An interesting post from Peter Cooper at his heteconomist blog on a topic I have discussed before: the effects and limits of government policy on the rate of profit.
Profitability in a capitalist economy provides both the motive for investment, and the source of it via companies’ retained earnings.
Keynesian policies to expand demand can work to increase growth, but in Marxist terms they are limited by their effects on the rate of profit.
Austerity could perversely raise the growth rate over the medium run by restoring private sector profitability, even if it dampens growth initially.
If this idea is right, one can see that capitalism is often not a ‘nice’ system. It may be unrivaled in its capacity for wealth creation, but this is typically done so unevenly and often unfairly. Intervention can mitigate some of this, but within limits.