>
>The stock market crash and its effects on elite consumption and,
>through the multiplier, potentially on overall consumption. We don't
>live in a Joan Robinson inequality-creates-underconsumption world:
>the rich have been spending their stock market gains at an
>impressive rate in the past few years.
>
>That plus the fact that the Federal Reserve misjudged how much of an
>effect its year-2000 interest rate increases would have on
>investment demand...
>>
>>So there seems to be quite a bit of debate among you Keynesians
>>about how to characterize and explain deficient demand.
>>
>>Rakesh
>
>I'm not sure what you mean. There are those of us who instinctively
>want to cure a crisis of deficient demand by raising working-class
>and middle-class consumption.
How is that to be done? Expansionary fiscal and monetary policy raises the level of employment (we'll leave aside the 70s stagflation and contemporary Japan and suppose Keynesianism works as advertised); this raises aggregate working class consumption but to ward off inflation the post keynesians among you (hi Mat) recommend incomes policy but why will the wages of the already employed then keep up with the inflation which results from the creation of money?
Why can't Keynesian demand policies easily then become weapons against the incomes of the already employed? What were the effects of Nixon's wage and price controls on the varying segments of the working class?
I have yet to read a post Keynesian who even raises the question since they only want to show that they can lower unemployment while keeping a lid on inflation. And by those standards they judge their interventions. But there are other questions to ask.
>There are those of us who instinctively want to cure a crisis of
>deficient demand by lowering the real interest rate and boosting
>investment.
Well it is interesting that you don't attempt to boost investment with a fiscal stimulus in the form of big new expenditures. I guess the Reagan happy days of a big tax cut along with a big increase in expenditures are over. Bush will do the former but not the latter, it seems. So we are ever more dependent on the strength of monetary policy, seemingly the key tool in your neo liberal policy making kit. It may be good enough for the US economy in the short term but the world economy seems to need more from its big engine.
> In a well-run society both would have their place, depending on the
>human needs of the working class and the social benefits from higher
>investment.
Well what would it take to get higher investment? Why do you think Greenspan's reversals of his earlier hikes will be enough?
>
>Or, as John Maynard Keynes wrote seventy years ago:
>
>While some part of the investment which was going on in the world at
>large was doubtless ill judged and unfruitful, there can, I think,
>be no doubt that the world was enormously enriched by the
>constructions of the quinquennium from 1925 to 1929; its wealth
>increased in these five years by as much as in any other ten or
>twenty years of its history.... Doubtless, as was inevitable in a
>period of such rapid changes, the rate of growth of some individual
>commodities [over 1924-1929] could not always be in just the
>appropriate relation to that of others. But, on the whole, I see
>little sign of any serious want of balance such as is alleged by
>some authorities. The rates of growth [of different sectors]seem to
>me, looking back, to have been in as good a balance as one could
>have expected them to be. A few more quinquennia of equal activity
>might, indeed, have brought us near to the economic Eldorado where
>all our reasonable economic needs would be satisfied....
But this is capitalism after all. And there is a reason why booms contain the seeds of their own destruction (and it has nothing to with Hayekian triangles or the necessary costs of Schumpeterian innovation), but then to entertain this hypothesis, Brad, you would have to take Marx more seriously than simply reading his Value, Price and Profit Pamphlet which is the only work of his you teach to your graduate students right?! And there is no crisis theory there, though we could quibble forever about whether Marx held to the iron law of wages. since you have never evinced any interest in his major theoretical effort, my counter-evidence will fail to satisfy you, I suppose.
>
>It seems an extraordinary imbecility that this wonderful outburst of
>productive energy [over 1924-1929] should be the prelude to
>impoverishment and depression. Some austere and puritanical souls
>regard it both as an inevitable and a desirable nemesis on so much
>overexpansion, as they call it; a nemesis on man's speculative
>spirit. It would, they feel, be a victory for the mammon of
>unrighteousness if so much prosperity was not subsequently balanced
>by universal bankruptcy. We need, they say, what they politely call
>a 'prolonged liquidation' to put us right. The liquidation, they
>tell us, is not yet complete. But in time it will be. And when
>sufficient time has elapsed for the completion of the liquidation,
>all will be well with us again.
>
>I do not take this view. I find the explanation of the current
>business losses, of the reduction in output, and of the unemployment
>which necessarily ensues on this not in the high level of investment
>which was proceeding up to the spring of 1929, but in the subsequent
>cessation of this investment. I see no hope of a recovery except in
>a revival of the high level of investment. And I do not understand
>how universal bankruptcy can do any good or bring us nearer to
>prosperity...
Yes but you don't seem to be advocating big tax cuts, along with big increases in govt expenditures and looser monetary policy. Why not drive the unemployment rate below 3% and inject much needed demand into the world economy? So, you see, you do seem to think that unemployment is doing some good or bringing us nearer to prosperity.
As for the mastery of prose, I don't think Keynes' critical description of the alternation between prosperity and depression even comes close to the powerful depictions Marx penned in the Communist Manifesto, The Grundrisse and Capital, vol 3.
Though I doubt your fellow economists think very much of the prose style of either Keynes or Marx...
Yours, Rakesh