Re: Article from THE GUARDIAN, September 18, 2000

["ÁÎ×Ó¹â Henry C.K.Liu ¹ù¤l¥ú" <hliu@xxxxxxxxxxxxxx>]

Paul,

You piece in the Guardian is the clearest statement of Keynesian principles and
their applicability to current conditions I have come across in print for a
long time.  It would be a service to the "possibilities of civilization" if you
would go furhter to outline  speicific programs for international institutions
such as the IMF and the WB and for the national governments of the G7, as well
as China, Russia and India.  Perhaps a new Bretton Woods Conference?

Henry

Paul Davidson wrote:

> The following article appeared in the GUARDIAN on September 18, 2000
>
>                                      Commentary
>
>                                      Keynes, you should be alive this hour
>
>                                      Paul Davidson
>                                      Guardian
>
>                                      Monday September 18, 2000
>
>                                      John Maynard Keynes, one of the
> founding fathers of the World
>                                      Bank and the IMF, once toasted
> economists as "trustees, not of
>                                      civilisation, but of the possibilities
> of civilisation."
>
>                                      As the bank and the fund begin their
> protest-ridden annual
>                                      meeting in Prague, it is worth asking
> whether today's
>                                      economists are living up to Keynes'
> dictum. We have seen that
>                                      the idea that planned economies
> provide an economic utopia
>                                      where civilisation can flourish is
> nonsense. Nevertheless, the
>                                      Thatcher claim that liberalised
> financial markets are always
>                                      efficient and are mankind's only hope
> for economic and social
>                                      progress has also seen to be wanting.
>
>                                      Many have been searching for a "third
> way" occupying the
>                                      middle ground in the place of the
> polar views of planning vs
>                                      laissez-faire. This "third way" hunt
> has become the conventional
>                                      wisdom for Britain's "New Labour" and
> Germany's "New Social
>                                      Democrats". Having apparently seen the
> writing on the wall,
>                                      Gordon Brown is encouraging some
> contingency economic
>                                      thinking. His Royal Economic Society
> lecture earlier this year
>                                      and the fact that the Treasury has
> started to hold private
>                                      seminars titled "Keynes in the 21st
> century" indicates that this
>                                      Labour government's third way includes
> a search for resurrecting
>                                      Keynes' civilising economic principles
> and policies.
>
>                                      Unfortunately, Keynes' argument for
> remedying the serious flaws
>                                      of our entrepreneurial economy without
> destroying the spirit of
>                                      enterprise or the promotion of a
> civilized society is not well
>                                      understood by the Bank of England or
> the Treasury.
>
>                                      If Keynes was alive today and the
> chancellor invited him to
>                                      address one of the Treasury's private
> seminars, Keynes would
>                                      stress the following points.
>
>                                      ? The "outstanding faults" of an
> entrepreneurial society are its
>                                      failure to provide sustained full
> employment and its arbitrary and
>                                      inequitable distribution of income and
> wealth.
>
>                                      ? The failure to provide sustainable
> full employment is not due to
>                                      supply-side market imperfections such
> as monopolies or rigid
>                                      wages. Policies designed to increase
> wage-price and exchange
>                                      rate flexibility while liberalising
> financial markets may well
>                                      exacerbate unemployment.
>
>                                      ? Government's responsibility is to
> "exercise a guiding influence"
>                                      on private spending decisions to
> ensure that there is never a
>                                      persistent lack of effective demand.
> Government operating
>                                      budgets should be balanced. If private
> spending fails to produce
>                                      full employment (especially if
> entrepreneurial exuberance fades),
>                                      government should run a capital
> account deficit to employ
>                                      resources to produce, with the
> cooperation of private initiative,
>                                      additional productive facilities.
>
>                                      ? Unemployed workers and excessive
> idle capacity is a "public
>                                      scandal of wasted resources". The
> ultimate cause of such a
>                                      scandal is nested in the human
> weakness of speculation and an
>                                      obsession with liquidity. A necessary
> condition for solving the
>                                      unemployment problem involves damping
> destabilising financial
>                                      speculation to assure orderly
> financial markets and providing
>                                      cheaply all the liquidity that
> entrepreneurs can use.
>
>                                      ? Liquidity is a double-edged sword.
> The good cutting edge is
>                                      that by providing an orderly market
> where financial assets can
>                                      be readily resold encourages savers to
> provide funding to
>                                      entrepreneurial investments. Without
> liquidity, the risk of funding
>                                      investments as a minority owner would
> be intolerable. The "bad"
>                                      edge of the sword is that if a strong
> bearish view develops, the
>                                      resulting demand for liquidity impedes
> the production of new
>                                      investments even when real resources
> are available to be
>                                      employed.
>
>                                      In November, Lord (Robert) Skidelsky's
> third volume of his
>                                      biography of Keynes, Fighting For
> Britain, will be published. I
>                                      advise the chancellor to read
> Skidelsky's biography to see how
>                                      these five principles were used by
> Keynes to develop policies
>                                      that promoted the possibilities of
> civilization for postwar Britain
>                                      and the global community.
>
>                                      Paul Davidson is Holly chair of
> excellence in political economy
>                                      at the University of Tennessee
>
> Paul Davidson
> Holly  Chair of Excellence in Political Economy
> Editor, Journal of Post Keynesian Economics
> Economics Department - 523 SMC
> University of Tennessee
> Knoxville, Tennessee 37996-0550
> phone # (865) 974-4221
> fax # (865) 974-1686
> home fax # (865) 577-7747
> http://econ.bus.utk.edu/Davidson.html