We are all Keynesians now

Rosser Jr, John Barkley rosserjb at jmu.edu
Mon Jun 8 10:32:58 PDT 1998


Expansionary monetary policy is probably not going to help Japan. They have already had it. Look at their ridiculously low interest rates. Can't get any lower than that. Japan looks like a classic Keynesian liquidity trap. Need to get out with fiscal policy, but tax cuts get saved and public spending seems to be on weird stuff like bridges to nowhere. Barkley Rosser On Sat, 6 Jun 1998 13:16:32 -0400 Doug Henwood <dhenwood at panix.com> wrote:

> Rakesh Bhandari wrote:
> >Sometime this week there was a story in the WSJ about Krugman's
> >recommendation that Japan should print yen madly. What would the class or
> >distributional consequences be of the resultant inflation? Would such a
> >strike against deflation and reduction in real interest rates indeed yield
> >that elusive investment boom?
> The last thing Japan has to worry about now is inflation. Their latest CPI
> is -0.4% year on year (April), and the PPI is -2.7% and accelerating
> downwards. (The 3-month PPI is -5.0% annualized.) The first step is just
> stopping the rot; any investment boom would be a distant dream. It's clear
> they need a big government bailout, a la the US S&L rescue. It's ironic
> that the country known worldwide for its industrial policy can't get its
> shit together to take the necessary step of socializing losses, while the
> country known worldwide as the enemy of industrial policy had no problem at
> all. It's striking how ineffectual the Japanese ruling class looks in the
> face of this crisis, unable to come up with a program or get the state to
> do its bidding - in contrast with the U.S., where $200 billion (present
> value) can be spent on the S&L bailout with hardly any political debate.
> >Would the devaluation of the yen be a
> >catastrophic blow to all the little geese high-flying Japan was supposed to
> >be leading?
> The yen is already weak, and the region is suffering from that as well as
> Japan's general political and economic stagnation. If they could organize a
> coherent bailout, I bet the yen would turn around.
> >As for the Keynesian and AFL-CIO view that
> >"there-is-no-savings-shortage-so-let-the-govt-spend" , are we all in
> >agreement with the following logic: "while Keynes is no longer politically
> >popular, [Robt]Pollin's collection suggests that he may nevertheless be
> >right--any successful efort to increase the aggregate saving rate will hurt
> >corporate investment. Increased saving shrinks the market for goods,
> >depresses the capital consumption allowances that finance gross investment,
> >and dampens current and future profits. Thus deficit reduction in the name
> >of freeing up aggregate saving for private investment is worse than simply
> >a misplaced effort: by depressing aggregate demand and thereby hurting
> >corporate saving, it actually harms real investment." Michele Naples,
> >review of R Pollin's Macroecon of Saving Finance and Investment in
> >Challenge, May June 1998.
> So why did the U.S. deficit reduction since 1993 have such a benign
> outturn, then? I keep asking Keynesians how they explain the U.S.
> expansion, and don't hear much in the way of a good answer. The closest any
> of the PKT list denizens came was Paul Davidson, who attributed it to
> exports. Keynesians could explain the 70s stagflation very well, and now
> they can't explain the U.S. 90s very well. Well, at least Keynes had a good
> prose style.
> Doug

-- Rosser Jr, John Barkley rosserjb at jmu.edu

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