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Privatizing Keynes

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by Michael Munger
Guest Blogger
John Maynard Keynes observed, only partly tongue in cheek, that the solution to unemployment is jobs, any jobs:
If the Treasury were to fill old bottles with bank notes, bury them at suitable depths in disused coal mines which are then filled up with town rubbish, and leave them to private enterprise on the well-tried principles of laissez faire to dig them up again… there need be no more unemployment and, with the help of the repercussions, the real income of the community and its capital wealth also would probably become a great deal greater than it actually is.

An interesting conjecture about a new twist on Keynesian policy with a privatized flavor in an article by Madsen Pirie. The focus is on consumption, rather than employment. An excerpt:

Governments seem to have stumbled upon a modern version which seeks similar results to those planned by Keynes, but in which private spending rather than just government spending is encouraged to smooth the economic cycle. Prompted largely by government policies in both the UK and USA, private consumption did not dry up as the most recent cycle turned down. Instead it increased, largely at the expense of saving and by increasing levels of indebtedness. It remains to be seen if the new model Keynesianism can escape the consequences of the old.

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CATEGORIES: Macroeconomics

COMMENTS (5 to date)
AJE writes:

Dr Pirie fails to mention traditional Austrian cycle theory in his piece, even though much of his 'privatising Keynesianism' seems to be based on a central bank providing incentives for unsustainable consumer spending, sowing the seeds for an inevitable crash.

I think the underlying Austrian relevance must be addressed.

Lawrance George Lux writes:

Keynes and later advocates all suggested unlimited growth (growth at sustained percentage increments through time) was the prime and sole criterea for economic performance. Acquisition of Debt is also seen as unlimited growth, though most are more hesitant about this element.

The truth is economic performance needs consolidation to eliminate unprofitable production operations. Debt acquisition can have unlimited growth, only if Wages enjoy unlimited growth. Wages cannot have unlimited growth without impoverishing Those who cannot meet the training and Production capacity. Presumption that a non-Recessionary economy can be maintained is foolish, and will lead to all the complications experienced by the Keynesians. lgl

DSpears writes:

Isn't this just the broken window falacy dressed in different clothing?

Lawrance George Lux writes:


Isn't this just the broken window falacy dressed in different clothing?

I do not think so. Truth states a probable savings of ten percent of resources per year comes from shutting down unprofitable production lines. Some Economists would claim Consumer Will has spoken in this, but I believe production operations will continue as long as production costs can be paid, due to the personal diress of Producers in closing operations. Recessions force Producers to prove the viability of their operations. It does this by insisting Production Costs must be paid, often by Production levels only one-third of quantity originally planned. lgl

Jervis Ninehammer writes:

Unemployment could be eliminated by outlawing farm equipment.

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