but that it should be directed mainly toward long-term capital projects that eventually would pay for themselves. When some of his followers, by way of postwar planning, advocated using tax cuts and deficit spending to “fine-tune” the economy on an ongoing basis, Keynes struck a note of caution. “If serious unemployment does develop, deficit financing is absolutely certain to happen, and I should like to keep free to object hereafter to the more objectionable forms of it,” he wrote.

If Keynes was scarcely the deficit dove some take him to be, efforts to portray him as some sort of socialist are even more risible. When he wasn’t busy writing, teaching, or advising governments, he wagered on the global markets in the manner of a modern hedge-fund manager. He also served as the director of an insurance company and as the portfolio manager of the King’s College endowment. An Old Etonian and the son of a Cambridge economist, he never made any pretense about his privileged background, or where his social and political sympathies lay. “If I am going to pursue sectional interests at all, I shall pursue my own,” he wrote in the nineteen-twenties. “The Class war will find me on the side of the educated bourgeoisie.”

As the Depression proceeded, and some of Keynes’s colleagues and students turned to Communism, Keynes declared the theory of Marxism to be “complicated hocus pocus.” When Beatrice and Sidney Webb, the Fabian grandees, went to Russia and returned proclaiming Stalinism to be the way of the future, Keynes was, as Nasar recounts, aghast. Asked to contribute to an essay collection for Beatrice’s eightieth birthday, he said the only sentence that came to him was “Mrs. Webb, not being a Soviet politician, has managed to survive to the age of eighty.”

Astute conservatives have sometimes acknowledged that, fundamentally, Keynes was one of them. He came not to bury free enterprise but to save it from itself. “It is certain that the world will not much longer tolerate the unemployment which . . . is associated and in my view inevitably associated with present-day capitalistic individualism,” he wrote in his magnum opus. “But it may be possible by a right analysis of the problem to cure the disease whilst preserving efficiency and freedom.” During the Second World War, some economists hailed the introduction of price controls and central planning; Keynes viewed this policy as a temporary expedient that shouldn’t be sustained. He even had praise for Hayek’s controversial book “The Road to Serfdom” (1944), which compared wartime Britain to Soviet Russia and Nazi Germany. “Morally and philosophically,” he wrote to Hayek, “I find myself in agreement with virtually the whole of it.”

Keynes’s Republican critics, as you’d guess, have more in common with him than they let on. Representative Paul Ryan, who is now railing against “the discredited economic playbook of borrow-and-spend Keynesian policies,” was, as the commentator Jonathan Chait has pointed out, a strong supporter of cutting taxes on classic Keynesian grounds—to boost spending and reinvigorate a struggling economy. In a February, 2001, hearing devoted to the fiscal proposals of the recently elected George W. Bush, Ryan said, “I like my porridge hot. I think we ought to have this income tax cut fast, deeper, retroactive to January 1st, to make sure we get a good punch into the economy, juice the economy to make sure that we can avoid a hard landing.”

Both Democratic and Republican Administrations have supported stimulus programs; what they disagree on is how to structure and pay for them. Democrats, while pointing out that such programs generate additional tax revenues, have stopped short of claiming that they are entirely self-financing. Republicans have respected no such limits in selling the tax cuts they favor. Going back to the writings of Arthur Laffer, a Stanford-trained economist who advised President Reagan, some of them have claimed that tax cuts, by prompting people to work harder and invest more, can actually reduce the deficit. And where did Laffer get this idea? In a 2004 article entitled “The Laffer Curve: Past, Present, and Future,” he cited a passage of “The Means to Prosperity” in which Keynes wrote: