It's interesting that Keynes is the subject of an article by Larry Elliott and an editorial, both in the Guardian. I agree with both articles, Keynes would have nothing to do with the coalition's current policies, despite Vince Cable's claim to the contrary.
It is true, Keynes would have been a critic of Labour's policies during the period from 2003 to 2007. He would have argued for budget surpluses, without a doubt. I accept that. But just because he would have disagreed with what Labour did then does not mean he would agree with what the coalition is doing now.
Keynes was a monetarist: he believed that keeping long-term interest rates low was fundamental to prosperity, and he was right.
He also believe that in the face of recession you cut interest rates, but that when you had done so you did two further things. First, you did quantitative easing, and Labour did just that. Second, if cutting interest rates and quantitative easing did not solve the problem of the recession then you took further necessary steps to achieve the ultimate goal, which was full employment. Never doubt that this was what he sought to achieve. Those two further steps were to cut taxes, which Labour did in 2009, and to increase the deficit by spending to stimulate employment, to promote activity,which would result in the payment of tax, which in turn would repay the borrowing.
Keynes had no doubt that this would work, and time and again he has been proven to be right.
In that case for Vince Cable to argue that a policy of deficit-cutting, tax increasing, the deliberate promotion of unemployment, the threat of increasing interest rates and an indifference to double dip recession is anything approaching a Keynesian solution. Keynes was a Liberal - but I very much doubt he would have been happy in this coalition. Its economic policies are about as far removed from his as is possible, and are about as far removed as those that are needed by this country as it is also possible to get.
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Keynes may have been a monetarist, but like the Austerians he had the polarity of money the wrong way around. Money is not a debt instrument, but is in fact a credit instrument. The MMT’ers are quite good on this aspect – if not upon the fiscal basis of money – and the Real Bills debate is central to the point.
I agree that QE was necessary to prevent deflation and depression, since it replaces credit bleeding out of the system through non-performing loans.
But the side effect has been to inflate financial asset classes to the point that we see 0% T-Bill rates and minimal UK bank rate.
That in turn has led to the ingress through funds of $ tens of billions into commodities as an asset class, and this is not the fault of greedy ‘speculators’ intent on transaction profit, but the exact opposite – fearful investors intent on ‘hedging inflation’ through buying ANYTHING but dollars, interest-bearing or not.
In other words, much of the driver of inflation currently is not coming from consumers – who are for the most part insolvent, illiquid or both – but from the investor class. To raise interest rates now would simply transfer more income from the productive working population to the unproductive investor population, which is of course the Coalition’s core constituency.
In fact, Richard, it is not necessary for a Treasury to borrow to create the credit necessary for the circulation of goods and services and the creation of new productive assets. UK Plc’s credit – based upon its tax income, is every bit as good as that of any large corporation.
More to the point, the Bank of England can and should createfor the Treasury (subject to professional management and accountable supervision) public interest-free credit for development financing in exactly the same way that private banks create such credit when they credit the accounts of suppliers, staff, management and shareholders for dividends, and of course, when they create credit for the purchase of gilts.
Once new productive assets are complete, public credit may be retired and recycled from taxes and rental payments made in respect of their use, and also derived from the increased earnings of those who create the assets.
More coy references to ‘stimulating employment’, still without facing the fact that under present structures, both internal EU and EU external trade mechanisms, the use of foreign labour over UK labour is encouraged re NI and tax exemptions, as well as, frequently, the acceptance of lower wages.
The ONS has identified how the vast majority of jobs over the last few years have gone to overseas workers.
This has be a very signficant factor in ’employment’, assuming that when you are talking about employment, you do actually mean the people here getting or not getting jobs.
Or do you mean, when you say ‘stimulate employment’, just the creation of jobs, regardless of who does them?
It would be very useful if you clarified this.
If it is the latter, then you need to explain why this is a desirable path, and surely take account of the disadvantages to the economy etc.
And if its the former, then there are some issues to acknowledge and confront, albeit ones that you would rather ignore.