Davos: Larry Summers gives Keynesian economics a new stage I'm among the many sceptics. As Mark Carney, Governor of the Bank of England, pointed out in a recent speech, there's a long history of such economic pessimism, yet ultimately it has always proved misplaced. Far from stagnating, the US economy has grown by a factor of 13 since Hansen ﬁrst formulated his ideas. There is always a ﬁrst time, of course, and certainly one of the big stories here is that despite returning growth, business investment of the type that drives innovation, productivity gain and income growth is still as dead as a dodo. They've got trillions of dollars in cash lying around on their balance sheets, but business leaders are still too cautious to loosen the purse strings. So there is deﬁnitely something of a problem. The issue really comes down to whether you think it a supply-side issue, or simply one of absent demand. Summers argues the latter, but rival Harvard economists Ken Rogoff and Ed Phelps think it more of the former. People talk about the absence of Shinzo Abe's supply-side "third arrow" in Japan, Prof Rogoff observed. But in the US, I don't even see a dart. Provide the right incentives, argues Prof Phelps, and the innovation, grass roots discovery and individualism of the past will come ﬂooding back. Let the private sector do the job. Amen to that. As for Britain, is the implication of the Summers analysis that the UK government, with its mix of monetary stimulus and ﬁscal consolidation, is getting it all wrong? "Dead right," Summers tells me. We'll see, but the employment statistics seem to suggest that it is he who is getting it wrong. Elsewhere at the conference, participants are working themselves up into a state about the sabre-rattling between China and Japan. Prime Minister Abe wouldn't, when pushed, rule out the possibility of Japanese military action to defend disputed territories. China, according to most of the talk here, is similarly determined to pursue its territorial claims, by military means if necessary. Where would the US stand in such a conﬂict? It's all shaping up into something very nasty indeed. Certainly any such action would kill the nascent recovery in the world economy stone dead. Finally, a priceless piece of gossip. After years of speculation, AT&T is ﬁnally ready to take a tilt at Vodafone. You won't get anyone to admit it, obviously, but Davos may have been the occasion for the initial approach. You read it here ﬁrst.