Future of Keynesianism

Mark Jones Jones_M at netcomuk.co.uk
Thu Jun 25 11:22:26 PDT 1998

Doug Henwood wrote:

> No, but there is a limit on credit, no? I think the which comes first,
> investment or savings, argument is a dead end: each determines the other.
> (Or as Keynes said, they're two names for the same thing, that portion of
> income that isn't consumed.) Credit can allow investment (or consumption)
> to exceed the constraint of existing savings or incomes, but only by
> drawing on the future; if there's no increased surplus to validate that
> extension of credit, you get either default or inflation.

Given that 95% of the money stock is the product of bank lending and the global capital-circus looks like a pyramid lending scheme, when the house of cards comes down it'll create the mother of all money-famines, surely. That's perhaps why we're not looking at a cyclical recession but something much worse. As the BIS annual report said in an ominous concluding remark buried under apparently glowing optimism:

"Moreover, a general rise in interest rates, whether initiated in the United States or in Europe, might provide the incentive for a further withdrawal of funds from emerging market economies as well as an overdue reassessment of credit risk in all markets. It is not clear what the full implications of this latter possibility would be in a world where the growth of international interbank deposits increased almost fourfold to over $700 billion last year, and where international securities issues have recently hit all-time record highs."

Given the size of the anglo-saxon asset bubble and the fact that global activity is supported almost entirely by the anglo trade deficits, it seems right to be bearish. One thing that interests me is that this will be the FIRST postwar general recession which will not be overdetermined by political (Cold War) processes: Korea, Suez, Vietnam, Arab-Israel conflicts, Star Wars --

all supervened to prevent crises from working out in classic Marxian terms. What's now to stop a classic general, prolonged slump, in the absence of war, rearming etc?

Actually US economic growth is fuelled by deflations in Asia and eastern and central Europe and elsewhere. That's how growth is possible with balanced budget and positive real interest rates. Capital flight underpins the asset-bubble fuelled growth trend. So all the talk about the 'solidity' etc of US econ growth is just bollox. It's gonna crash.


> Still, I think if you'd asked a Keynesian in 1993 or 1994 what would happen
> if the U.S. went from a structural budget deficit of 3.4% of GDP in 1993 to
> 0.2% in 1997 with real short-term interest rates around 4%, s/he would have
> painted a picture of stagnation, not steady, respectable growth.
> >By the way, have you ever seen Fred Thayer's stuff (some in _Social
> >Policy_) on the historical relation of depressions/recessions and fiscal
> >contraction. There's pretty strong historical evidence for a relation,
> >with causality going from fiscal cintraction to recession and depression.
> I have seen that. We'll see, won't we?
> Doug

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