The article on Keynes was thought-provoking. I think that Brown is indeed a
neo-Keynesian from a liberal/social democratic background. Most of what he
seems to do is in keeping with Keynes' remedies.
However, Keynes' prescriptions are no panacea. Pre-War Spending in the US
and in Europe to escape the ravages of the Depression was sporadic and only
contributed to a slight recovery. The prime mover was surely the massive war
time spending? Unemployment rates in the US only dramatically recovered in
the very late 30s/early 40s.
We also have witnessed the failure of 'expansionary' policies in Japan to
deal with their deflation.
If the world economy is heading to a period of deflation, then I'm not
convinced that the sort of spend that Brown has promised will be sufficient.
It will certainly expand the economy to some extent but even assuming an
additional {real} £10 billion spend over a period of 5 years, and an average
wage of £25k per person, yields direct employment creation of only 80,000.
Assuming a multiplier of 1.5 yields a net employment creation of 120,000
over this time directly associated with the investment. [I'm assuming that
none of the additional £10 billion is for revenue expenditure]. That's
hardly going to make up for the job losses associated with the Agricultural
sector alone. Meanwhile, the Manufacturing sector is in meltdown and the
City will be hit hardest by the overall market contraction. In all
probability, Brown's spend will need to be multiplied many times over to
counteract a full-scale deflationary recession. [What really needs to be
done is for the UK to get involved in manufacturing - but there's no hope of
that under New Labour.]
The other problem with Keynesian intervention is that Government spending
tends to mess up the existing private sectors - not something which disturbs
my sleep, but something which Chancellor Brown is likely to be focussed
upon. Typically, spend will contribute to wage inflation in the construction
and building supply sides - which will impact on private sector expansion
projects and the overall inflation rate. There's a possibility that
intervention could result in a 'stagflation' scenario where headline
inflation creeps up (either through Governmnet spend or any shift in oil
prices) with the 'core production sectors' experiencing deflationary
pressures in parallel [now that's something to imagine]. The CBI who are
already crying about Trade Union militancy in Britain will get even more
annoyed - in fact, they greeted the proposal with a fair degree of caution
(even though the spend including a significant amount towards private sector
pockets through traditional and PPP procurement).
The last point to remember is that this spend is highly dependent on fiscal
income rising by about 5% per annum - not hugely likely unless Britain can
pull out of the contraction quite swiftly.
The other issue is the fact that the EU has swung to the Centre-Right over
the last few years - while we might expect Brown to be oriented towards
Keynes - we might not expect the same in France, or if as looks likely,
Germany should the Christian Democrats regain power. EU social policy has
been very much stunted by a centre-right bias and it just doesn't seem
likely that it could suddenly drift leftwards at a time when neoliberals
seem in the ascendent.
Brown's measures are in the right direction - but are way too small to
really impact on the big play. It's more about gesture politics for internal
consumption. £10 billion extra capital spend wouldn't even meet the
capital-build shortfall in Wales let alone the UK. The main problem is that
Government remains too small to really impact the large wealth creating
sectors - more than Keynesian economics will be required to address issues
such as poverty or to shockproof the British economy.
Sé
_________________________________________________________________
Chat with friends online, try MSN Messenger: http://messenger.msn.com
