Lakshmi Rhone wrote:
> I am also not convinced by the left Keynesians arguing that all we need do
> to eliminate unemployment
> is expand debt financed government programs. Well it may be true that there
> is little evidence that there would capital crowd out effects
> given that the present debt financed expenditures are not putting pressure
> on interest rates. But it seems obvious to me
> that if Obama were to spend like Krugman is demanding (and the Fed were to
> commit itself to a high inflation target) that
> there is a great possibility that business (US owned and foreign) will not
> expand in the US given the fear of future tax burdens
> and the instability associated with inflation. That is, the animal spirits
> are not likely to be strengthened by even more fiscal expansion.
Back in the 1930s, Joseph Schumpeter made much the same argument:
either FDR-type changes or Keynesian stimulus would hurt business
confidence. In that situation, I think he was wrong, because the _lack
of_ Keynesian stimulus or any effort by government to so _something_
(like FDR's non-Keynesian policies) was equally scary to business, if
not more so. In the US, that's because there were commies and fascists
marching in the streets (not to mention less organized disorder, plus
socialists, social christians, etc.), which looked much worse to
business because of the existence of a "communist" state in Russia and
fascist ones in a lot of places in Europe. (Most businesscritters
don't like fascism except under extreme circumstances.)
Nowadays, with most working people in the US demobilized politically
(or mobilized within the co-optive two-party system), the pressure is
all from the right, especially from the bankers and Wall Streeters. So
politicians -- including Obama -- are scared of offending a major
sector of capital, i.e., the financiers. It's not just business
confidence which threatens the President, it's the Dow-Jones average.
Back in the 1990s, Clinton allegedly complained about serving the bond
market. Now, it's hard to imagine Obama complaining, especially since
he's the one who brought in Geithner, Summers, et al. (I'm surprised
he didn't keep Hank Paulson in order to maintain financiers'
confidence, the way he did with the SecDef Robert Gates to keep the
warriors happy. No I'm not. Clearly Obama had to keep the voters happy
on some levels. Some of Dubya's people had to be replaced, especially
Mr. Tarp.)
In this situation, pure Keynesian stimulus -- or fiscal programs (such
as Dubya's tax cuts) that are specifically aimed at helping our poor
beleaguered ruling class -- are more likely to work. But the Wall
Streeters are up in arms about the deficit already. So it seems that
what's needed is a big war, which always seems to open the door to
Keynesianism. It's unclear what that would be. Bomb, bomb, bomb Iran?
My Iranian friend tells me that such an attack would keep Ahmadinejad
in office for a very long time. So that might lead to a bigger war...
Hey, it'll create jobs!
> On the contrary. It seems like we are stuck over the medium term with at
> least astonishingly high levels of unemployment with a greater possibility
> of a double dip about which the government can do nothing than of a
> spontaneous increase in business confidence and real investment (in
> something other than inventories).
right.
--
Jim Devine
"Those who take the most from the table
Teach contentment.
Those for whom the taxes are destined
Demand sacrifice.
Those who eat their fill speak to the hungry
of wonderful times to come.
Those who lead the country into the abyss
Call too ruling difficult
For ordinary folk." – Bertolt Brecht.
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