Written By: - Date published: 1:45 pm, January 31st, 2009 - 49 comments
Categories: economy, Keynes -
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The New Republic has a good article on Keynes that points out the tendency for governments (specifically in the US) to flock toward Keynesianism during the bad times and ignore it when things pick up and to implement the facets of Keynesianism that suited their own agenda rather than the nation as a whole:
If you look at America’s periodic experimentation with Keynesian policy, it has been guided from the beginning by a determination to avoid any measures that might be described as socialist. It began with what was later called “military Keynesianism”–defense spending being one kind of public investment that was politically safe. But it has increasingly centered on tax cuts.
Sound familiar? I lost count of the number of right wing politicians, business journalists and economists who called for tax cuts back in 2005 when the economy was running hot and we were already at the limit of our productive capacity due to underinvestment in skills and capital. In short they were calling for higher inflation and depletion of the government’s capacity to deal with a potential bust.
Well that bust is here now. And thanks to the Keynesian policies of the last government (excepting their failure to alter the reserve bank act) we’re in a better state to deal with it than most of our trading partners. Now rather than say “I told you so” (and I and other left commentators did) I’m going to offer some more advice to the numbskull pundits and to the people who believed them:
When we get out of this recession, and we will, remember exactly how we did it, remember the failings of business and don’t complain when the government increases taxes, focuses on redistributing wealth and pours money into debt repayment and government savings.
If they have any spine the next boom-time government will also regulate the hell out of speculative capitalism and the finance industry. With luck voters will cast their minds back to these days and applaud. I suspect however that faced with the irresponsible political howlings of business and the right that they will forget.
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Draco – Capitalists dont want a free market.
I’m quite aware of that. Give them the free-market which they keep asking for and you will hear them screaming all the way to the bank
What they’re really after is state subsidised bullying that protects their monopoly so that they can keep doing what ever they want while everybody else suffers in poverty*. This is usually called a dictatorship.
* Poverty is needed else no one would be dependent upon the capitalists. This is why they complain about welfare and “state dependence” because it removes people from the compulsion necessary for them to slave away to make some one else far richer for less than the resources needed to operate in the market.
NickC
Great link, thanks. I don’t expect supporters of big govt here in NZ will agree with the facts about historic redistribution experiments. The reality shoots down everything that Labour has done for the last 9 years.
burt,
there was a problem with your response.. actually a string of problems related to my request in the first place. Was it plain – (your response)..? Was it forthright..? Was it dealing with the issue ‘on the face of it’ (ie per my words).. So was it welcome..?
A lot of noes came up; and I reworked thinking about it to well, since I didna deserve a lot of noes maybe you hadna intended respond directly to my request.. but in point of fact attempt some distraction. Fair enough if you weren’t up to it, or the weather was too hot (like for me) or something else.
Now it turns out your response was
plain, forthright and on the faceas well as unwelcome.The second paragraph was, of course, a different subject. An explanation which serves notice that our wouldbe audience is greater than we two.
“There’s a rediculous amount of large salaries in Wellington with zero acountability residing in expensive office space”
Why hasnt Johnny friendly gotten rid of them then? You’d have thought such a travesty would have been in the 65 Day (in)action plan
NickC,
thanks for the insights. Am I correct in presuming from them that growth is all (that matters)..?
Further, you may care to explain how your definition of growth can be 24/7 for all for all time..
http://nz.youtube.com/watch?v=VoxDyC7y7PM
He’s right in one way – the Keynesian stimulus doesn’t work if the money is borrowed. He’s wrong in saying that the government printing money wouldn’t work. All that has to be done is that any money the government prints is balanced by the tax take.
“…governments just like to spend other peoples money”
This is just a dog whistle considering that the other peoples money that the government will be spending under present systems is that of the people who hold government bonds. Holding government bonds means that you have an income and you’re money is guaranteed to be safe. Decent return for absolutely no risk – I’m pretty sure that capitalists love it. And I’m also pretty sure that’s why, when Keynesian stimulus is used, it’s by borrowing money rather than the logical method of the government printing money.
It’s also interesting how he stressed that tax cuts don’t work – something the left have been saying for nearly 100 years.
In the spam trap?
Chris G
“Why hasnt Johnny friendly gotten rid of them then? You’d have thought such a travesty would have been in the 65 Day (in)action plan”
I’d hope and suggest because it has to be done sensibly following research.
IrishBill
“Bevanj, your comment on Wellington is both wrong and provincial and our lending institutions have not been responsible. We have massive private debt issues which have been driven by the profits made available through our absurdly high interests rates. The small buffer we have at the moment is due to the last government massively reducing our debt.”
Living and working in Wellington that has given me insight into a couple of government departments and there is significant waste with no justification and little focus on font line results. Back when I lived and worked in the provinces I’d not have believed such levels of waste possible by educated individuals. It’s simple poor management.
I’d disagree that we’re in a better position because of some specific Keynesian policy enacted by labour. It seems to me that their plans for redistribution remained largely plans after nine years. I can’t think of a single example of labour government spending that seemed innovative. If they did it was probably Anderton’s idea and he was probably right.
Certainly I agree our lending institutions have been irresponsible but don’t take the individual’s choice out of that equation. Families have in many instances chosen to take on larger mortgages than they perhaps should have. Many did this bouyed by the greedy thought that the now fictional capital gain would see them better off for doing so.
For some insight into the greed and systemic failure in the US around Freddie Mac and Fannie Mae that caused much of the crunch have a look at this:
http://www.nytimes.com/2008/12/28/business/28wamu.html?pagewanted=1&ref=business
It’s a few pages long but every page had my eyes bulging further.
I simply don’t see that mortgaging our kids to spend now can work in the long run, we’re simply taxing their endeavours longer and harder to pay the interest overseas … much like many have been doing with our houses recently.
And sorry if I’ve missed the detail but how can printing money help in a tiny economy like NZ? What kind of unnatural law does that thinking subscribe to?
Prisoner’s Dilemma
The master’s of the universe at the top of the giant pyramid scheme have grown accustomed to the delicious flavour of the frustrum’s florets of fractal broccoli.
this is why we speak of keynesianism.
Bevanj, Thanks for that NYT link. Pretty bad huh? But nothing as far as I can see to do with mae and mac.
Most of the really bad stuff, like in that article, were in the sector of the market that mae and mac wouldn’t (couldn’t) underwrite. It really had f.all to do with them. They were followers in the subprime market, not leaders, and only ever had a small exposure market share wise.
Sorry Pascal’s bookie (and all) you’re right I’ve confused my reading. In this example they were selling on as investment product not to the institutions.
“Because WaMu was selling many of its loans to investors, it did not worry about defaults: by the time loans went bad, they were often in other hands.”
Not to worry. I’m a bit primed on this one, the whole ‘It’s all Mac and Mae’s fault’ idea is one that I’m watching travel around with interest, as it were.
The system in the US took too much responsibility from those selling/writing of the initial lending. Loans were packaged up and sold to investors or the “better” loans sold to Freddie Mac for example. Over time standards dropped significantly. The mortgages were tied to the property not the individual.
It’s not hard to see how we’ve fared a little better over here. It wasn’t quite so open to abuse and collapse.
Has government borrowing to fund consumer spending and jobs ever been demonstrated to work/outstrip the debt it aquires? Surely it gets repeatedly used because seeing our govt sitting on its hands isn’t likely to get it re-elected.
And sorry if I’ve missed the detail but how can printing money help in a tiny economy like NZ?
It allows more money into the market so that normal market operations can continue.
What kind of unnatural law does that thinking subscribe to?
What makes you think it’s unnatural? If there isn’t enough money in the market then the market will slow down and, eventually, stop. We’re in a recession because the amount of money in the market is drying up. To try and stop this the government puts more money in the market (Keynesian counter cyclical) but the normal way is to borrow that money which, as the video said, really only moves money from one part of the market to another, charges interest on it but doesn’t actually achieve anything except higher debt levels for the country which they can never pay off due to the interest.
Printing money is dangerous – no doubt about that but if it’s done properly you don’t get hyper-inflation. An example would be Britain and France after WW1. Britain tried to go back on the Gold Standard and had double digit unemployment and mild deflation. France, on the other hand, printed money and had full employment and mild inflation. They did go too far and that’s the danger of printing money but our present troubles can also be partially laid at the feet of the money printers (otherwise known as banks).