In today’s world it may seem that I am trying to link Keynes with the autarky of, say, North Korea, but of course I am quoting the title of an article he wrote in 1933, in that prior period of great economic crisis of the 1930s, in which he argued the case for national self-sufficiency or, more precisely, for less international finance and less international trade:

I would sympathize… with those who would minimize rather than those who would maximize, economic entanglement among nations [a marvellous phrase]. Ideas, knowledge, science, hospitality, travel—these are the things which should of their nature be international. But let goods be homespun whenever it is reasonably and conveniently possible, and, above all, let finance be primarily local.

There’s an essay by Radhika Desai titled “Keynes Redux”—in the splendid little book Bankruptcies and Bailouts edited by Julie Guard and Wayne Anthony—which begins with that quote by way of insisting that, regardless of what happens to Keynianism, there is always Keynes the radical thinker whose ideas need to be retrieved.

We know that Keynes himself went on at the end of the Second World War to create the institutions and agreements that rebuild the international economy which facilitated more, much more, international trade and finance. But is it possible that what Keynes wrote in the Great Depression has fresh resonance in today’s Great Recession, that just happens to be taking place within a possibly perfect storm of peak oil and peak carbon that could threaten the very foundations of the contemporary global economy? (I had no more than finished writing that admittedly grandiose sentence last weekend when I saw the review in the Globe and Mail of Jeff Rubin’s book Why Your World Is About To Get A Whole Lot Smaller with the sub-title Oil and the End of Globalization)

I concede that whatever merit there may be in such an argument it has escaped those with power. Our leaders have shed their ideological blinders long enough to embrace domestic Keynesianism to stimulate national economies—admittedly no small matter—but they are very explicit that all of this is transitional, in order to put the world back on the old path of globalization.

There will surely be some reforms to global finance, though Wall Street seems to be doing its best to limit these. To our credit, there have long been economists who saw great virtue in globalization but thought global finance had gone too far, notably the late James Tobin and that otherwise hot advocate of globalization, Jagdish Bhaghwati.

As for trade, however, dissenting economists are somewhere between rare and non-existent, and what we are seeing in the midst of crisis are yet more trade agreements accompanied by the insistence of our leaders that only in this way can protectionism be kept at bay and growth restored. (The ink was hardly dry on this sentence than the Canadian government quietly shelved its proposed free trade agreement with Colombia, an apparent victory for anti-free trade sentiment.) President Obama is in the White House in some part because of his empathy for the workers of Ohio and Pennsylvania who lost their jobs to free trade, but he has let his administration be captured by established economic interests with discouraging speed.

Insofar as Obama is the leader of the free-trade world, our fate is simply more of the same. There lies the possibility that the response to the current crisis will pave the way to more crises—though we can derive some hope from the increasing insistence that Asia’s export dependency should change in favour of increasing reliance on domestic demand.

Back to Keynes for whom nuance and unconventional wisdom were a way of life. It is now mostly forgotten that he showed a surprising ambivalence on the issue of free trade.

Keynes understood that imports were a leakage that reduced the size of the multiplier, and that unemployed labour and unused capacity meant that there would be no adverse wage and price effects reducing exports. Hence, to jump forward to today, Buy American policy, which has so upset the elites in this country, makes sense from an American perspective. Likewise, Buy Canadian policy would make sense for this country too, but our elites are unable even to think about that.

Economics is much more permissive on this matter than many economists seem willing to admit publicly and that most commentators are prepared to understand. The classic C.P. Kindleberger text in international economics, from which I was taught by the master himself, in its sixth edition in 1978 done jointly with Peter H. Kindert, is judicious on this matter:

When unemployment is high and new imports are disruptive to jobs and to the solvency of firms, the natural reaction is to jump for protectionism in defense of domestic jobs and income. This natural reaction in fact has a reasonable economic base. When unemployment is high and imports threaten jobs directly, one can argue that the displacement costs are likely to be high. This does not mean, of course, that protection is the most appropriate way of defending those threatened jobs and incomes, but it does mean that protection can look better at such times than the other quick politically feasible alternative, which is doing nothing. Any macroeconomic policies that promote the goal of full employment throughout the economy are likely to have the favourable side effect of weakening the case for saddling the nation with high tariff barriers.

Of course, the US stimulus package is that macroeconomic policy, but insofar as its package, and ours, is too little too late there would remain a role for protectionism.

We need only to add that in the Canadian case, the quick fall of the Canadian dollar—which may now be over—acted like an import surcharge, but this raised no objections because it is a consequence of the market rather than an intervention through it, though the effects are the same.

Keynes himself, in 1931, at the same time that he scandalized conventional wisdom by telling people to spend rather than save, proposed a revenue tariff to neutralize the effect on the trade balance of expansionist policy. This would relieve unemployment and take the strain off the budget. Robert Skidelsky tells us that this proposal by Keynes created a sensation.

All but those who profit from it agree there is too much finance. Is it possible that there is also too much trade? If most economists are reluctant to go as far in their thinking as Keynes had by 1931, where are those who have gotten to where he was in 1933—in spite of the fact that the world has changed in a way that Keynes could hardly have anticipated that has given his radical views remarkable resonance.

For there is now the prospect of an end-game, that of global warming. We are confronted with the fact that trade has an ecological footprint because of carbon emissions from the transport of goods. This creates a preference for the local over the distant and creates a bias against trade. Where Keynes, somewhat quaintly, said that goods should be homespun, we can say that goods should be local.

Peak carbon is the threat, the sign of deep crisis. Peak oil, ironically, notwithstanding its enormous potential for chaos, is the promise of that drastic reduction of economic entanglement which Keynes advocated three quarters of a century ago. The possibility that the market, the price system, will compel a solution no matter how much the politicians dither may even warm the notoriously cold heart of economists.

Mel Watkins is a Canadian political economist and activist. He is professor emeritus of economics and political science at the University of Toronto.