In recent weeks the world has been experiencing the re-birth of a once discredited economic philosophy - Keynesianism.

From George W. Bush's US to even John Key's New Zealand, state interventionism, as advocated by John Maynard Keynes, is making a comeback. Twelve months ago, if anybody had said that Keynes would be back in fashion within the year, I would have disbelieved them. I always believed that the free market mantra of TINA (There Is No Alternative) would continue to predominate global economic policy and discourse, at least for the forseeable future.

That has all changed in the simple blink of an eyelid with markets melting and modern capitalism as we've known it for 200 or so years in peril. To save itself, economic policy makers the world over have turned back to Keynes and his belief in market interventionism to try and shore up global demand in the face of a financial crisis that has threatened to cast the world into another Great Depression.

Keynes's theories, postulated on the belief that government fiscal policy should create the conditions for demand-side relief through measures such as tax cuts, spending on public works and more extensive regulation of financial and other markets by the state, have worked before. His theories, encapsulated in his book The General Theory of Employment, Interest and Money published in 1936, served as the main basis for economic policy making for most of the post-war era. Indeed, during the 1930s, New Zealand under the First Labour Government of Michael Joseph Savage, the United States under Franklin Delano Roosevelt and Sweden's Social Democratic Government were the first practitioners of Keynesian economic theory. Conversely, Nazi Germany under Adolf Hitler adopted Keynesian policies as a precursor to the rearmament of that country after 1933 and, sadly, it was military-industrial spending on the part of both Allied and Axis governments that aided the re-emergence of the global economy from depression both before and during the Second World War.

The fact that Keynesianism had been deployed in wartime did not stop it from being deployed to serve the needs of the capitalist West in peacetime. Until the mid-1970's when Keynes's theories were tested in the crucible of the first great oil shock when both inflation and unemployment rose, something that was not supposed to happen according to Keynes's theories of demand management, his theories were in the ascendant as full employment backed up by increased social provision by governments around the world helped steady the global economy.

After the global oil shocks, neo-classical economists such as Fredrich Hayek of the Austrian School and Milton Friedman of the Chicago School began to gain the upper hand in policy debates as Keynesianism displayed its flaws for all to see. This change in intellectual opinion was soon reflected at the political level with the election of right wing governments with Margaret Thatcher in 1979 in the UK, and Ronald Reagan in the US in 1980, heralding the 'new dawn' for laissez-faire economics. Reagan, in his 1981 inaugural address, famously remarked that "..government is the problem and not the solution.." and this belief set off a new round of deregulation of financial, capital and labour markets worldwide.

This shift in thinking arrived in New Zealand with the election of the Fourth Labour Government in 1984. Roger Douglas (now back in Parliament as an Act MP) launched his Rogernomics revolution which freed up financial and other sector markets while creating wider economic mayhem with rising unemployment, inflation and greater social inequality. The adoption of neo-liberal economics by a traditionally centre-left, social democratic party has had ongoing ramifications with a major political realignment resulting in the formation of new parties on the left (NewLabour and then the Alliance) and on the right (Act and United Future) with former Labour figures Jim Anderton, Roger Douglas/Richard Prebble and Peter Dunne leading these.

What is most significant is that National is now preparing to adopt somewhat of a neo-Keynesian strategy to combat the economic crisis. New Finance Minister Bill English and Prime Minister John Key have both differed with Act's Rodney Hide about government spending levels and the need to bring infrastructure spending forward as a result of the crisis. Act, borrowing from neo-liberal thinking, believes that the size of the state should shrink so that the tax burden can be alleviated as a means of curing the economic crisis. English and Key, meanwhile, believe that government spending should be retained at current levels and expenditure on essential infrastructure (e.g. road, rail and broadband) should be brought forward to contain the rise in unemployment. The one thing that all partners in the current centre-right governing arrangement (National, Act and United Future) do adhere to is the need to cut taxes, and not just for lower and middle-income earners but for high earners as well. Another troubling aspect is that the Government is seeking to go through an expenditure review and any resulting cuts to services could also mean job cuts at a time when economic demand is already low.

What John Key and National should be looking at is as to how the British Labour Government is tackling the crisis. The measures announced by their Chancellor (Finance Minister) Alistair Darling should be adopted here. This is the case as the most right-wing Labour Government in British history is now returning back, somewhat, to its past belief in Keynesian economic and social policy with their recent budget promising a more progressive income tax policy with tax cuts for low and middle income earners and increases for higher earners, more public spending in crucial areas such as infrastructure, health, education and housing, pension increases and cuts to consumption taxes in terms of a short term reduction to Value Added Tax (VAT, the British equivalent of GST).

Barack Obama's new Democratic administration in Washington is even floating the idea of a US $1 Trillion stimulus package which will break the bank there but in economic times such as these, direct government action to refloat the world's largest economy is a necessity.

In time, I believe that the measures being proposed today will assist in bringing the global economy back to some measure of health. Greater regulation of financial and capital markets is also needed to ensure that excess and greed do not get in the way of promoting stability as they have this time around. John Maynard Keynes has probably stopped spinning in his grave and is now likely to be relieved that he is back in favour - as are those people, like me, who feel that he never should have gone completely out of favour in the first place.

Let Keynesianism live!