And he believes in deficit spending when the economy is in a liquidity trap. He writes:
How the budget hole developed: Giles Wilkes... endorses Margaret Thatcher’s tight fiscal policies of the 1980s that were made necessary by “high real interest rates, soaring inflation and a bloated public sector”. But he asserts that a repetition of these would be a serious mistake... dealing with the deficit must wait for definite signs that the recession is over and should be carefully paced so as not to undermine recovery. His most interesting suggestion is that 40 per cent or more of the national debt should be put on an indexed basis... to reassure market fears of a return to inflationary finance, as it would make a high rate of inflation extremely expensive for the government.
But let me explain... why I am more relaxed about debts and deficits.... In the 1930s it was once claimed that the difference between Friedrich Hayek and John Maynard Keynes was that what the former saw as a boom the latter saw as a slump; and in the coming years it is all too likely that some economists will be diagnosing the return of inflation while others will still be talking of lingering depression. The US New Deal recovery was turned into a mini-depression in 1937-38 because of premature action to tighten money and balance the US budget. There is now more danger of economic stimuli across the world being reversed too soon than of their being continued too long.
There is a more profound point. Writing in the 1930s, Keynes believed that world economies faced not a temporary recession but “secular stagnation” because the urge to save exceeded perceived investment opportunities; and the two were only brought into balance by depressed output and employment. In this situation there is a strong case for long-term “dissaving” by the state to offset private saving. In that case measures to stabilise national budgets would have to be put on the back burner. There is no certainty in such matters. But thinking of the vast savings of China and the oil producers it would be foolish to rule out the recurrence of such stagnation.