In case you get tired of reading election coverage, yesterday Edmund Phelps had a fascinating (if dense, to a lay reader) piece on the legacy of John Maynard Keynes in the Financial Times. After rolling out a compelling critique of the British economist, though, Phelps warns of efforts to revive Keynesianism in the wake of the financial crisis:

Yet it must be asked whether a massive shift from private to state investment would not damp the conception, development and adoption of new commercial ideas for innovation. Capitalism theory stresses diversity in sources of new commercial ideas, in the pool of entrepreneurs available for their development, in sources of finance--angel investors, venture capitalists and the rest--and in the array of end users. It also stresses how important it is that owners of financial and business enterprises be accountable to no one (except their own consciences)--thus free to use their intuition--in contrast to the strict accountability rightly required of state employees. Thus a greatly increased presence of the central government in a country’s investment sector could constrict innovation and lower the quality of the innovations that are made. We would be left still in a slump.

Who are these neo-Keynesians? Phelps is presumably referring to the economists and policymakers, among them Larry Summers, who have called for injecting public funds into infrastructure, R&D, and other innovation- and productivity-friendly areas. But, as Gene Sperling and others have noted, infrastructure and R&D spending has declined precipitously in the last 20 years, undermining the prospects of future innovation. Between 1950 and 1970, the United States spent more than 3 percent of its GDP on public infrastructure; in the last 30 years, it’s been below 2 percent. The case being made today isn’t for a “massive shift” to state investment. It’s for getting back to where we started. Moreover, Sperling and Summers aren’t Keynesians: They want infrastructure spending to boost innovation, not consumer spending. While that doesn’t necessarily preclude the “crowding out” effect Phelps fears, it does recommend a public spending strategy of selectively “crowding in” the private sector--much in the way that government funding for IT research led to the Internet, which in turn spurred trillions of dollars in private global growth.

--Clay Risen