Is ideology overhyped?

Much has been written about a dramatic shift to Keynesian thought in economics. Governments around the world are poking their grubby hands and snotty noses into the free market, and journalists (especially the financial ones, having little to write about anyway other than the depressing stuff about oil, banks and people losing their life savings) are having a hell of a time pointing it out.

I think this is rather overstated. Sure, government intervention has become much more pervasive over the last few months (more regulatory oversight, much more spending in the economy, stimulus packages and such); sure, governments have realised that their economies will screw up big-time if they don't step in. But economic policies and schools of thought are never applicable under all circumstances; they were never meant to be. Different approaches are useful at different times, based on a government's macroeconomic aims - ranging from the growth-at-all-costs approach of China and Vietnam, to the control of inflation that countries like the UK seem to be obsessed with. 

And times have changed dramatically. Who would've thought that the housing bubble would have burst so spectacularly, with such dramatic spillover effects into the money markets? And who would've thought that the effect on the money markets would be so pronounced as to affect the real economy? Added to that we had the oil-price peak, only just behind us (and possibly not for long); there was food inflation caused partly by the adoption of biofuels and the food scares we've had. Set against this, arguing (as Friedman did) that "inflation is always and everywhere a monetary phenomenon" is perhaps pushing the case too far.

New Classical approaches combined with the lack of adequate regulation were largely to blame for the brouhaha that financial institutions (and governments) are finding themselves in. It follows then that these approaches were clearly inadequate in dealing with the current situation, if not in the strictly economic sense then certainly in the sense of not being politically expedient. 

To argue, then, as some economic journalists seem to be doing, that this is a new Keynesian age ("we are all Keynesians now" as Ronald Reagan said), is a bit naive, both for the reason stated earlier (i.e. a New Classical approach is clearly inadequate in dealing with the current situation) and for something more fundamental in the nature of politics. Governments have a natural bias against doing nothing; it's their job to govern, for better or for worse. Especially in a multiparty democracy, where to bum around is to hand the political initiative (and quite possibly the next election) to the opposition. Blame it on the goldfish attention spans of the electorate, but like it or not, no government would sit around fiddling while Rome burned. Obviously they had to come up with something to show the voters, and this is the result - Keynes is back in vogue. 

Perhaps it is pertinent, now, to remind everyone that the subject of economics was once called political economy. And decoupling the armchair contemplation of theoretical economic niceties from the nitty-gritty conduct of economic policy is possibly more illuminating than raving about the dawn of a new Keynesian era.