Home > Boneheaded stupidity, Economic policy > Expansionary austerity: some shoddy scholarship (repost)

Expansionary austerity: some shoddy scholarship (repost)

February 10th, 2012

I’ve just read ‘Tales of Fiscal Adjustment’ by Alesina and Ardagna, which appears to be the founding text for the idea of expansionary austerity. The level of scholarship, at least as it applies to Australia (which is their first illustration) is exceptionally poor, to the extent that it requires a rescuscitation of the ancient Internet tradition of Fisking. I’m going to quote excerpts from their text (about 50 per cent of the total), and intersperse them with my comments.

In 1985, a single-party left-wing government took office and launched a stabilization plan to correct the internal and external imbalances (the current account deficit was 4.13% of GDP and the total deficit/GDP ratio was above 3% in 1984).

The Labor government was elected in 1983, not 1985, in the early stages of recovery from a deep recession. Their stabilization plan, introduced in 1984, and called the Trilogy, pledged to hold tax/GDP and expenditure/GDP ratios at or below their current levels while reducing the budget deficit. The current account deficit, a subject of continuous concern, remained high throughout the period in question

The government wage bill and transfer programmes accounted for the biggest share of the adjustment … The cuts in transfer programmes were mainly concentrated on unemployment insurance.

There were no cuts in unemployment benefits. Expenditure fell because unemployment was falling. Haven’t Alesina and Ardagna,heard of automatic stabilizers?

Capital taxation was rationalized.

OK, I guess, except that ‘rationalized’ in this context, typically means ‘reduced’. In fact, the government introduced a capital gains tax which more than offset the end of double taxation of dividends

From 1983 to 1986, wages were bargained at a centralized level. The system was based on full indexation with twice-yearly adjustment, but there was a departure from full indexation in 1984 and 1986. In the negotiation process, government used tax reductions previously described to induce the union movement to accept reductions and delays in wages increments.

Absolutely opposite to the story told here, the trade-off in 1984 was in return for the (re)introduction of a single-payer health insurance scheme, a major expansion in the role of government and one that has endured to this day. In subsequent rounds, tax cuts were sometimes part of the deal, but the big trade-off was the introduction of compulsory employer contributions to retirement income funds. These aren’t counted in measures of tax revenue and expenditure, but in functional terms they are the equivalent of a social security scheme (though a regressive and badly designed one, with lots of historical inequities and complexities locked in).

Between 1985 and 1986, the nominal effective exchange rate decreased by about 19%.

This is presented as if it were a goal of government policy. In fact, this depreciation, and the current account deficits that drove it led to Treasurer Paul Keating’s famous observation that Australia was in danger of becoming a “banana republic”

Australia is a clear case of an‘expansionary fiscal contraction’. GDP grew faster during and in the aftermath of the adjustment, both in absolute terms and relative to the G7 countries. A private investment boom was associated with profits and easier access to credit following the financial deregulation process that took place in 1985–6.

This is like the story of the guy who jumps off a tall building and says, as he passes the 25th floor “All good so far”. Writing in 1998, Alesina and Ardagna must surely have been aware that, almost immediately after their story ends, Australia entered the worst recession in its postwar history. The recession was triggered by contractionary monetary policy, but its severity was largely due to the collapse of speculative investment projects undertaken by so-called ‘entrepreneurs’ who took advantage of easy access to credit to build conglomerate empires that failed in the crisis, almost taking down the banking system with them. Unemployment reached double digits in the early 1990s, and didn’t fall below the pre-adjustment level of 8 per cent (itself disastrous) for nearly a decade.

In July 1987, the same government and the same prime minister in office were re-elected by popular vote. In the April 1990 elections, neither the winning government nor the prime minister changed.

This is true, though there was a huge amount of luck and ham-fisted opposition involved. When these factors ran out in 1996, the government suffered a thumping defeat, based primarily on the recession of the early 1990s. Labor was out of office for another decade.

Overall, the description of Australian macroeconomic experience given here is unrecognisable to someone who lived through the period. The government did lots of things that gained the approval of neoliberals (global sense) but these were almost entirely microeconomic in nature.

Although this piece is full of silly errors and spurious claims, the central problem (which starts with the dating error) is that the direction of causality is reversed. The strong expansion that began in 1983 drove much of the fiscal consolidation directly, and created the political-economic environment in which tight fiscal discipline was feasible without economic contraction, and politically salable. The severe recession that began just after the triumphant return to budget surplus (when Paul Keating went from bragging that “this is the one that brings home the bacon” to observing that “this is the recession we had to have”) wiped out all of the fiscal consolidation of the previous decade. Balance wasn’t restored until years into the expansion with a consolidation that produced an increase (admittedly temporary) in unemployment, as Keynesian theory would predict.

As a final observation, Alesina and Ardagna would have had a much better picture of the events they described if they had taken a list of Keating’s most famous sayings and checked back to discover the context.

  1. Chris Warren
    February 10th, 2012 at 13:03 | #1

    Yes, causation is the key, and I doubt whether either the rightwing capitalist line (‘supply creates demand’) or leftwing capitalist line (‘demand creates supply’) are correct in the long-run.

    However, if Australia can continue as a parasitic economy suckling on some other economic mothership, as it has always been (UK-Japan-USA, now China), then Keynesian stimulus may be preferable to austerity.

    However for the world as a whole, how does this pan out? The world as a whole is essentially closed.

    So the issue is causation and scope. In a closed economy, stimulus only makes matters worse in the long run. It only ‘papers-over’ causes.

    Austerity is needed, but not for wages or public expenditures, but for profits and for financial innovators.

    So bring on austerity, but for ‘them’ not ‘us’, to pinch a bit of Occupy movement lingo.

  2. Gaz
    February 10th, 2012 at 13:51 | #2

    RBA mentioned these guys in the statement today.

  3. February 10th, 2012 at 17:40 | #3

    Shorter Strocchi on Macro-Economic problems and policies:
    The GFC had Austrian causes and Keynsian cure.
    Expansionary Fiscal policy gets you out of the Bust.
    Expansionary Monetary policy gets you into the boom.
    Mix financial markets asset inflation which turns Boom into Bubble and then Bust.
    Lather, Rinse and Repeat until End of History.

  4. Fran Barlow
    February 11th, 2012 at 08:14 | #4

    Amusing that they get the date of the election of “a single party left wing government” wrong — 1985 — yet say: From 1983 to 1986, wages were bargained at a centralized level.

    They were implementing wages policy while not in government. That’s pretty left wing!

  5. Ikonoclast
    February 12th, 2012 at 08:21 | #5

    I think my questions come under the heading of expansionary austerity.

    Does anyone else think it odd that if Greece gets the new $170 billion bailout package then it has to CUT government spending? Think about it, Greece is given (or perhaps lent is more accurate) $170 billion and it has to cut the budget massively! So where does this $170 billion actually go? It’s obviously not going into deficit spending. So where is it going? Is Greece just a loop the money follows before it ends up in the pockets of the original lenders to Greece? So more accurately it is not a bailout for Greece but a bailout for the banks and bankers who lent to Greece. Am I correct?

    Does anyone else think it odd that Australian banks put up mortgage interest rates and claim that money is expensive overseas? I believe the USA is still running a 0% official interest rate policy and England is running 0.5% official interest rate policy. Doesn’t this mean banks in those countries can get very cheap funds? Aren’t these the banks that Australian banks get money from? Could not Australian banks perform a carry trade at these interest rates and borrow at anything down to 0% interest overseas and then charge people (as they are) 7.5% or more for mortgages here?

    And the Bank of England’s quantitative easing of $476.7 billion in a three-month period… where does this money actually go? Is it a gift, a deficit spend or a loan? I assume it is essentially a loan.. but to whom and at what rates?

    All these enormous amounts of money and low interest rates are gifting money or the use of money to someone or some entities. Who are these someones and entities? The common people aren’t seeing a cent or a percent. Certainly not in Greece where minimum wage earners will actually be seeing 23% less. This is all quite bizarre. Something is rotten on planet earth.

  6. Ikonoclast
    February 12th, 2012 at 08:49 | #6

    One correction. I should have checked what QE was. Apparently it is not a gift, nor a deficit spend nor a loan. It is the repurchase of “gilts” or government gilt edge securities by the government (at least in England). Then again, perhaps I should not be too hasty is saying it is “not a gift”.

    Presumably, the gilts were orginally purchased by the banks at a given price to get the promised interest rate. This would withdraw money from circulation (from either M1, M2 or M3 I guess). Presumably, the gilts are bought back pre-term by the government. This would return money to circulation or at least to bank reserves and make it theoretically available for lending. To re-purchase the gilts pre-term, surely the government would have to offer some sort of premium or inducement to the banks (or else sovereign force) to get them to sell the gilts. Is this where a slice of gift money to the banks occurs?

    I ask because to an ordinary every day joe like me something seems odd in all this. The roundabout, concocted, too-clever-by-half nature of the help to the economy is suspicious. I sense a shonky con job being performed by the rich and powerful largely for their own purposes. Most of these policies seem to be primarily designed to save banks and their shareholders (and to gift them subsiduary income) and only secondarily (if at all) intended to actually help producing businesses and working people.

  7. Dan
    February 12th, 2012 at 08:50 | #7

    You’ve got to remember that the banks lent money to the Greeks that they didn’t have. As such, if the Greeks are in a hole, they are in a hole too. So to the extent that Greece is receiving bailouts and using them to pay down its debt, basically everybody feels more comfortable, with the possible exception of the Greek people, but that’s why it’s called austerity.

    I’ve wondered about the Australian’ banks overseas sources of funds too. In any event, the mortgage rate seems to have a pretty strong correlation with the RBA cash rate, suggesting that the RBA is their primary lender, in which case you’d have to wonder why they’re borrowing above what appears to be the market rate of around 0%. In either scenario, I agree that the ‘overseas sources of funding’ line doesn’t wash. But since when do we not get shafted by the big four while they whisper sweet nothings to us?

  8. Chris Warren
    February 12th, 2012 at 09:28 | #8

    @Dan

    Banks get funds from overseas because business lobbyists and representatives have constructed this possibility in their own interests. In the past, banks accessing offshore funds obtain a competitive advantage over smaller domestic only lenders.

    This is another nail in the coffin of Keynes. He stated that the management of the domestic economy depends on their being the appropriate rate of interest without reference to rates elsewhere in the world.

    Then they wonder where all the inflation, instability and crisis is coming from!?

  9. Ikonoclast
    February 12th, 2012 at 09:35 | #9

    The correlation of Australian bank mortgage rates with the RBA cash rate is getting weaker and weaker. First they delay or jettison rate drops when the cash rate drops. Now they implement rate rises when the cash rate holds steady. There is basically no explanation or justification for Australian mortgage interest rates, that I can deduce, other than profiteeering, price gouging and anti-competitive collusion.

  10. Ikonoclast
    February 12th, 2012 at 10:30 | #10

    @Chris Warren

    Chris Warren, I can’t agree with your criticism of Keynes. First let me say however that I hold (and have said it before on this blog) that the income of capitalists, landlords and rentiers comes from the stolen surplus value of the workers’ work. In this much I am a Marxist.

    Your continuing criticism of Keynes is off the mark IMO. Keynesian economic prescriptions along with strong unions, welfare and social security provisions gave us the least worst system of capitalism possible, at least in Australia. The 1950s and 1960s epitomised this approach and were the best that things got for workers under capitalism. Of course, things have gone to the dogs since the early 1970s as neoliberalism and the plutocrats constructed a new form laissez-faire crony financial capitalism to strip and rob workers once again.

    Your specific criticism of Keynes in this case;

    “He stated that the management of the domestic economy depends on their being the appropriate rate of interest without reference to rates elsewhere in the world.”;

    takes Keynes out of context if indeed he said or wrote that. Keynes worked and wrote in a world of managed exchange rates not floating exchange rates as we now have.

    My defence of Keynes above (simply saying to judge him in context) is not necessarily a defence of any aspect of current global capitalism including the floating exchange rate system.

    I fully agree that corporate capitalism needs to be destroyed before it completely impoverishes workers and destroys the world by over-exploitation of resources. However, it is too late to save the natural world. We are past several dangerous tipping points already. What must happen during the inevitable collapse is that political economy and social and ideological theory rightly worked through must take every chance to sheet the blame home to where it belongs, namely to capitalism. In the unavoidable post-capitalist dystopia (dystopian precisly because capitalism will have destroyed much of the biosphere’s carrying capacity), the remnants of humanity must remember the lessons of the deleterious and maladaptive nature of capitalism and never again allow any similar system to arise.

  11. Ikonoclast
    February 12th, 2012 at 10:39 | #11

    This is a darn interesting interview.

    http://souciant.com/2011/07/post-capitalist-priorities/

  12. J-D
    February 13th, 2012 at 05:53 | #12

    A probably inconsequential dating error you seem to have missed: the 1990 election was in March, not April.

  13. Chris Warren
    February 13th, 2012 at 08:55 | #13

    @Ikonoclast

    In my view Keynes was wrong on all accounts. He did not understand the basic structure of a capitalist economy, and his theories ONLY apply if there is surplus value already extracted.

    For example: How can you have the Keynesian “User Cost” if their is no surplus value scraped away from other factors of production? [see General Theory Ch6].?

    If there is a different context for his criteria for domestic interest rates, then what is this?

    I think this quote is at: Collected Works, XXV, p149.

    However, it is true that:

    Keynesian economic prescriptions along with strong unions, welfare and social security provisions gave us the least worst system of capitalism possible, at least in Australia. The 1950s and 1960s epitomised this approach and were the best that things got for workers under capitalism.

    with one proviso:

    “as a temporary circumstance based on benefits from outside the economy”.

    Keynesians ignore the long-run tendencies for macro-economic instability to increase, for per-capita debt to increase, and the in-principle unsustainability of countervailing tendencies that were successfully applied in Australia up until recently.

    True Australian capitalism probably exhausted Keynesianism in the 1960′s. Presumably, that was why the Vernon Committee was set up (?). However the ensuing fortune of Australia resulted from a VERY fortuitous mineral boom, subsequent to Vernon’s report.

    Vernon saw a need for Australia to be somewhat protectionist, but this was countered by other forces eg: David Bensusan-Butt etc.

    It is not the case that:

    …things have gone to the dogs since the early 1970s as neoliberalism and the plutocrats constructed a new form…

    rather:

    things have gone to the dogs as particular, and always present, contradictions have risen to prominance.

    Things were going to the dogs, as soon as WWII rationing ended, but there were band-aids still available.

    The problems of capitalism are at the level of commodity production (Marx), not money and finance (Keynes).

  14. James Haughton
    February 13th, 2012 at 11:41 | #14

    @Chris Warren
    Australians’ per capita debt as a % of GDP decreased during the 1950s-60s, as did government debt.

  15. Chris Warren
    February 13th, 2012 at 16:39 | #15

    @James Haughton

    Yes, there will be periods when each of various macroeconomic instabilities wax and wane. Certainly, the particular period you cherry-pick is usually tagged Australia’s “golden age” [see J W Neville, Can Keynesian Policies stimulate Growth .... in Bell, S. "The Unemployment crisis in Australia: Which Way Out" citing Ian MacFarlane].

    The real increase occurred in the 1970-90′s and there-after. However retail sales instalment credit outstanding as a % of disposable income was increasing from 1956-57 (5.8%) to 1961-62 (9.3%).

    The fact that some debt as a %GDP decreased during the 1950′s-60′s (in a parasitical economy) is consistent with a general problem for capitalism as a whole to trend towards a GFC. You will see similar declines and reversals in different measures in most OECD economies. See:

    http://tinyurl.com/capitalist-crisis

    So it is invalid to look at particular “golden age” debt trends and ignore the contrary trends in unemployment and other financial measures.

    Even during this ‘golden age’ Australian banking liabilities (%GDP) were increasing (RBA data):

    5.6% – 1953

    6.5% – 1959

    8.6% – 1965

    10% – 1976

    50% – 1986

    over 100% – 1990

    over 200% – 1997.

    Naturally this dooms any policy analysis based on the Keynesian “savings=investments” canard.

  16. James Haughton
    February 13th, 2012 at 17:29 | #16

    @Chris Warren

    The period 1950s-1960s is not cherry picked – it is the period under discussion, as raised by Ikonoclast, as it is when Keynesian policies were applied. You cannot say “Keynesians ignore the long-run tendencies for macro-economic instability to increase, for per-capita debt to increase, and the in-principle unsustainability of countervailing tendencies that were successfully applied in Australia up until recently” when these tendencies were only manifested when Keynesian policies were consciously abandoned post 1972.
    To claim that the outcomes of the monetarist & neo-liberal eras, when government and reserve bank policy shifted from targeting full employment to targeting a low rate of inflation, are the outcomes of Keynesianism, is ludicrous.

  17. Chris Warren
    February 13th, 2012 at 19:05 | #17

    @James Haughton

    You are pursuing a separate line of argument – that every thing was Golden “when Keynesian policies were applied” compared to when other tendencies “were only manifested when Keynesian policies were consciously abandoned”.

    It would take a fair bit of work to sort out whether abandoning Keynesianism, was the cause of instability, or whether abandoning Keynesianism (to the extent this applied) was a consequence of instability that Keynesianism does not admit.

    Remember, Keynes was a full-blown capitalist who was the first to come to an obvious conclusion – that public expenditures can counter the damage of private capitalism – but he did not recognise that this could only be a temporary measure.

    Certainly, if I tempt an unemployed worker to mow my lawn and pay them with a paper IOU, I am applying Keynesian policy. I can then state that by increasing money I have reduced unemployment and produced growth.

    This works in the short-term, but the need for IOU’s must increase.

    Any ratchetting growth of IOU’s must eventually provoke a backlash policy shift from this generating employment to now targeting excessive monetary growth. The Accord was an attempt to prevent this backlash by encouraging workers to sacrifice wages for increased superannuation as an alternative means of addressing inflation. Early retirement was promoted an an alternative means of addressing unemployment.

    They are now being stripped of their superannuation through a GFC and through closure of Accord-friendly schemes. Workers working life is being extended. Thanks Keynes, but it was bound to happen.

    The issue is not so much which band-aid policy makers reach for, but how they understand the underlying, long-term economy. On this basis Keynes is out with the pixies.

  18. JB Cairns
    February 14th, 2012 at 07:42 | #18

    the 1950-60s were the period of Keynesianism.

    Can you point to one country that had a liquidity trap?

    After All Keynes did say without that you predominantly used monetary policies.

  19. Gaz
    February 14th, 2012 at 10:07 | #19

    Chris Warren:

    You claim that Keynes did not recognise that increased public expenditures could only be a temporary measure.

    Were you joking when you wrote this?

  20. James Haughton
    February 14th, 2012 at 10:09 | #20

    @Chris Warren
    Well Chris, as Keynes said, “In the long term we are all dead”.
    The need for IOUs, that is, the expansion of private credit, “must increase” only if the creation of government (base/high-powered) money does not keep up with the demand for liquidity. This is why I tend to be most convinced by the neo-chartalists (or Modern Monetary Theorists as they call themselves these days). The risk of inflation is best managed by taxing rentiers as inflation usually first manifests in asset-price bubbles. Euthanasia of the Rentier is something I expect Keynesians, Marxists and everything in between (in particular Georgists, Ricardians and neo-Ricardians like Michael Hudson) could agree on.
    It’s certainly true that an “easy money, high rent-tax” policy threatens the interests of the financier classes, mining and resource extraction, FIRE industries, and your classic “coupon-clipping bond holder” miser classes. But you seem to be arguing that the threatened backlash policy shift from these classes is a reason why the left/marxists shouldn’t do it because it was always doomed. If every policy that faces a backlash is doomed, then every policy is doomed, and marxist ones more so than most.

  21. Ikonoclast
    February 14th, 2012 at 11:12 | #21

    I feel kind of caught in the middle of all this. :)

    Do you remember Dave Warner (Just a Suburban Boy) who lamented in one of his comic-satirical songs that he was “too hip for the straights, too straight for the hips”?

    I fear I am too Keynesian for the Marxists and too Marxist for the Keynesians. I guess my thinking would be;

    (1) If you are stuck with corporate capitalism in an interim (however long that interim might be) then Keynesian policies with a strong MMT/Functional Finance flavour need to implemented along with re-enabling strong unions, a full employment regime and the strict regulation of finance and corporate action and power. This is a first step to evolving away from capitalism.

    (2) The next step would be to engineer, by social democratic government action, a graded transition from corporate capitalism to “worker cooperative capitalism”. Capitalist corporations and share ownership would be progressively replaced by worker cooperatives and worker ownership. Each enterprise would be worked, owned and managed by workers. These worker cooperative enterprises would still compete with each other in an open though well regulated market.

    (3) The state would assume a larger dirigist role and would certainly own all natural resources, natural monopolies and all strategic national infrastructure. The state would be a reserve employer and would provide social and welfare services and an overall social wage to remove poverty and major inequality. Excess wealth disparity would be proscribed by law. For example there would be a minimum adult personal income and a maximum adult personal income. The disparity would not be permitted to greater than a factor of 10.

    There is, in my opinion, in a resource constrained world, no good reason for any person to have more than 10 times the minimum livable income. Even this is probably too generous but a broad-ish band is probably more realistic for adminstration and compliance oversight.

    Whether the above system would need to evolve further in the socialist direction I am not sure. The ultimate inherent contradiction of capitalism (beyond the alienation of the worker and the theft of his/her suprlus value) is its contradiction with the limits of the natural world. Capitalism requires endless growth but our world is finite and a steady state renewable economy is required.

  22. Tom
    February 14th, 2012 at 12:17 | #22

    @Ikonoclast

    “I fear I am too Keynesian for the Marxists and too Marxist for the Keynesians. ”

    This was what Australia is post war and pre 1970s. Back in those days full employment and income equality was probably at its best any economy can ever achieve with part capitalist system.

  23. Chris Warren
    February 14th, 2012 at 12:27 | #23

    @Gaz

    It is more complicated than that. All Keynesians claim that stimulus is just a short-term measure, which they expect to fix capitalism once and for all, so as Keynes claimed – there would be no more crisis.

    IE, the claim of Keynes (and Samuelson) is, in effect, for a final long-term fix.

    They do not recognise that their prescriptions are only temporary because the original contradiction remains, and requires another bout of countervailling tendencies, so the OECD macroeconomic instability generally increases (or ratchets up).

    The link to the evidence has been posted previously.

  24. Chris Warren
    February 14th, 2012 at 13:08 | #24

    @James Haughton

    A few extra tangents and what-nots here.

    The concept “demand for liquidity” is based on a whole lot of prior assumptions that exceed the bandwidth of this thread.

    Marxism does NOT support the so-called euthanasia of the rentier. Marxism supports abolishing the capitalist form of rent. The capitalist form of rent is the problem, not normal “socially necessary” rents. Machinery and premises are often rented.

    In the long run, a future democratic society may well decide that rents are not needed, but they will have by then developed alternative means for equitable distribution of wealth based on needs.

  25. Gaz
    February 14th, 2012 at 19:08 | #25

    Chris, no more – please! My ribs are hurting!

    Keynes claimed there would be no more crises?

    I’m still chuckling over that joke about how he was supposed to have not recognised that increased public expenditures could only be a temporary measure. You nearly had me with that one – so plausible on the surface but so silly once you think about it for a sec – and you follow it up with another!

    No more crises. Good one!

  26. Dan
    February 15th, 2012 at 09:04 | #26

    I’m with Gaz – Chris, your reading of Keynes is selective and in places straight-up wrong. The whole point of the General Theory is to countervail against the boom and bust of capitalism which Keynes saw as an ongoing and natural part of the capitalist process.

    I think you know that, so I’m not sure why you’re running this line about ‘the end of crisis’ or whatever.

    Albeit, the nature of the debate does rest on a question that is a bit reminiscent of Zen: if there is an economic crisis, but the state employs countercyclic economic policy and employment and living standards remain steady, is it still a crisis?

  27. Chris Warren
    February 15th, 2012 at 09:32 | #27

    @Dan

    @Gaz

    Please get a grip. The quote re Keynes specifically claiming ‘no more crisis’ was posted previously.

    The quote from Samuelson was also posted previously.

    The GFC is not caused by the normal cycle of boom and bust but by an underlying ratcheting up of adverse macroeconomic tendencies. These belie Keynes and it would appear – yourselves.

    He laughs best who laughs last.

  28. James Haughton
    February 15th, 2012 at 10:23 | #28

    @Chris Warren
    Liquidity is the vital issue here. You claimed that capitalism required an ever-increasing pile of IOUs – that is, private debt in the form of liquid assets (paper saying “I owe you $5″ that can circulate as cash). I pointed out that this is only true if you assume the state is not willing to expand the money supply (publicly created liquid assets) to cover the demand or use which the IOUs are being put to. You have not given an adequate answer to this objection.

    This is a ve-ry strange reading of Marx on rent – one that seems to misunderstand the whole classical idea of rent, to be frank. “Rent” is not about the return on investment on manufactured capital (eg machinery, buildings), despite the deliberate confusion created between “rent” and “return on investment” by the neoclassical economists. “Rent” is about the above average return accruing to a socially constructed monopoly owner of pre-existing resources (land, minerals, etc) and some classes of socially-constructed resources (fictitious capital, or “speculative assets” e.g. shares); resources which by right belong to the commons & the workers who created them. Marx paid more attention to the capitalist/worker conflict than to the landlord/capitalist and landlord/worker conflicts; that doesn’t mean he wasn’t aware of them or didn’t share Ricardo’s view that landlords are parasitic
    I am with Dan & Gaz that you are misreading Keynes and certainly not aware of the various post-Keynesian and Functional finance schools; the need for countercyclic action is constant, though obviously varying in direction and magnitude with the movement of the private economy, and any claim that “All Keynesians believe that the need for stimulus is temporary” is just flat wrong, or at least, relies on the rhetorical trick of simultaneously claiming that “anyone who believes that the need for stimulus is not temporary is not a Keynesian”.
    If you want to claim that the GFC is not a Keynes/Minsky/Fischer crisis but a classic marxist crisis, you need to provide evidence of a long-term falling rate of profit strongly correlated with an accumulation of fixed capital over variable capital (labour). This you have not done.

  29. Gaz
    February 15th, 2012 at 11:56 | #29

    “The quote re Keynes specifically claiming ‘no more crisis’ was posted previously.”

    Sorry Chris, where? The internet’s a big place.

  30. Chris Warren
    February 15th, 2012 at 12:13 | #30

    @Gaz

    A source is:

    http://en.wikiquote.org/wiki/John_Maynard_Keynes

    We will not have any more crashes in our time.

    [Conversation with Felix Somary in 1927, reported in Felix Somary, The Raven of Zurich, London: C. Hurst, 1986 (1960), 146-7].

    Samuelson’s rendition of the same claim is in his 9th American Edition. Unless I missed it, the Australian editors did not reprint it, so local university students received a somewhat false view on this point.

    Consequently their clinging onto Keynes in subsequent careers, may be understandable.

  31. Dan
    February 15th, 2012 at 13:03 | #31

    @Chris Warren

    “Please get a grip.”

    ‘Calmer than you are.’ – Walter Sobchak

  32. John Quiggin
    February 16th, 2012 at 14:59 | #32

    Chris, it’s listed by Wikiquote under “attributed” for the good reason that no sensible person would believe this. A quote reported 30 years after the event, and imputing a view known to be the opposite of that actually held by the alleged speaker (conveniently dead and unable to respond), has zero credibility. The supposed date is two years after The Economic Consequences of Mr Churchill where Keynes is on the record predicting a recession.

  33. Chris Warren
    February 16th, 2012 at 17:28 | #33

    @John Quiggin

    This is an aspect, however, Samuelson made the same explicit point. This live rendition certainly covers any consequences for the quote being attributed. The policy remained. An Samuelson certainly meant it “sensibly”. So all sensible people should believe it until rigorous proof otherwise emerges.

    And it is useful to see the quote when souls like to invoke the; “you must be joking defence”.

    So my substantive point – that Keynsians fully expected or pretended that their stimulus (or pulling leavers) would ensure that there were no more crisis in their future – still stands.

    Certainly this was the claim of Labor politicians who claimed they follow Keynes.

    I suppose you can hold a policy of crisis-fixing, but also predict a recession. This is not a real problem.

    Sensible people do not need to be scared-off by various pretend comments above.

  34. Dan
    February 16th, 2012 at 19:06 | #34

    Okay Chris, but I’m still going to ring the relevance bell: given that you’re now talking to Keynesians and post-Keynesians who make no such claim, have you got anything?

  35. Chris Warren
    February 16th, 2012 at 22:16 | #35

    @Dan

    Post-Keynesians (a tangent) probably do not make the claim and are not relevant.

    It may now be very unwise and unstrategic, for modernised Keynesians to make the same claims as Keynes may have and Samuelson actually did.

    However, if Keynsians specifically do not claim a permanent fix, at what point did they depart from Samuelson?

    Maybe a Keynesian has admitted that their stimulus measures did not mean a permanent fix(?) but generally if a plumber tells you he will fix a leak, you assume this is a proper, ongoing, fix.

    If a fix is not permanent – the onus is on the advocate to explain why?

    Maybe there are no Keynesians left? and we are getting new guises as post-Keynesians. A bit like getting a New Testament.

    So who really wants to stand as a Keynesian today? I kinda hoped that Samuelson was the last.

  36. James Haughton
    February 20th, 2012 at 09:11 | #36

    @Chris Warren
    I’m going to take your bait and your fishing rod as well. Most people would define “in our time” as “within our/my lifetime”. Given that the Keynesian golden age lasted a good 30 years after Keynes’ death, I’d say that quote is thoroughly vindicated.

    Your argument doesn’t work even at the level of metaphor. You say ” if a plumber tells you he will fix a leak, you assume this is a proper, ongoing, fix.” Name one plumbing firm who will guarantee you that after he fixes one leak, you will never suffer any more leaks from that pipe, or any of your other pipes, ever. This is the stance you are attributing to Keynes and Keynesians, and it is a simply absurd straw man.

  37. Dan
    February 20th, 2012 at 09:21 | #37

    @Chris Warren

    Why would Samuelson be the arbiter of what is and isn’t Keynesian?

    James is right that Keynesianism, like plumbing, is always a temporary fix – that’s what the term countercyclic policy implies; that there are cycles. It’s probably more useful to think of Keynesianism as maintenance.

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