Posts tagged robert skidelsky
Everyone Is Scared To Death Of The End Of Stimulus
Aug 19th
Professor Robert Skidelsky has an interesting comment on the problems facing global growth right now, notably that it is the fear of austerity that is preventing businesses from investing.
From Skidelsky’s piece on Project Syndicate:
The truth is that it is not fear of government bankruptcy, but governments’ determination to balance the books, that is reducing business confidence by lowering expectations of employment, incomes, and orders. The problem is not the hole in the budget; it is the hole in the economy.
What interests us about this comment is that Skidelsky cuts right to what matters, that psychologically, businesses and consumers right now have lost their sense of confidence.
Check out the decline in U.S. Business Confidence from ISM (via Trading Economics):
And while the real economy may be dragging, that could be just as much about the loss in stimulus, as presented by Goldman Sachs today, as it is about the psychological wounds associated with that absence.
This argument would mean that the loss of stimulus has a knock on effect on businesses and consumers, which makes them even less confident in the recovery than they already were, and more likely to hold back from investing and spending because of it.
"Policymakers Need to Re-Learn Their Keynes"
Aug 18th
Robert Skidelsky says deficit hawks are "scraping the bottom of the intellectual
barrel":
Fixing
the Right Hole, by Robert Skidelsky, Commentary, Project Syndicate: …When
John Maynard Keynes talked of persistent under-employment, he did not mean that,
following a big shock, economies stay frozen at one unchanging level of
depressed activity. But he did think that, without external stimulus, recovery
from the lowest point would be slow, uncertain, weak, and liable to relapse. His
“under-employment equilibrium” is a form of gravitational pull rather than a
fixed condition. …
Contrary to Keynes, orthodox economists believe that, after a big shock,
economies will “naturally” return to their previous rate of growth, provided
that governments balance their budgets and stop stealing resources from the
private sector. The theory underlying this way of thinking was set out in the
July Bulletin of the European Central Bank.
Debt-financed public spending, the ECB argued, will “crowd out” private spending…, a fiscal
stimulus will not only have no effect; the economy will be worse off, because
public spending is inherently less efficient than private spending. … The problem with fiscal
stimulus, they say, is that it destroys confidence in government finances,
thereby impeding recovery. So a credible deficit-reduction program is needed now
to “consolidate recovery.” …
The ECB’s arguments look to me like scraping the bottom of the intellectual
barrel. The truth is that it is not fear of government bankruptcy, but
governments’ determination to balance the books, that is reducing business
confidence by lowering expectations of employment, incomes, and orders. The
problem is not the hole in the budget; it is the hole in the economy.
Let us assume, though, that the ECB is right and that fears of “unsound finance”
are holding back economic recovery. The question still needs to be asked: are
such fears rational? Are they not exaggerated in today’s circumstances (except,
possibly, in countries like Greece)? If so, is it not the duty of official
bodies like the ECB to challenge irrational beliefs about the economy, rather
than pander to them?
The trouble is that the current crisis finds governments intellectually
disabled, because their theory of the economy is a mess. Events and common sense
drove them to deficit finance in 2009-2010, but they have not abandoned the
theory that depressions cannot happen, and that deficits are therefore always
harmful (except in war!). So now they vie with each other in their haste to cut
off the lifeline that they themselves extended.
Policymakers need to re-learn their Keynes, explain him clearly, and apply his
lessons, not invent pseudo-rational arguments for prolonging the recession.
links for 2010-08-17
Aug 18th
- Joseph Gagnon on monetary policy – The Economist
- Monetary policy: Why isn't the Fed acting? – The Economist
- Fed sits idle as America starves – Video – Chris Hayes
- Fed’s Kocherlakota: Markets Misunderstood Recent FOMC Move – RTE
- Notes On Koo (Wonkish) – Paul Krugman
- Beginning with the bees – Parke Wilde
- Teenagers Are More Employable…Or Something Like That?? – Do It with Models
Weekend Links at Credit Writedowns
Jul 31st
Hi everyone,
I will be on vacation/holiday over the next few weeks, so my own posting will probably be pretty light – a lot of posts highlighting other views. Check in nonetheless because there will still be plenty on offer from other writers.
Have a great weekend.
Edward
Read more: http://www.creditwritedowns.com/news-feed#ixzz0vHNd3ID7
You may also like:
Related posts:
Post Permalink: Weekend Links at Credit Writedowns
Permalinks: RSS – Newsletter – Twitter – News – Contact
Copyright © by Credit Writedowns
Author: Edward Harrison;
Tags: financial news, News
Keynes and Social Democracy
Jun 23rd
Was Keynes in favor of big government? Do Keynesian policies necessarily lead
to big government?:
Keynes
and Social Democracy Today, by Robert Skidelsky, Commentary, Project Syndicate:
For decades, Keynesianism was associated with social democratic big-government
policies. But John Maynard Keynes’s relationship with social democracy is
complex. Although he was an architect of core components of social democratic
policy – particularly its emphasis on maintaining full employment – he did not
subscribe to other key social democratic objectives, such as public ownership or
massive expansion of the welfare state. …
Until The General Theory was published in 1936, social democrats did not know
how to go about achieving full employment. Their policies were directed at
depriving capitalists of the ownership of the means of production. How this was
to produce full employment was never worked out. …
Keynes demonstrated that the main cause of bouts of heavy and prolonged
unemployment was … fluctuating prospects of private investment in an uncertain
world. Nearly all unemployment in a cyclical downturn was the result of the
failure of investment demand.
Thus, the important thing was not to nationalize the capital stock, but to
socialize investment. Industry could be safely left in private hands, provided
the state guaranteed enough spending power in the economy to maintain a
full-employment level of investment. This could be achieved by monetary and
fiscal policy: low interest rates and large state investment programs.
In short, Keynes aimed to achieve a key social democratic objective without
changing the ownership of industry. Nevertheless, he did think that
redistribution would help secure full employment. A greater tendency to consume
would “serve to increase at the same time the inducement to invest.” …
Moderate re-distribution was the more politically radical implication of
Keynes’s economic theory, but the measures outlined above were also the limits
of state intervention for him. As long as “the state is able to determine the
aggregate amount of resources devoted to augmenting the instruments [i.e., the
capital base] and the basic reward to those who own them,” there is no “obvious
case” for further involvement. …
Today, ideas about full employment and equality remain at the heart of social
democracy. But the political struggle needs to be conducted along new battle
lines. Whereas the front used to run between government and the owners of the
means of production – the industrialists, the rentiers – now, it runs between
governments and finance. …
Being too big to fail simply means being too big. Keynes saw that “it is the
financial markets’ precariousness which creates no small part of our
contemporary problem of securing sufficient investment.” That rings truer today
– more than 70 years later – than in his own day. …
This, once again, calls for an activist government policy. … Keynes’s main
contribution to social democracy, however, does not lie in the specifics of
policy, but in his insistence that the state as ultimate protector of the public
good has a duty to supplement and regulate market forces. If we need markets to
stop the state from behaving badly, we need the state to stop markets from
behaving badly. Nowadays, that means stopping financial markets from behaving
badly. That means limiting their power, and their profits.
On Keynesian policy and big government, as I've explained many times (e.g.),
there is no necessary connection between the size of government and Keynesian
stabilization policy. Want the government to grow? Then cure recessions by
increasing spending, and pay for it by raising taxes during the good times. After a few business
cycles under this policy, government will be larger. This is the strategy that
Democrats are accused of playing.
Want the opposite result? No problem, just use tax cuts to stimulate the
economy during a recession, then pay for the cuts by reducing government
spending during the subsequent boom. A few cycles later, and government
is much smaller. This is the Republican starve the beast strategy that they
fully admit to playing (I am abstracting, of course, from the
political difficulties with either strategy).
Want to keep government the same size? Then simply use the same policy tool on both
sides of the business cycle. Increase government spending in a recession, then
reverse it in the good times, or, alternatively, cut taxes during the bad times,
then raise them when things improve.
Summarizing: Using a different policy tools on each side of as recession changes
the size of government, while using the same policy tool does not. But the main
point is that, contrary to what you may have been led to believe, there is
nothing inherent in Keynesian economics that connects stabilization policy to
the size of government. There are, I think, political considerations that make
it easier to cut taxes or raise spending when times are bad than to do the
opposite when things improve (e.g. the argument that it will kill job growth!). But there is nothing in the underlying economics that says Keynesian policy
necessarily leads to a change in the size of government.
"Paradox of Thrift" versus "Confidence in the Markets"
Jun 17th
Who is correct, Keynes who argued that budget cuts in a recession make things worse — his "paradox of thrift" — or the
austerians who say that budget cuts restore "confidence in the markets" and make
things better? Hopefully, by now, you know how I see it:
Once again we must ask: ‘Who governs?’, by Robert Skidelsky, Commentary,
Financial Times: In 1974, Edward Heath asked: “Who governs – government or
trade unions?” Five years later British voters delivered a final verdict by
electing Margaret Thatcher. The equivalent today would be: “Who governs –
government or financial markets?” No clear answer has yet been given, but the
question may well define the political battleground for the next five years. …
The implicit premise of the coming retrenchment is that market economies are
always at, or rapidly return to, full employment. It follows that a stimulus,
whether fiscal or monetary, cannot improve on the existing situation. All that
increased government spending does is to withdraw money from the private sector;
all that printing money does is to cause inflation.
These propositions are a re-run of the famous “Treasury view” of 1929. By
contrast, Keynes argued that demand can fall short of supply, and that when this
happened, government vice turned into virtue. In a slump, governments should
increase, not reduce, their deficits to make up for the deficit in private
spending. Any attempt by government to increase its saving (in other words, to
balance its budget) would only worsen the slump. This was his “paradox of
thrift”. …
Politicians clamouring for cuts in public spending … talk about the need to
restore “confidence in the markets”. The argument here is that deficits do
positive harm by destroying business confidence. This collapse of confidence may
come in several forms – fear of higher taxes, fear of default, fear of
inflation. Deficits thus delay the natural (and rapid) recovery of the economy.
If markets have come to the view that deficits are harmful, they must be
appeased, even if they are wrong. …
We are about to embark on a momentous experiment to discover which of the two
stories about the economy is true. If, in fact, fiscal consolidation proves to
be the royal road to recovery and fast growth then we might as well bury Keynes
once and for all. If however, the financial markets and their political fuglemen
turn out to be as “super-asinine” as Keynes thought they were, then the
challenge that financial power poses to good government has to be squarely
faced.
