From: Rakesh Bhandari (rakeshb@STANFORD.EDU)
Date: Thu Jun 12 2003 - 18:42:55 EDT
> >I'm not making a general argument for the effectiveness of >Keynesianism. I'm making the more specific point that a high level of >government deficit spending can be expected to lower unemployment. >Whether the reduced unemployment is sustainable is a broader >social-political issue. > >The average unemployment rate in the U.S. from 1960:01 to 1969:12 was >4.78 percent, not so different from that at the end of the Reagan >deficit-spending episode. > >Allin. Yet the lowest unemployment fell to was 5%--and what was the average during these huge deficit years...6%, right?--despite massive props to effective demand: enormous unsustainable deficits which were higher even on an inflation-adjusted, full employment basis than the two previous decades; exports as stimulated by a steep competitive devaluation (that is, unemployment was exported); and consumption as enabled by mortgage refinancing from reduced interest rates. Here was demand side economics, and it failed even to allow an approach towards full employment. And we are underestimating unemployment, I am sure: unemployment was probably more narrowly defined (the rising prison population was not counted and Reagan played some games with the numbers. I think), bouts between jobs were probably longer in the 80s than the 60s (I think Richard Freeman has shown this), and the exported unemployment of course does not appear in the national statistics. In all honesty, I don't understand the theoretical and empirical basis for continued belief in the possibilities of demand side economics other than the comforting illusion of a cooperative capitalism which it fosters. At any rate, the social democratic Keynesians long ago lost out to those who argued that effective demand was best increased not through debt financed govt expenditures and redistribution but through a revival of investment demand which in turn required the state to promote the conditions of profitability through regressive tax breaks and union busting. After all, Kalecki himself implies that profits in the preceding period are probably the most important determinant of investment which (as Keynes showed) is the key variable in the determination of the level of effective demand. So, as Amit Bhaduri has argued, "a politically conservative style of demand management based on a profit-led and private investment driven economic expansion" can be made within the Keynesian-Kaleckian tradition. The prominent Marxist state theorist Bob Jessop has been speaking for the last decade of a transition from a Keynesian welfare state (KWS) to the Schumpeterian workfare state (SWS). That transition would be made was long ago predicted by Mattick Sr (Marx and Keynes was written in the early 60s). But the point (and Jessop does not make it) is that the transition can be intellectually defended within the same theoretical framework. The world in which we now live gives us Marx vs. Hayek or Schumpeter. This too (unfortunately for the spokespersons for bourgeois society) is an empirical and intellectual battle which the Marxists can win. I am much less sanguine about a political victory however! Yours, Rakesh ps article on pA2 of today's WSJ on need for upward revaluation of yuan makes reference to MacKinnon's work on US opposition to devaluation of yen.
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