Tim Geithner Just Handed A Huge Victory To John Maynard Keynes

John Maynard Keynes

Photo: en.wikipedia.org

The key idea in Tim Geithner’s letter to his G20 colleagues is this idea that trade surpluses should be capped, and that any country running a persistently high trade surplus (like China) should be required to diminish them, most viably through currency mechanisms.We doubt China will be too excited about this, and it seems unlikely that this weekend’s G20 meeting will produce much substantive.

But the real story here is that Tim Geithner has elevated John Maynard Keynes to a new level. After all, it was originally his idea that countries shouldn’t be able to maintain persistently high trade surpluses, and that they should be compelled, somehow, to recycle them back.

With virtually every country adopting counter-cyclical fiscal stimulus during the downturn, Keynes has already been riding high. Now his ideas about international finance are being elevated and voiced by the top leaders in the land.

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