Quote of the week: Paul Samuelson on the essential contribution of Keynes’ General Theory

paul samuelsonPaul Samuelson was the high priest of the post-war “neoclassical synthesis” in economics, which combined a particular interpretation of Keynesian macroeconomics with mainstream microeconomics. He was the author of two influential textbooks which were widely used by students on the US side of the Atlantic and, as time went on, on the UK side as well. Keynes’s disciples at Cambridge University, and many of their students, tended to be politically to the left of their American counterparts, and were critical of Samuelson’s approach to Keynesian economics. But fast forward to today, and the left Keynesians, or post-Keynesians, are sadly confined to a heterodoxy with limited influence on the dominant mainstream of the subject.

This week’s quote, by Samuelson, is another from the 1947 collection of essays The New Economics, published not long after Keynes’ death the previous year. It provides a fascinating snapshot of how some of the influential (mostly American-based at the time) voices in academia assessed Keynes’ contribution to economic theory and public policy. It includes essays by Keynes himself, as well as Joan Robinson, one of the founders of the post-Keynesian school at Cambridge. Continue reading

The ‘original sin’ of Keynes’ General Theory

raising_keynes_book_coverStephen Marglin is a professor of economics at Harvard, and his latest book is a weighty attempt to resurrect the more radical ideas of Keynes contained in The General Theory of Employment, Interest and Money for a twenty-first century audience. I have not yet got far with this 900-odd page tome, but I thought I would post the odd extract as I make progress.

I have to admit that I am not a fully convinced Keynesian, but there is still plenty in Keynes’ and his followers’ writing that remains extremely valuable. His aim of saving capitalism through judicious reforms and policies continues to inspire me. It will be interesting to see how Marglin’s book approaches the ideas of the great man, and the conclusions he draws. Continue reading

Thomas Palley and the ‘vampire squid’ economy

800px-A1_Houston_Office_Oil_Traders_on_MondayPost-Keynesian economist Thomas Palley has written a new paper on financialization which can be downloaded for free here. Palley has long argued that rising inequality across the capitalist world has produced sluggish growth in aggregate demand, undermining GDP growth. Growth has been maintained to some extent through rising public and private debt. These trends have been building for the last forty years, since the shift towards a neoliberal policy regime and ideology. Mainstream economics has recently tried to account for sluggish growth with an appeal to ‘secular stagnation’, and arguing that with interest rates now at historically low levels, there is room for public borrowing to stimulate growth, at least until interest rates begin to rise once more. Continue reading

Wealth, welfare and well-being – what do we want from our (political) economy?

This post draws on a variety of unconventional yet renowned economists to reconsider the values and goals of economic activity and challenge aspects of the conventional wisdom, arguing that economics would benefit from being more controversial and open to debate.

Economics has been called the science of rational choice. An older definition holds that it is concerned with the production, distribution and consumption of wealth. Some of today’s progressives, which this writer often aspires to be, hope for a capitalism (and beyond) that can somehow reconcile sustainable prosperity, justice and liberty. However it must be acknowledged that attaining these three in a satisfactory way can be fleeting, and requires constant work, both in thought and deed. Continue reading

J.K. Galbraith and the cult of economic growth

JKGalbraithJohn Kenneth Galbraith’s The Affluent Society was one of the first non-textbooks on economics I ever read, when it was recommended to me as a schoolboy just starting out on an economics course prior to applying to university. It made a lasting impression on me. Galbraith was a brilliant and compelling writer of books for the layman, managing to entertain without trivialising, and to inform without overwhelming the intellect. He was very much a progressive Keynesian, with a deep concern for the poor and disadvantaged in society.

I am increasingly of the view that economists, politicians and the rest of society need to question rising GDP as a shibboleth of policymaking. I also remain aware that at the moment economic growth is needed to generate valuable employment providing the goods and services which many of us desire. Some of these are surely more necessary than others, and poorer countries need the rising income that comes with successful development more than the richest countries. Technological progress and structural change are also bound up with rising output. These factors are difficult to disentangle from one another, but we have not always had GDP as a central measure of economic progress, and perhaps it is time to incorporate alternative measures into our assessment of the latter, in ways which sustain it without wreaking unsustainable impacts on society and nature in which the economy is embedded. Here is the Open University’s Marcus Davison in a short extract from his chapter on financialisation in a wide-ranging book which is sharply critical of the nature of modern finance: Continue reading

Michael Pettis on China’s latest economic prospects and the difficulty of reform

For some years now I have found Professor Michael Pettis’ analysis of the Chinese economy and its relationship to the rest of the world to be original and compelling. Here is a short interview with him on China’s growth prospects for this year, and the difficulty for policymakers in rebalancing the economy away from investment and towards household consumption. He has long argued that a substantial redistribution of income and wealth from businesses and the state towards ordinary households is vital to this end, for the good of China and the world. He also argues that this still remains largely undone.

Deficits, savings and a post-lockdown consumer boom

Lockdown restrictions are slowly being lifted here in the UK, and after a severe downturn there are signs of economic recovery, with consumption predicted to rebound substantially. It may be some time before the economy returns to its previous growth ‘trend’, but the signs are that consumers are returning to the shops as pent-up demand is beginning to be unleashed.

If this rebound in consumer spending takes place, it will be funded, at least in part, from the high levels of household saving that have been accumulated during the lockdowns. It is my contention that these high rates have been made possible in part due to a massive increase in government borrowing. Without the latter, household incomes and savings would have been much more constrained than otherwise. This is a typically Keynesian argument, and it will be illustrated with a ‘financial balances’ equation. Continue reading

Ricardo, Keynes or Schumpeter? Paths out of lockdown

Across the world, government borrowing has soared in response to a dramatic shrinkage in economic activity. State-mandated lockdowns have been a major cause of this. As vaccination programmes gather pace in a number of the wealthiest nations, and some of them begin to ease their lockdown restrictions, attention turns to the likely form and pace of economic recovery and the implications for the public finances.

Although lockdowns have seen a significant shift among households towards online shopping, and some of this may persist even as high streets become busier again, the recession, unprecedentedly severe for peacetime, has seen consumption, the largest component of aggregate spending, contract, albeit unevenly as spending patterns have changed. The government response to this in terms of its budget has been twofold: support aggregate demand by allowing the deficit to rise, and to a degree temporarily maintain the structure of aggregate supply via support for existing firms and jobs. These two elements have produced a large government deficit. The economy has still shrunk dramatically, and with interest rates already extremely low, it has been left to fiscal policy to support aggregate demand. Continue reading

How elites sold out American workers and how to fix it

A short interview with Matthew Klein, co-author with Michael Pettis of Trade Wars are Class Wars, who gives a nice summary of the central thesis of their new book, which I have already introduced here. Over the next few weeks I will be publishing a number of longer posts inspired by and drawing on some of the ideas contained in the book, and trying to go a little deeper into the relevant economics and political economy.