Future of Keynesianism

[William S. Lear]

On Thu, June 25, 1998 at 11:25:15 (-0400) Doug Henwood writes:
>Mathew Forstater wrote:
>
>>neoclassical synthesis Keynesianism couldn't explain that or anything
>>else, but Keynesianism, even of a crude kind, could and can easily explain
>>stagflation.  The idea that deficient demand means unemployment and excess
>>demand means inflation and therefore you can't have both at the same time
>>in the K view is a caricature. Simplistically, there are other kinds of
>>inflation than that due to excess demand.  Further, the 'failure' of
>>policy to 'cure' stagflation can easily (and reasonably) be argued as not
>>the result of the weakness of Keynesian policy, but rather that Keynesian
>>policy was not nearly strong or bold enough.
>
>So what caused the inflation then? And what bolder Keynesian policies could
>have been applied?

Lemme try this one.  OPEC price increases in '74 and '79 (4x increase,
correct?) also pushed up prices of substitutes (coal, nat. gas, hydro,
nuclear, etc.).  Energy-cost push inflation resulted (not to denigrate
wage/profit-push, due to more active worker struggles).  Carter could
have increased G, but was in a political bind.  He needed to induce a
massive inflow of short-run capital to raise the value of the dollar
--- this to placate the Saudis who held lots of dollars, otherwise
they'd raise the price of oil further.  So, Carter cooled the economy
with the help of Volker's interest rate hikes.

So, how could Carter have used more spending to help things out?  He
couldn't attack BOP from the trade side *and* increase G, since that
would aggravate the trade deficit further (right?).  So, how could he
have done that with Keynesian (or other) policies?  Raise G, screw the
Saudis, institute oil price controls?

Bill