Sunday, 17 April 2016
The Keynes Solution, by Paul Davidson
The economic views of John Maynard Keynes have come back into fashion in recent years. My mental image of Keynesianism is of a bunch of 1950s blokes in drab grey suits, with brillcreamed hair, smoking woodbines like chimneys as they plan the course of the national economy. That's the sort of image that would inevitably give Keynesianism credibility with hipsters. Milton Friedman can't compete with that kind of hipster currency.
This book is an apology for Keynesian economics, arguing for its relevance in these recently troubled economic times. The author is a Post-Keynesian, who argues for more than just a stimulus in times of recession, but continued government investment to maintain full employment. He argues that his own views are closer to those of John Maynard Keynes than those of Keynesian economists after the Second World War. Davidson is harsh in his criticism of free-market economists, criticising them not only on economic grounds, but also moral grounds. This made it a difficult read. He makes no effort to engage in dialogue people like me who have tended to be on the free-market side of the fence. I suspect the book is aimed at a more progressive readership.
As an unrepentant capitalist, I have my worries about the idea of full employment and wonder if it is desirable given the implications for wage inflation and increased union power. On the former, our author suggests measures that he believes would prevent wage inflation. I'm a little troubled by the question. Perhaps simply for moral reasons, governments should pursue full employment regardless of the potential economic disadvantages, but this is an idea that worries me enormously and seems to demand a level of state intervention that I am not comfortable with. Right-wing people like me probably need a bit more persuasion than Davidson provides.
I was also uncomfortable on the chapter in international trade. Davidson believes that free trade has been bad for the American economy, a position with which I am very uncomfortable. I am not convinced that his solutions on that issue are practical. He argues that imports should be banned from countries which do not apply the same workplace standards as those in America. It sounds good in principle, but that would require establishing a bureaucracy to enforce those standards on the importing country. The cost of this would end up being born by the customer.
In discussing those things he believes governments should invest in, our author stresses the importance of healthcare. He believes that the American right has failed to see that a healthy capitalist system requires an healthy workforce. This is a good and sound point.
One thing that is definitely lacking in this book is any specific examples of where Keynesian economics ha been successful. That would definitely have made the author's case a bit stronger. I would have also liked some discussion of current politics and the extent to which world leaders are willing to engage with Keynesian policies.
I do find aspects of the Keynesian argument persuasive; I am not at all convinced that markets are always that efficient. Yet I do have some nagging doubts. Obviously, there is the standard monetarist argument that Keynesian policies lead to runaway inflation. More fundamentally, I can't shake off the suspicion that Keynes' ideas are too easy to sell. Keynesianism promises more government spending and more employment, things that are easy to sell to voters. It does make one worry that Keynesians are telling people what they want to hear. Of course, one can turn this around and argue that those who support neo-classical economic theories are also motivated by the wrong reasons; a bias against government intervention, a belief in self-reliance or a misguided commonsense.
I also wonder if it does not help that Keynes appeals to people for the wrong reason. John Maynard Keynes seems to have been a likeable sort of person, especially if you are a middle-class liberal. Keynes was a man of culture, a philosopher who loved art and literature and who was married to a ballet dancer. Inevitably, intellectuals are going to warm to somebody like that.
Nevertheless, I am very interested in Keynesianism. Keynesianism ought to appeal to advocates of Catholic social teaching who emphasise the deficiencies of capitalism. It certainly makes more sense than the vague posturing otherwise known as Distributism.