Lakshmi Rhone wrote: > Even Dudley Dillard did not forget that the beneficial effects of public > investment financed by loan expenditures may be neutralized by a fall in the > marginal efficiency of capital.
>1. The neutralizing effect may result from an increase in the cost of >producing capital goods as private and public investment are dependent on the >same type of factors of production. < This is not a big problem when unemployment is high and other "factors of production" are underutilized. However, the complementaries of government and private investment are present: for example, if the government builds an airport, all else constant that encourages the airlines to buy planes. > 2. The possibility of the success of the Keynesian program can damage the > expectations of private enterprise, fearful that a newly legitimate > government would likely intrude into fields previously restricted to private > enterprise. < We have to be careful about references to what Krugman calls the "confidence fairy." Especially in the aftermath of a big recession, businesspeople claim that _anything_ that doesn't serve their direct individual interests will hurt their confidence and deter new investment. (Gosh, we'd have confidence if the President gave each of us a free pony.) But the fiscal stimulus has a strong positive effect on biz confidence because it increases the demand for their products, providing them with faster cash flow and more complete use of capacity. If the fiscal stimulus comes in the form of Eisenhower-type (pro-biz) infrastructure and the like, that has a positive effect by speeding up the wheels of commerce. Obama's original StimPak plan was very much along these lines. > ... The business class is however more likely to rally behind > neo-mercantalism and protectionism than it is demand more autonomous > government expenditures which are likely to cause a fall in the marginal > efficiency of capital, subjectively understood. < I'd say that only that part of the business class that isn't internationally mobile and/or dependent on international supply claims will rally behind "neo-mercantilism and protectionism" in foreign trade. How big is that segment? It's not very large these days, I'd say. > Keynesians forget that they do not have a mechanical science. What the effect > of planned public investment will be on the confidence of businessmen is > enigmatic, but it seems clear that they fear the success of an > interventionist state, led by a Robin Hood reincarnated as a black > reparationist more than they want a few extra bucks in their pockets as a > result of autonomous government expenditures...< My impression is that the capitalist class is currently feeling very powerful (as they have for the last 30 years or so, with the possible exception of 2008). That means that they can indulge the short-term particularistic interests of individual businesses and ignore collective (class) interests. (They ignore the fact that business-style Keynesianism of the Eisenhower/Obama sort actually helps them). In addition, it's often unclear what their class interests are. High unemployment suits their class interests if it weakens the last remnants of labor unions, but it hurt them if it causes underconsumption, a debt deflation depression, and/or mass resistance. Though people can speculate about what capitalist class interests are -- and that's what most "think tanks" are about -- we don't know what they really are until after the fact. I don't think any of the current crop of Keynesians see their art as some sort of mechanical science. It's not at all like the Solow/Samuelson vision of the early 1960s. > One possibility to consider here is that it's not possible for the government > to manage effective demand to overcome a protracted crisis and that the > economy left to itself will also suffer protracted depression, not the sharp > V recovery as economic libertarians such as Hayek and Schumpeter claimed. < I'd say instead that it's likely that the government is more able to deal with protracted stagnation than with the normal business cycle. The problem is that they won't do it, as I discussed earlier. > Why no V shaped recovery? Debt deflation spirals (Devine, Krugman [and Irving > Fisher]), imperfect competition (Preobrazshensky), the very business > consolidations undertaken to reduce capital/output ratios and thereby restore > profitability compound the unemployment problem in the short to medium term > and thus the problem of effective demand as well (my leading candidate)?< there's a better explanation: (1) Hayek and Schumpeter had very unrealistic theories; and (2) as a result of a long economic boom, we see a combination of excessive private-sector debt, unused industrial capacity, unsold inventories of housing, and pessimistic long-term expectations, which it term forms a barrier to any private-sector-driven recovery. -- Place Your Favorite Pseudonym Here _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
