Re: demand management

[pdavidso <pdavidso@xxxxxxx>]

>===== Original Message From Rakesh Bhandari <rakeshb@xxxxxxxxxxxx> =====
>In regards to Paul Davidson's recent posting of Larry Elliot's
>Guardian article, I was wondering what people thought of this
>characterization by Amit Bhaduri:
>
>
>The policy of demand management is also politically ambiguous, in so
>far as either the state or private business can be relied upon to
>undertake the necessary investment for expanding aggregate demand.
>Since the stimulation of private investment is an alternative route
>to managing demand, measures aimed at achieving this, for example
>reduced taxes on corporate profits or restraint on wages, become
>justifiable in the Keynesian framework.

This merely represents Bhaduri's socialistic bias.  Keynes was writing to
remove the two major faults from the netrepreneurial system (capitalism) (1)
the failure to maintain persistent full employment and (2) the arbitrary and
inequitable distribution of income and wealth. The GT solved the first fault
and in so doing would increase the total real wage bill of workers as a class.

Keynes clearly recognized that no one should have a vested interest in a high
real wage because unemployment was high.  In an economy with diminishing
returns and no change in the degree of monopoly (as N varied), higher
employment rates would inevitably mean lower real wages.  In the absence of
diminishing returns this was not the case.


 These measures constitute the
>case for a politically conservative style of demand management based
>on profit, and private investment driven economic expansion within
>the Keynesian intellectual tradition?

Unless there is a profitable market for mass produced goods and services,
entrepreneurs will not expand production and invest in productive facilities.
So it is necessary top make sure that workers can afford the products of
industry.


The original underconsumptionist
>thesis of wage-led and consumption driven economic expansion, which
>argued essentially that a 'high wage' is beneficial to both classes,
>finds its antithesis in this case of profit and private investment
>driven capitalism.

Underconsumptionist theory somehow thinks that by changing the (after-tax)
distribution of income AT A GIVEN LEVEL of EMPLYMENT, the worker will benefit.
 But if there is not profits in the system, the netrepreneur will not hire
labor to produce goods and services.  Apparently Bhaduri wants a scoialist
central planner to make surer workers are hired and paid "well",  but as the
workers in the soviet system found out, there was nothing in the stores for
them to buy.

The great advantasgeof the entrepreneurial system is that entrepreneurs will ,
given government regulation to prevent to much rent seeking) follow the
desires of the residents in terms of what is produced.


 And, both are based on the Keynesian theory which
>assigns centrality to aggregate demand in determining output and
>employment? Keynesianism in this wider sense also leaves ambiguous
>the economic basis of social democratic politics or the necessity of
>the welfare state, by accommodating different forms of cooperative
>capitalism. Helmut Schmidt, as the social democratic chancellor of
>then West German, articulated this conservative alternative by
>pointing out, 'The profits of the enterprises today are the
>investments of tomorrow, and the investments of tomorrow are the
>employment of the day after' (Le Monde 6 July 1976).

this is sheer nonsense.  If it was true what happened to the profits of the
199os -- why did they not produce the investments of 2000-2003?
> It symbolized
>complete reliance on private industry, and its willingness to invest
>to solve the problem of unemployment, rather than creating jobs
>through direct expansion of public investment.

Read GT on the socialization of investment  Bhaduri either never read, or else
forgot the message of the last chapter of the GT and especially pp. 374-383.


paul

Paul Davidson
Editor, Journal of Post Keynesian Economics
University of Tennessee
SMC 503
Knoxville, Tennessee 37996-0550
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