Wednesday, October 29, 2008

notes on Keynes

the extremists want to telescope the period of the seven barons with the Thermidor of the Lubyanka; the moderates conceive of two distinct stages

Against the recent enthusiasm in Britain for Keynesian deficit financing, notes on the same:

1. That Britain is so open to imports obviously weakens the relationship between consumer spending and domestic production. Nevertheless we know deficit financing works in a way because the recent period of alleged prosperity was based on consumers' deficit financing. The only problem has been the accumulation of massive debt.

2. The change to Keynesianism would essentially involve the government taking on the function of generating the debt, servicing it, and directing spending. I suspect the banks want precisely this change and nothing more: the old regime now underwritten by the state.

3. Keynesianism isn't strictly the application of Keynes' system - it would not be possible to calculate the various functions that supposedly determine the economy's headline figures. What we mean is a system of deficit finance understood pragmatically by the relevent actors and rather loosely based on Keynes' theory.

4. The more likely reason for the effectiveness for deficit finance in some conditions is that the distribution of income and the distribution of goods sold affect overall output - the Kaleckian rationale for deficit finance. Hence the valid theory of the practice arguably ought to abandon Keynes' designations of output as effectively homogenous and employment as effectively homogenous.

5. Any positive effect through redistribution can be offset by inflation redistributing incomes the other way - again this isn't part of Keynes' theory.

6. Since we know that the private regime of deficit finance has crowded out real capital investment we shouldn't expect the public version to be any different.

7. There's no reason to expect that the public version of deficit finance won't result in the accumulation of unserviceable debts or massive debts that distort government policy if they are to be serviced. This has been the experience of virtually every African country, for instance.

8. The accumulation of massive public debt triggering a payment crisis can actually serve to facilitate the consolidation of ruling class power, as happened in Russia in the nineties. I shouldn't think this is the plan but it's a possible outcome of a vain policy getting out of control.

1 comment:

catmint said...

1st paragraph is a joke but things could start to go in that direction