Re: Dubya and farcical Keynesianism
Thanks for the comment, Shane... You seem to have forgotten that the Keynesian and [neo]classical views are totally incompatible I think you are correct, in the 1930s depression Keynes was faced precisely with the problem of mobilising capital for employment-generating investment, but, I would draw a distinction between Keynes and some of his epigones. But I haven't got the literature handy here to m,ake the argument (I am not a professionale economist who can do it off the top of my head). Incidentally, I profited from reading your Phd Thesis in 1985, but we've come a long way since then, isn't that so... Jurriaan
Re: Dubya and farcical Keynesianism
Jim, At this point, I don't think military Keynesianism is a big thing. It's hardly enough to cancel out all the cut-backs by the states. But Iraq War II may become a full-scale quagmire... I saw figures suggesting military expenditure in the vicinity of 500 billion (?) but that would be over a number of years ? in Marx himself, the distinction between saving and investment is not emphasized. The issue is more one of overproduction and the non-realization of surplus-value. Let us say it is implicit in the theory of primitive accumulation. But you are correct, he doesn't develop it. I am suffering from an overproduction of emails... It is natural of course that Marx wouldn't approach economics from a savings-consumption model, because that is the point of view of the owners of capital only. That would disregard all those who don't own any capital, or almost nothing. Regards J.
Re: Dubya and farcical Keynesianism
the various GOP leaders quoted on the radio concerning these deficits had a simple solution: the budget will move toward balance by cutting government waste. This means cutting any programs that don't directly benefit the rich, business, and the Pentagon. Keynesian economics makes sense as a form of government investment. The government runs a deficit (borrows money) and invests in the project of getting the economy back to full capacity use. This pays off, since it automatically raises incomes and thus tax payments, while simultaneously cutting outlays on such automatic stabilizers such as unemployment insurance payments and welfare payments. In a situation like that of the present, it can goose business to invest more, since it creates a market for business output. If the borrowed money is spent on actual government investment projects (education, infrastructure, basic research, public health, etc.) Keynesian deficits also eventually stimulate the supply-side (as does government-provoked private investment). In these terms, the Bush program is an extremely inefficient investment project. The money isn't going for investment projects. It's mostly going to give money to the rich, which does not have as big an impact on demand. Or its going to the military, which doesn't help the supply side of the economy. But of course, if you shift away from the Keynesian perspective, it's a very efficient investment: the Bush clique is using state power to reward its friends (including members of the clique) and punish its enemies. It's also using it in an effort to guarantee four more years in office, so they can loot some more... Jim Devine [EMAIL PROTECTED] http://bellarmine.lmu.edu/~jdevine -Original Message- From: Eubulides [mailto:[EMAIL PROTECTED] Sent: Wednesday, August 27, 2003 9:32 AM To: [EMAIL PROTECTED] Subject: [PEN-L] Dubya and farcical Keynesianism The deficit habit Bush's high-spend, low-tax strategy is thoroughly Keynesian. However, he will be heading for trouble if he does not change course when the economy picks up, writes Mark Tran Wednesday August 27, 2003 The Guardian There is a case for the Bush administration running up huge deficits as it tries to stimulate a sluggish economy. After all, it is following the advice of the great economist John Maynard Keynes who preached that governments should spend money and boost demand in times of recession. The Bush White House, taking that message to heart, has slashed taxes and increased spending - especially on defence - to get the economy moving again after the 2001 recession. As a result, the US budget deficit is expected to hit a record this year and next. In figures released yesterday, the politically neutral congressional budget office (CBO) estimated that this year's budget shortfall will hit $401bn (£254.7bn) and $480bn next year. Those figures far surpass the previous record of $290bn in 1992 - and that is without taking in the spiralling bill of the US occupation in Iraq, which is costing the Pentagon $4bn a month. Yet, large as they seem, these budgets as a proportion of gross domestic product (GDP) are not alarmingly large. Next year's deficit - minus the cost of Iraq - will form just 4.2% of GDP, well short of the record 6% of GDP under the Reagan administration. So Keynesians would have no problem with the current tide of red ink. But there is a big difference between temporary budget deficits and fiscal irresponsibility. Even the White House insists that it wants these deficits, which will grow to a cumulative $1.4 trillion over the next decade according to the CBO, to shrink. As Greg Mankiw, the chairman of the White House's council on economic advisers, told Fortune.com recently: We don't want deficits to get out of hand. Over the next five to 10 years, Mr Mankiw said that he expected the deficits to shrink from about 4% of GDP to about 2%. But once budget discipline goes out of the window, it is hard to change tack. Congress already has some expensive projects in the pipeline. It wants to spend $400bn over the next 10 years to overhaul Medicare, the federal health programme for the elderly. Moreover, making permanent the president's tax cuts, which Republicans are determined to do, would add almost $1.6 trillion to the tide of red ink. That gives an idea of how hard it will be to put the genie back into the bottle. It is the prospect of huge entrenched deficits that has economists worried. George Akerlof, an economist at the University of California at Berkeley, and 2001 Nobel laureate, has attacked Mr Bush's fiscal policy as the worst in more than 200 years and predicts a deficit of $6 trillion in the next 10 years. Douglas Hotz-Eakin, the director of the CBO, put his finger on the problem when he said that deficits were acceptable as long as the
Re: Dubya and farcical Keynesianism
In these terms, the Bush program is an extremely inefficient investment project. The money isn't going for investment projects. It's mostly going to give money to the rich, which does not have as big an impact on demand. Or its going to the military, which doesn't help the supply side of the economy. Of course the rich could theoretically invest in expanding production, but then they would need a motivation to do so. What would motivate them to invest in cumulative production growth, in an economy running at 75 percent of installed productive capacity and relatively stagnant ordinary consumer demand ? No doubt defence contractors would argue that they do stimulate the economy, both through orders of materials/equipment and through employing additional labour. I think it is important in this sense to get quantitative data, but it is very difficult to trace the flow of funds from the US government and enterprises producing military equipment to other enterprises so that you might be able to estimate some kind of multiplier. All you really have is the total value of defence contracts by contractor. It looks to me like military production is not sufficiently large-scale to increase economic growth significantly overall, except for some sectors. As a Phd student, I really got the impression that really neoclassical economic models boil down to a zero-sum trade-off between saving and consumption, where saving is tacitly treated as automatically implying investment. This is suggested by Keynes's formulas as well. Thus, what is not consumed, is saved, and what is saved, is invested. In Marxian theory, of course, a sharp distinction is made between saving, investment, and type of investment. In addition, the zero-sum game of neoclassical economics does not exist, since within consumption, there is a distinction between ordinary consumer spending, luxury consumption and arms spending. Thus, an increase in savings would not automatically translate into an increase in productive investment, since the investment might be non-productive investment, or the savings might be spent on luxury consumption or arms spending. To my knowledge, Russian Marxist economist Nikolai Bukharin was the first to expound this viewpoint clearly. A similar interpretation is suggested in A Critique of Neoclassical Macroeconomics by John Weeks. A big problem with Keynesian economics, as Michael Kalecki implies, is really that it does not differentiate between distinct classes of income-earners, and their differential propensities to save, invest and consume. Interestingly, we could conclude from the economic policy of the US government, not only that increasing social and income inequality is counterproductive to economic growth, it is also counterproductive to paying off the US foreign debt. Ordinary workers pay taxes but do not engage in significant foreign borrowing of their own. Conversely, the more capital they have, the more private owners of capital will borrow, and if demand is sluggish due to stagnant demand among ordinary consumers, the investments will concentrate on luxury spending and arms production, or else capital will go offshore in search of a higher return. The other day I was looking at international data on investment in domestic and foreign securities (all types) as a proportion of GDP, because investment in domestic and foreign securities and derivatives is much larger than direct domestic and foreign investment. Countries like Holland and the USA seem to invest in securities to an amount at least twice the total value of GDP - in Luxemburg, the value of securities investments absolutely dwarfs GDP. J.
Re: Dubya and farcical Keynesianism
Jurriaan wrote: As a Phd student, I really got the impression that really neoclassical economic models boil down to a zero-sum trade-off between saving and consumption, where saving is tacitly treated as automatically implying investment. This is suggested by Keynes's formulas as well. Thus, what is not consumed, is saved, and what is saved, is invested. You seem to have forgotten that the Keynesian and [neo]classical views are totally incompatible: the latter view savings and investment as equal *ex ante* (meaning that every decision to save is necessarily accompanied by an equivalent decision to invest and vice-versa) while for Keynes investment and savings decisions are quite independent of each other. That aggregate savings and aggregate investment are equal *ex post* is merely an accounting identity. What counts is the quantity. If at a given level of income intended savings exceed investment, their identity is established by falling income and employment, and conversely if investment exceeds intended saving the identity is established at a higher level of income and employment. For Keynes, as for Marx, it is investment that is the dynamic factor--and expected profitabilty that drives investment. Shane Mage When we read on a printed page the doctrine of Pythagoras that all things are made of numbers, it seems mystical, mystifying, even downright silly. When we read on a computer screen the doctrine of Pythagoras that all things are made of numbers, it seems self-evidently true. (N. Weiner)
Re: Dubya and farcical Keynesianism
Of course the rich could theoretically invest in expanding production, but then they would need a motivation to do so. What would motivate them to invest in cumulative production growth, in an economy running at 75 percent of installed productive capacity and relatively stagnant ordinary consumer demand ? monetary policy won't motivate expansion when capacity utilization is low, but tax cuts and/or spending increases can do that, by creating a market that tallows greater use of installed capacity. ... it is very difficult to trace the flow of funds from the US government and enterprises producing military equipment to other enterprises so that you might be able to estimate some kind of multiplier. All you really have is the total value of defence contracts by contractor. It looks to me like military production is not sufficiently large-scale to increase economic growth significantly overall, except for some sectors. in a period of lots of unemployment, some workers are getting more income than they were before because they have jobs as soldiers (or are replacing those who have jobs as soldiers in the private sector). At this point, I don't think military Keynesianism is a big thing. It's hardly enough to cancel out all the cut-backs by the states. But Iraq War II may become a full-scale quagmire... As a Phd student, I really got the impression that really neoclassical economic models boil down to a zero-sum trade-off between saving and consumption, where saving is tacitly treated as automatically implying investment. This is suggested by Keynes's formulas as well. Thus, what is not consumed, is saved, and what is saved, is invested. Keynes reverses the classical line of causation: increased investment leads to increased income, which raises saving. In Marxian theory, of course, a sharp distinction is made between saving, investment, and type of investment. in Marx himself, the distinction between saving and investment is not emphasized. The issue is more one of overproduction and the non-realization of surplus-value. Jim
