Technical Assistance to conduct a Social Impact Assessment of the Guyana National Action Plan on Sug

1
Is Global Keynesianism Possible?
10 April 2009 Beijing China
2
Significance of growth

• For labour determines scope for expansion of
  employment
• For capital determines scope for re-investment
  of corporate profits?
• Therefore if growth is too slow it means the rate
  of profit will fall
• Under capitalism this is periodically inevitable
  (business cycle)?
• Result fall in stock prices, leading to
  destruction of capital / unemployment

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The Keynesian answer

• Use of government policy to offset cyclical
  decline in growth through
• Fiscal expansion (deficit financing)?
• Monetary expansion (low interest rates and easy
  access to credit)?
• This will encourage business to maintain output
  and investment and consumers to consume thus
  reversing the downward cycle

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Problems

• Danger liable to result in inflation if money
  supply is expanded too fast or if markets lose
  faith in value of the currency because of high
  budget deficit
• Not clear if it will work in any case unless
  there is high level of effective demand

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Background to present crisis

• Follows 35 years of declining global growth
• Rising productivity of capital and labour
• Corresponding decline in growth of demand for
  investment capital and labour
• Financial liberalisation since 1980s has
  facilitated speculative investment
• Very lax monetary policy since 2001, leading to
  unsustainable credit expansion
• Resulting exceptional growth from 2003 to 2007
  (4-5 a year)?

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Prospects

• Households in US and other western countries
  hugely in debt need to rebuild balance sheets
• Same applies to many businesses
• Hence they need to reduce rather than expand
  borrowing and consumption in the short term
• Cyclical contraction therefore unavoidable
• Rise in fiscal deficits and monetary easing now
  occurring only likely to cause inflation

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Implications for policy

• Growth maximisation must cease to be policy goal
  (at least in industrialised countries), because
• growth rates high enough to satisfy needs of the
  profits machine are unattainable
• growth above very low levels is more and more
  unsustainable environmentally
• Immediate governments must intervene to minimise
  economic disruption and social distress, taking
  over private assets where necessary)?
• Longer term new economic model must be developed
  based on more rational principles

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Return to first principles I

• The essentially Ricardian theoretical basis
  of conventional economics, which has predominated
  since the Industrial Revolution, is fundamentally
  flawed and designed primarily to serve the
  interests of owners of capital in that
• it focuses on bringing effective demand into line
  with productive capacity rather than adjusting
  capacity to the actual or potential level of need
  / effective demand, and
• it assumes that more or less free competition
  will always tend to equilibrium at levels
  consistent with the full employment of productive
  factors.

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Return to first principles II

• Give priority to meetings needs / wants of
  consumers, workers and taxpayers
• Extension of welfare economics (now more clearly
  in conflict with capitalist priorities)?

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Alternative vision for the future

• Give priority to stability and security (economic
  and social) consistent with equity and maximum
  economic efficiency (long-term lowest economic
  cost)?
• Subject the corporate sector to proper public
  accountability (public support and protection to
  be conditional on respecting public priorities)?
• Abandon the unattainable fantasy of full
  employment in favour of a radically different
  system of income distribution based on a)
  universal entitlement to a basic / citizen's
  income (at a flat survival level) regardless
  of means or employment status and b) more
  regulated labour (and product) markets