The core message in Ed Miliband's speech on the economy this morning was a key one. In that speech he rejected three of the planks of 80s and 90s macroeconomic policy, stating them to be the beliefs that:
- Low inflation was the key to growth.
- A rising tide would lift all boats and wealth would trickle down to all.
- And the rules governing our economy were unchangeable.
He went on to say:
New Labour challenged some aspects of those assumptions, but also left others unchanged. But as I will argue, all of them have been discredited by the events of the last five years.
That's very welcome. It means the logic of an indepndent central bank dedicated solely to constraining inflation has been rejected - and that must hurt Ed Balls.
It rejects Mandelson's relaxed view on people getting rich.
It rejects the market based mantra of neoliberalism.
But as important as all these were he went further. He said:
In future the lesson is that macroeconomics is much more complex and faces much more uncertainty than was believed.
And that's embracing the lesson of Keynes. As Keynes knew we do not live in the probabilistic world that neoliberals thinks exists where all outcomes are known and can be predicted: we live in a world of unknowns. And many of those unknowns are unknown (Rumsfeld's one true insight). In which case if we are to have a policy for sustainable, fair growth, for employment and for fair distribution of reward the government has no choice but intervene, with courage, in the economy. And that, of course, was what I called for in The Courageous State.
If that is what Labour is planning it's moving in the right direction.
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Er, didn’t he say we couldn’t spend money like Brown did, or words to that effect? That doesn’t sound like embracing Keynes to me, more like he’s sticking to his agenda of being Tory-Lite.
Not sure….
Economic Growth is the panacea. Or the panacea is economic growth!
Money is available in the banks, its just not being released to the real economy.
If only there was some way that we could make unemployment (the symptom of recession and low growth) impact negatively on the banks. You know, so that they would shift a goodly percentage of the money “invested” in securities to the real economy.
The banks (as institutions) would be persuaded if they had to foot the entire bill for Jobseekers allowance – a replacement for the bank levy.
This would be a feedback mechanism, as they invest more, unemployment falls, their levy falls, encouraging this good behaviour.
How about getting the individuals to be incentivised? I think dynamically setting their top-rate income tax to 10 times the percentage unemployment level would be another feedback mechanism. High unemployment would prod them into looking for businesses which had good growth potential.
So we have a simple feedback mechanism, with near zero implementation costs, and zero time-lag (unlike Vicars) which, once you get over the audaciousness of the proposal, is a no-brainer; it simply can’t fail to work.
Of course, Richard, some would be worried that full employment would result in zero percent top-rate income tax and £zero bank levy; but a minimum level for both could be set.
This would make business specialists in the banks the most valued employees, rather than traders …
So he rejected the idea that “Low inflation was the key to growth”. I seem to recall remarking on this board a few weeks back that I could see inflation coming as all these things go in cycles …
I haven’t read the speech yet, so I might be taking your reporting out of context, but it appears that we now have the first politician openly saying low inflation is important and it really just doesn’t look good for the man in the street who holds his wealth as cash in the bank or the pensioner on a fixed income. Soon the low rates of interest will be the least of these people’s worries.
Careful, you’re conflating neoliberalism with neoclassical economics again.
The concept of “Knightian uncertainty” (which is what you’re referring to, even if you don’t realise it) is not unique to those on the left.
Oh dear: you ignore the fact that those who claim they’re neoliberals to distinguish themselves from neoclassicals make so many other absurd claims they truly believe there are fairies at the bottom of the garden
It is a legitimate argument to say that *neoclassical* economics rests on an assumption of a probabilistic environment, and that this is at odds with Keynes’ views on probability.
But many economists that you yourself would label “neoliberal” do *not* use those methodological foundations. Rather, they utilise the concept of “Knightian uncertainty”. This is an area where some Keynesian economists and most Austrian economists have common ground.
Therefore you should have used the term “neoclassical” where you said “neoliberal”.
There *is* a difference between the two, and this is one example of where.
Accepted
But you did not answer my main point
Pedantry does not overcome the gaping other flaws in neoliberal thinking