Re: FWD: Whither the AEA?

[pdavidso <pdavidso@xxxxxxx>]

>===== Original Message From Sven R Larson <slarson@xxxxxxxxxxxx> =====

>
>Here we have a president that has turned Reagan's fiscal theme "the deficit
is
>big enough to take care of itself" into his macroeconomic credo. Here we have
>a president who is miles away from Lieberman's 2000 campaign punch line "you
>gotta be stupid if you don't want to balance the budget every year". Here you
>have a president who's spending on credit like a drunken sailor, to quote the
>Washington Times. So why would someone - anyone - who's ready to call
>him/herself a Keynesian in any even remotely honest sense of the word, be
>critical of this policy?
>The critique plays an even stranger tone when the
>alternative sought means LESS deficit spending, i.e., MORE budget balancing
>efforts.



First of all most "New Keynesians" as well as "Old Neoclassical Keynesians"
have been taught to believe that the classical model is the fundamental
axiomatic general model -- for the economy. Unemployment occurs only because
nasty unions and bleeding heart liberals demand (minimum) wages that are too
high to clear the market and unemployment benefits that make it easy to earn
income without doing "a hard honest day's work".

Moreover since money is neutral (at least in the long run) is a fundamental
axiom for all these Establisdhment Keynesians -- all this deficit spending is
merely going to increase the money supply and therefore merely be inflationary
without changing the natural (full employment)rate of employment and output.
[Strangely enough these Keynesians do not realize that if one accepts the
neutrality of money axiom -- one must accept the classical quantity theory of
money -- and reject Keynes's liquidity preference analysis.)

>
>Tax cuts for the rich are better than tax hikes for anyone, especially in a
>recession. Tax cuts for the poor are better than tax cuts for the rich,
>especially in a recession. Unfortunately it's hard to find a consistent
>strategy for the latter alternative among Democrats, just as it is hard to
>find a tax cutting strategy at all among European leftists.


Keynes was always for balanced operating budgets-- but, if private effective
demand was lacking, defivcit capital budgeting where productive investments
(often with the cooperation of private enterprises) would generate full
employment... therefore not only public infrastructure , but cooperative
investments in educational facilities, hspitals, etc.

Anyone remeber that the basis for the INTERNET was creatred entirely by
government funding even in the era of big deficits???
What more productive investment was there -- and would have private enterprise
done it alone?

Also the biggest entitlement program in history -- the GI Bill giving veterans
of the second world war and the Korean conflict free education plus aq living
stipend -- turned out to be a very productive investment for America.



However, American
>Republicans and - to a lesser extent - European conservatives have discovered
>the paradox of thrift, which should be of great joy to Keynesians everywhere.
>But when it comes to actually bettering the world the guy on the Keynesian's
>left shoulder - the one with horns, a hammer and a sickle - always gets the
>last laugh. Keynes was by no means a socialist and he was sternly against
>collectivization of ownership and income. His theory was one of active
>government, not big government.
>


Its not the ownership of the means of production that govertnment should worry
about -- but the level of effective demand -- as Keynes noted in the last
chapter of the GT.

Paul Davidson

Paul Davidson
Editor, Journal of Post Keynesian Economics
University of Tennessee
SMC 503
Knoxville, Tennessee 37996-0550
office phone #;(865)974-3303; office fax#(865)974-4601
home phone and fax # (561)369-1951
email pdavidson@xxxxxxx
http://econ.bus.utk.edu/Davidson.html