On Tue, February 2, 1999 at 10:11:11 (-0500) Doug Henwood writes: >So today's WSJ article on Keynes says: > > But the 1990s boom has also had a distinctly reverse-Keynesian > flavor. Countries that made the tough decisions to reduce their > deficits have thrived, as supportive financial markets rallied, > further discrediting the old Keynesian thinking. For a 1996 > report on fiscal policy around the world, IMF economists > conducted a detailed study of 62 attempts by industrial countries > over the prior quarter-century to get their finances in order. > The study concluded that the 14 cases where governments had been > the most draconian -- notably Denmark and Ireland in the > mid-1980s -- resulted in the fastest growth. "The simple > 'Keynesian' view of fiscal consolidation is that lower government > purchases or higher taxes reduce aggregate demand," the report > said. Instead, it concluded, "there may be a virtuous circle > between economic growth and debt-ratio reduction." > >I've given up trying to get a response to this sort of thing from the >cranks on PKT. Any reactions here? Let me throw in my 2 cents' worth... My understanding was that Keynes's ideas (as opposed to "Keynesian") were directed at an economy that was sputtering badly, and were designed to revive it. My simplistic understanding is that there is a "demand gap", and you can use government spending to close it. However, there need not always be a "demand gap", either actually present in the economy, or "latent" (in the sense that should government spending drop, the gap appears). So, I guess I question whether Keynes himself really had in mind what seems to be attributed to him. Didn't Keynes believe that a spiral downwards could be caused by fear? Well, what if "confidence" were restored not by spending but by beating up the workers? We know profit levels have been at record levels, so this seems a reasonable crutch. Finally, Jamie Galbraith had or has a grad student doing some work showing the remarkable continuity of government spending levels. Bill
