In 1936, Keynes wrote, “Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slave of some defunct economist.” As we speak now, no deceased economist is more influential than Keynes himself.

Greg Mankiw, a former economic adviser to George W. Bush, said that “if you were going to turn to only one economist to understand the problems facing the economy, there is little doubt that the economist would be John Maynard Keynes.” Paul Krugman, a recent Nobel Prize winner in economics, proclaimed that now is a Keynes moment. Joseph Stiglitz, another Nobel Prize winner, goes further, claiming a moment of triumph for Keynesian tradition.

Keynes earned his popular acclaim the hard way: by being right on a very difficult and important question. Most classical economists before Keynes believed in Say’s Law, that supply creates its own demand. Slump in demand without external cause such as war or natural disaster is impossible. Keynes’s theory explains why depression is possible and, more importantly, how to get out from it.

Keynes connected the downward spiral of economic downturn to insufficient aggregate demand. Facing lower sales, business and producers cut back production despite available capacity, thus closing some factories and laying off workers along the way. The unemployed and those fearing to be unemployed reduce their purchases for higher liquidity preferences, the desire of individuals to hold liquid monetary assets, which leads banks to offer higher interest to get deposits. Banks hold their purse tight and freeze loans in fear of failed repayments. The vicious cycle continues.

Keynes further argued that not only are markets not self-correcting, but in a severe downturn, monetary policy was likely to be ineffective and the economy is in a liquidity trap. Fiscal policy must come to the rescue and not worry about budget deficits.

Couldn’t Indonesia’s government spend its way out of an economic downturn? October exports showed an 11.6 percent decrease from September. Reductions in oil prices played a significant role, but non-oil and gas exports such as rubber, wood products and textiles fell between 22 percent and 32 percent.

Foreign investment is likely to drop due to capital outflow to the United States and Europe to recapitalize the over-leveraged and subprime-exposed banks. In East Asia, Toyota and Sony are already feeling the impact of penny-pinching consumers.

There are some silver linings. Indonesia’s economy still grew at 6.1 percent on the third quarter. After bottoming in June, the consumer confidence index is rising and the October numbers reached their highest since July. More important, inflation receded in November at 0.12 percent, down from more than threefold in October.

While central bankers around the world cut interest rates, Bank Indonesia only recently cut its lending rate by 25 basis points. BI had raised its key interest rate six times this year, from 8.0 percent to 9.5 percent. BI also announced support for export credits and adjusted the overnight deposit rate to 50 basis points from 100 basis points below the benchmark BI rate. The Jakarta Interbank Offers Rate reaches 15 percent while the corresponding number for London and Singapore is below 3 percent. It’s hard not to argue for an even lower BI rate and creative liquidity measures.

The age of the central banker is supposed to pass — an era in which former Fed chairman Alan Greenspan, Duisenberg from the European Central Bank and Hayami from Bank of Japan are sages that could move markets and jolt economies with a single word. Bank Indonesia is not that mighty, but BI Governor Boediono can prove that Indonesia still not all-Keynesian yet.

The writer is an economics lecturer at the University of Indonesia and maintains a blog at kafedepok.blogspot.com.