On Thursday, January 17, 2002 at 20:30:29 (-0800) Rakesh Bhandari writes: >... >I think govts have in fact already found that running deficits the >size that would be needed to achieve full employment would only yield >retrenchment in private investment; govts thus find that limiting >deficits and containing the run up in debt are important to >maintaining private investment--that is, fiscal prudence gives >confidence that taxes and interest rates will remain under control >over the projected future and the state will thus not bite into >profits the prospects for which are not strong.
I don't think this scenario really applies in a downturn. In an upswing, when the private engine of accumulation is ticking along, perhaps. >The limits of the mixed economy have in fact already been reached, >including now in Japan. This could be, or not. Difficult to tell, isn't it? >I do emphatically agree on the importance of the theory of fictitious >capital as you are developing it here. In particular, I agree that >the way out of recessions ultimately depends upon the slaughter of >capital values, not higher prices and strong consumption in the first >instance. James Galbraith and Tom Ferguson have a paper looking wage structure and government policy that seems to come to a different conclusion: "The American Wage Structure: 1920-1947", Research in Economic History, Volume 19, pages 205-257 (Stamford Connecticut, 1999), Alexander J. Field, ed. They look at unemployment, the exchange rate, strikes, and other variables and conclude that "policy makers after World War II managed to avoid the worst macroeconomic mistakes of the earlier period. Encouraged by the post-war strike wave, the spread of Keynes' views, the beginning of the Cold War and later the war in Korea, they maintained high levels of aggregate demand and employment nearly consistently for 25 years, if rarely attaining 'full employment'". I think policy has a strong and potentially positive role to play in quick recovery from and prevention of major recessions. Bill
