Commentary: Let's Not Take Feel Good Economics Too Far

The Great Depression ended nearly 60 years ago, and the man who diagnosed it, John Maynard Keynes, has been dead since 1946. The U.S. hasn't had a recession since 1991. The consensus outlook is for growth and more growth. Even so, a major new textbook for introductory economics--Principles of Economics by N.Gregory Mankiw--takes feel-good economics too far. Mankiw doesn't get around to "short-run economic fluctuations" until page 681 of the 775-page book. That means students who take macroeconomics in the spring won't encounter booms, busts, and Keynes until late April, when animal spirits and Frisbees are flying high on campus.

Harcourt Brace hopes that Mankiw's 99%-Keynes-free perspective will find a large audience: It paid the mainstream Harvard University economist an unprecedented $1.4 million advance to write it. If Harcourt Brace is even a little right, Mankiw will play a big role in shaping public opinion about how the economy works. After all, as Keynes himself once wrote: "Practical men, who believe themselves to be quite exempt from intellectual influences, are usually the slaves of some defunct economist."

SOLID GROUND. Defunct he may be, but Keynes deserves better than being relegated to the last three chapters of this new textbook. Mankiw says he left Keynes and business cycles for the end because he wanted to give readers a solid grounding in less controversial material first, such as factors in long-term growth. "It's better to start off with what we know," says Mankiw.

Mankiw, 39, also cheerfully admits that the book was shaped by today's healthy economy. "If you were writing in the mid-1940s, the big economic event of your lifetime was the Great Depression," he says. "Today, how to avoid another depression is not the first thing on your mind. You're more interested in the effects of international trade or why productivity growth has slowed down."

It's true that we're not fretting over an imminent depression. But even today, most economic news is about issues related to the business cycle, such as inflation, unemployment, and what the Federal Reserve should do about interest rates. Those can't be understood without a grasp of what affects short-run economic performance.

Keynes began to fade by the 1980s, as conservative economists swept into Washington and academia. They decried big government as too meddlesome to the free market and dismissed the idea of Keynesian stimulus as just an excuse to bloat the deficit.

But you can study Keynes's theories and appreciate his contributions without buying into government intervention. In fact, today's neo-Keynesian economics borrows heavily from conservative schools of thought such as monetarism and the school of rational expectations. In turn, followers of those schools have been forced to admit that on some points, Keynes was right.

There was a time when textbooks went too far in slavishly following Keynes. The early editions of Economics by Nobel laureate Paul A. Samuelson starting in 1948 were almost primers on Keynes--a problem corrected in later years. (The McGraw-Hill Companies, parent of BUSINESS WEEK, publishes Samuelson as well as the top seller, Economics by Campbell R. McConnell and Stanley L. Brue.)

Mankiw may have tilted too far the other way. Economist Paul R. Krugman of the Massachusetts Institute of Technology says he's writing a textbook--due out in 2000--that places Keynes and the business cycle at the front of the macroeconomics section. Says Krugman: "Recessions are the defining question in macroeconomics."

Mankiw is no anti-Keynesian. He co-edited a collection called New Keynesian Economics. He named his border terrier Keynes. Mankiw says he merely felt that economics has more to contribute on questions of long-term growth than on the short-term issues Keynes dwelt on.

But is the long run really the proper focus? On that topic, Mankiw himself cites one of Keynes's most famous observations: "The long run is a misleading guide to current affairs. In the long run we are all dead."