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WIuL's wrong wILI LIe KeynesIun unswer Lo
uusLerILy?
Iecture b Michcel Roberts, April zo:
As uosterity meusores bite while the economy continoes
to Ilutline, urgoments Ior u Keynesiun response to the
recession ure guining truction. Murxist economist
Michuel Roberts custs u criticul eye over the Keynesiun
cuse, urgoing thut it misonderstunds the cuoses oI
cupitulist crisis
A new rudIcuI LIInk-Lunk kIcked oII IusL yeur In LIe UK. L's goL u
greuL nume: CIuss: LIe CenLre Ior ubour und SocIuI SLudIes.
Sounds socIuIIsL, even MurxIsL, doesn'L IL? UnIorLunuLeIy, uL ILs
IIrsL meeLIng LIe speukers, especIuIIy LIe economIsLs, were uII
KeynesIuns. AII LIe urgumenLs uguInsL uusLerILy were KeynesIun.
AppurenLIy, u MurxIsL unuIysIs Ius no conLrIbuLIon Lo muke In
expIuInIng LIe GreuL RecessIon und LIe ensuIng Iong depressIon -
or wIuL Lo do ubouL IL.
LIInk IL Is u serIous deIIcIency Ior LIose IIgILIng Ior Iubour
uguInsL cupILuI, und needIng Lo IInd LIe rIgIL poIIcIes, Lo reIy on
KeynesIun LIeory und poIIcy.
WIy do suy LIuL? WeII, IeL me sLurL wILI LIe kerneI oI Keynes's
conLrIbuLIon Lo economIcs: IIs empIusIs on LIe mucro economy.
Keynes wunLed us Lo Iocus on LIe mucro economy LIrougI IIs key
nuLIonuI uccounLIng "IdenLILIes". NuLIonuI Income = nuLIonuI
expendILure - LIuL's eusy. NuLIonuI Income cun LIen be broken
down Lo ProIIL + Wuges; und nuLIonuI expendILure cun be broken
down Lo nvesLmenL + ConsumpLIon. So ProIIL + Wuges =
nvesLmenL + ConsumpLIon. Now II we ussume LIuL wuges ure uII
spenL on consumpLIon und noL suved, LIen ProIILs = nvesLmenL.
BuL Iere Is LIe rub. TIIs IdenLILy does noL LeII us LIe cuusuI
dIrecLIon LIuL cun IeIp us deveIop u LIeory. or Keynes, LIe cuusuI
dIrecLIon Is sImpIy LIuL InvesLmenL creuLes proIIL. BuL wIuL cuuses
InvesLmenL? WeII, LIe subjecLIve decIsIons oI IndIvIduuI
enLrepreneurs. WIuL InIIuences LIeIr decIsIons? WeII, "unImuI
spIrILs", or vuryIng expecLuLIons oI u reLurn on InvesLmenL, eLc. L
Is enLIreIy subjecLIve.
Buck to Iront
n uny cuse, LIe Ideu LIuL proIILs depend on InvesLmenL Is buck Lo
IronL. or MurxIsLs, IL Is LIe oLIer wuy round: InvesLmenL depends
on proIIL - und proIIL depends on LIe expIoILuLIon oI Iubour power
und ILs upproprIuLIon by cupILuI. TIus we Iuve un objecLIve cuusuI
unuIysIs bused on u specIIIc Iorm oI cIuss socIeLy, noL bused on
some mysLIcuI psycIounuIysIs oI IndIvIduuI Iumun beIuvIour.
Now II InvesLmenL In un economy depends on proIILs, und II
proIILs ure IIxed In LIe equuLIon und cunnoL be Increused, LIen
InvesLmenL cunnoL be Increused. So cupILuIIsL InvesLmenL (Ie
InvesLmenL Ior u proIIL) wIII now depend on reducIng LIe
sIpIonIng oII oI proIILs InLo cupILuIIsL consumpLIon undJor on
resLrIcLIng non-cupILuIIsL InvesLmenL, numeIy governmenL
InvesLmenL. So cupILuIIsm needs more governmenL suvIng, noL
more spendIng. L Is LIe opposILe oI LIe KeynesIun poIIcy
concIusIon. GovernmenL spendIng wIII noL boosL proIILs, buL LIe
onute
Access Lo LIIs
websILe Is Iree -
IeIp us keep IL
LIuL wuy. PIeuse
muke u donuLIon.
Sobscribe
GeL eucI Issue
deIIvered - und
suve money
us weII!
Hpoo/q q pouod os/id os: E//qvik Mrtpooq Asvspyooiqoq yid q y/oood
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Ms qv uooqpiq q Mrtpooq
Ei/oyq y/oood
opposILe - und proIILs ure wIuL muLLers under cupILuIIsm. So
governmenL spendIng Is u neguLIve Ior cupILuIIsL InvesLmenL.
BuL LIe KeynesIuns do noL consIder proIIL. TIey Iook uL ouLpuL.
TIey urgue LIuL, Ior every cIunge In governmenL spendIng In un
economy, LIere Is u correspondIng cIunge In consumpLIon und
nuLIonuI ouLpuL. So II governmenL spendIng Is cuL, LIere wIII u
reducLIon In Gross DomesLIc ProducL (GDP) oI some umounL.
TIIs Is LIe so-cuIIed IIscuI muILIpIIer. And IL Is powerIuI, uccordIng
Lo LIe KeynesIuns.
As LIe worId's IeudIng KeynesIun guru, PuuI Krugmun, puL IL In
IIs bIog, " und oLIers Iuve been urguIng Ior u wIIIe LIuL LIe
experIence oI uusLerILy In LIe eurozone cIeurIy suggesLs preLLy bIg
KeynesIun eIIecLs." TIe nLernuLIonuI MoneLury und (M)
ugrees, uccordIng Lo LIe evIdence oI LIe grupI beIow. L sIows
LIuL LIe more governmenL spendIng cuLs ure mude by u
governmenL (Greece - 16%), LIe worse Is LIe decIIne In reuI GDP
(Greece - 1q%).
ndeed, LIIs Ideu Ius now been IuLcIed onLo by LIe Trudes UnIon
Congress (TUC). TIe TUC cuIcuIuLes LIuL LIe UK IIscuI muILIpIIer
Is us IIgI us 1. - LIe mIddIe oI LIe M's new runge - so LIe
governmenL's IIscuI cuLs Iuve reduced UK reuI GDP by Lwo
percenL sInce zo1o
BuL IoId on. BeIore we bow down beIore LIe KeynesIun
muILIpIIer, consIder u coupIe oI Issues. IrsL, Is LIe M evIdence
LIuL concIusIve?
WeII, noL uccordIng Lo u InuncIuI TImes (T) unuIysIs. As LIe
puper puL IL, "An exercIse by LIe InuncIuI TImes Lo repIIcuLe und
evuIuuLe LIe M's work, Iowever, sIowed LIuL LIe resuILs
suggesLIng very Iurge muILIpIIers - LIe reIuLIonsIIp beLween deIIcIL
reducLIon eIIorLs und growLI - do noL eusIIy sLund up Lo u dIIIerenL
cIoIce oI counLrIes or LIme perIod." TIe T goes on, "or LIe
counLrIes wIere LIe IuII duLu ure uvuIIubIe on LIe M websILe, LIe
resuILs Iose sLuLIsLIcuI sIgnIIIcunce II Greece und Germuny ure
excIuded. Moreover, LIe resuILs were presenLed us generuI buL ure
IImILed Lo LIe specIIIc LIme perIod cIosen. TIe zo1o IorecusLs oI
deIIcILs were noL good predIcLors oI errors In growLI IorecusLs Ior
zo1o or zo11 wIen LIe yeurs were unuIysed IndIvIduuIIy. Ls zo11
IorecusLs were noL good predIcLors oI unyLIIng."
And wIen we go buck und unuIyse prevIous esLImuLes oI LIe
KeynesIun muILIpIIers, we IInd LIuL LIe IIscuI muILIpIIers vury
wIdeIy II LIe LIme perIods ure uILered. ndeed, LIe M noLes In ILs
reporL LIuL "eurIIer unuIysIs by LIe M sLuII suggesLs LIuL on
uveruge IIscuI muILIpIIer were neur o. In udvunced economIes
durIng LIe LIree decudes IeudIng up Lo zooq." TIuL meuns
boosLIng or cuLLIng governmenL spendIng und Luxes Iud IILLIe
ImpucL on growLI durIng LIose yeurs.
Cuosution
BuL LIen LIere Is unoLIer Issue: cuusuLIon. TIese sLudIes do noL
LeII you wIuL cuuses wIuL. DId LIe recessIon cuuse deIIcILs Lo rIse
und debL Lo Increuse und LIus Iorce governmenLs InLo uusLerILy, or
LIe oLIer wuy round? SureIy, IL wus noL IIscuI uusLerILy LIuL cuused
LIe GreuL RecessIon, buL LIe GreuL RecessIon LIuL Ied Lo IIscuI
uusLerILy. Krugmun's repIy Is ruLIer unconvIncIng - numeIy LIuL,
us LIe M goL IL wrong und LIe ImpucL oI governmenL spendIng
cuLs Ius been worse LIun expecLed, LIIs sIows LIuL uusLerILy musL
be LIe cuuse und sIowIng growLI or conLrucLIng economIes ure LIe
resuIL.
WeII, LIere Ius been u Ieup oI sLudIes LIuL urgue LIe conLrury:
LIuL IL Is Iurge budgeL deIIcILs und IIgI debL LIuL wIII cuuse GDP
http://www.socialistreview.org.uk/article.php?articlenumber12273
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growLI Lo IuILer. TIe mosL Iumous one Is by ReInIurL und RogoII.
L sIows LIuL II pubIIc debL IeveIs geL Lo over 8 Lo qo percenL oI
GDP (us LIey now ure In mosL udvunced cupILuIIsL economIes),
LIen IL cun Luke yeurs (IIve Lo seven yeurs or more) Lo resLore
"normuI" economIc growLI. TIe ImpIIcuLIon Is LIuL LIe quIcker
pubIIc debL ruLIos ure reduced, LIe quIcker LIe susLuIned growLI
cun resume.
BuL LIe cuusuLIon Is noL cIeur: 1) u recessIon cuuses IIgI debL, so
LIe onIy wuy Lo geL debL down Is Lo boosL growLI (KeynesIun) or z)
IIgI debL cuuses recessIons, so LIe onIy wuy Lo resLore growLI Is
Lo cuL debL (AusLerIun). TIe evIdence one or wuy or unoLIer Irom
uII LIese sLudIes Is noL LIere.
dId u IILLIe pIece oI sLuLIsLIcuI reseurcI on LIIs Issue compurIng
LIe uveruge budgeL deIIcIL Lo GDP Ior Jupun, LIe US und LIe euro
ureu uguInsL reuI GDP growLI sInce 1qq8. 1qq8 Is LIe duLe LIuL
mosL economIsLs urgue wus LIe poInL wIen LIe Jupunese
uuLIorILIes wenL Ior broke wILI KeynesIun-Lype governmenL
spendIng poIIcIes desIgned Lo resLore economIc growLI. DId IL
work?
WeII, beLween 1qq8 und zoo; Jupun's uveruge budgeL deIIcIL wus
6.q percenL oI GDP, wIIIe reuI GDP growLI uveruged jusL 1
percenL. n LIe sume perIod LIe US budgeL deIIcIL wus jusL Lwo
percenL oI GDP, Iess LIun one LIIrd oI LIuL oI Jupun, buL reuI GDP
growLI wus LIree percenL u yeur, or LIree LImes us IusL us Jupun.
n LIe euro ureu LIe budgeL deIIcIL wus even Iower uL 1.q percenL oI
GDP, buL reuI GDP growLI sLIII uveruged z. percenL u yeur, or
more LIun LwIce LIuL oI Jupun. So LIe KeynesIun muILIpIIer dId
noL seem Lo do ILs job In Jupun over u Len-yeur perIod. AguIn, In
LIe credIL boom perIod oI zooz-o;, Jupun's uveruge reuI GDP
growLI wus LIe IowesL even LIougI ILs budgeL deIIcIL wus wuy
IIgIer LIun LIe US or LIe eurozone.
TIe KeynesIun muILIpIIer meusures LIe ImpucL oI more or Iess
spendIng (demund) on Income (GDP). BuL LIere Is u MurxIsL
muILIpIIer. Here LIe cuusuLIon Is Irom proIILs Lo cupILuIIsL
InvesLmenL und LIen Irom InvesLmenL Lo empIoymenL, wuges und
consumpLIon. SpendIng und growLI In GDP ure dependenL
vurIubIes on proIILubIIILy oI InvesLmenL, noL LIe oLIer wuy round.
TIe MurxIsL muILIpIIer meusures cIunges In proIILubIIILy und LIus
LIeIr ImpucL on InvesLmenL und growLI.
ProIitubility
I LIe MurxIsL muILIpIIer Is LIe rIgIL wuy Lo vIew LIe modern
economy, LIen wIuL IoIIows Is LIuL governmenL spendIng und Lux
Increuses or cuLs musL be vIewed Irom wIeLIer LIey boosL or
reduce proIILubIIILy. I LIey do noL, LIen uny sIorL-Lerm boosL Lo
GDP Irom more governmenL spendIng wIII onIy be uL LIe expense
oI u IengLIIer perIod oI Iow growLI und un evenLuuI reLurn Lo
recessIon.
I more governmenL spendIng goes muInIy InLo socIuI LrunsIers
und weIIure, LIuL wIII cuL proIILubIIILy, us IL Is u cosL Lo LIe
cupILuIIsL secLor und udds no new vuIue Lo LIe economy. I IL goes
muInIy InLo pubIIc servIces IIke educuLIon und IeuILI (Iumun
cupILuI), IL muy IeIp Lo ruIse LIe producLIvILy oI Iubour over LIme,
buL IL won'L IeIp proIILubIIILy. I IL goes muInIy InLo governmenL
InvesLmenL In InIrusLrucLure, IL muy boosL proIILubIIILy Ior LIose
cupILuIIsL secLors geLLIng LIe conLrucLs, buL II IL Is puId Ior by
IIgIer Luxes on proIILs, LIere Is no guIn overuII. And even II IL Is
IInunced by Luxes on wuges or cuLs In oLIer spendIng IL wIII onIy
ruIse overuII proIILubIIILy II IL goes InLo secLors wILI u Iower ruLIo
oI cupILuI Lo Iubour (noL usuuI In InIrusLrucLure projecLs, und II IL
Is IInunced by more borrowIng, proIILubIIILy wIII consLruIned by
rIsIng InLeresL ruLes. So LIere Is no ussurunce LIuL more spendIng
http://www.socialistreview.org.uk/article.php?articlenumber12273
Page 3 oI 6
meuns more proIILubIIILy - quILe LIe conLrury.
The Murxist Iorecust
Now IeL's Iook uL LIe sume perIod LIuL covered ubove Ior LIe
ImpucL on growLI oI LIe KeynesIun muILIpIIer, Irom LIe poInL oI
vIew oI LIe MurxIsL muILIpIIer. AILer 1qq; LIe ruLe oI proIIL In mosL
oI LIe udvunced cupILuIIsL worId begun Lo decIIne. TIe MurxIsL
muILIpIIer wouId LIen IorecusL LIuL InvesLmenL growLI wouId sLurL
Lo sIow und so wouId GDP growLI. WeII, In LIe Iour yeurs Irom
1qq8 Lo LIe mIId recessIon oI zoo1 US reuI InvesLmenL growLI
uveruged 6.1 percenL u yeur, wIIIe LIe governmenL run u smuII
budgeL surpIus und reuI GDP growLI wus .6 percenL u yeur. BuL
uILer LIe recessIon oI zoo1, durIng LIe credIL boom oI zooz-;, US
reuI InvesLmenL growLI sIowed Lo z.z percenL u yeur, buL LIe
governmenL run u budgeL deIIcIL LIuL uveruged .6 percenL oI GDP
und reuI GDP growLI sIowed Lo z.6 percenL u yeur. L wus LIe sume
sLory Ior Europe.
Even more reveuIIng Is cupILuIIsL InvesLmenL In LIe producLIve
secLors oI LIe economy (reuI non-resIdenLIuI prIvuLe cupILuI
IormuLIon In OrgunIsuLIon Ior EconomIc Co-operuLIon und
DeveIopmenL (OECD) Lerms). BeLween 1qq8 und zoo1, US reuI
InvesLmenL In producLIve secLors rose ;.z percenL u yeur, buL Irom
zoo1 Lo zoo; IL rose onIy . percenL u yeur (IuII LIe ruLe). AguIn
IL wus LIe sume sLory Ior Europe.
TIere does noL seem Lo be uny evIdence LIuL bIgger governmenL
spendIng or wIder budgeL deIIcILs wIII Ieud Lo IusLer InvesLmenL or
economIc growLI over LIme In cupILuIIsL economIes. ndeed, LIe
evIdence Is Lo LIe conLrury mucI oI LIe LIme. TIe MurxIsL
muILIpIIer oI proIILubIIILy und InvesLmenL seems more convIncIng.
Don'L geL me wrong. TIIs does noL meun uusLerILy Is LIe rIgIL
poIIcy. TIe recenL suggesLIon by LIe M dIrecLor generuI
CIrIsLIne ugurde (suIury $q;o,ooo per yeur und no Lux) LIuL
uusLerILy Ius worked, by cILIng LIe IIkes oI uLvIu und EsLonIu, Is
so mucI bunkum. TIese very smuII cupILuIIsL sLuLes In EusLern
Europe Iuve done u IILLIe beLLer becuuse LIey receIved Iuge IIscuI
LrunsIers, wuy more LIun Greece (see LIe commenLs oI LIe M's
cIIeI economIsL und semI-KeynesIun, OIIvIer PIuncIurd). Around
zo percenL oI EsLonIu's budgeL Is mude up oI EU IundIng. No
bunks were buIIed ouL becuuse LIey ure owned by Sweden und
oLIer NordIc bunks und LIeIr exporLs ure IeuvIIy orIenLed Lowurds
ScundInuvIu, wIIcI Ius generuIIy Iured mucI beLLer. And
governmenL debL wus never IIgI In LIe IIrsL pIuce.
WIuL reuIIy IeIped LIese economIes Lurn uround, sucI us LIey
Iuve done, wus noL IIscuI uusLerILy, buL LIe desLrucLIon oI Iubour
rIgILs Lo uIIow empIoyers Lo boosL proIILs und emIgruLIon. A
sIzeubIe proporLIon oI LIe BuILIc peopIe Iuve IeIL LIeIr IomeIunds
Lo IInd work In LIe resL oI Europe. SkIIIed workers Iuve
dIsuppeured. uLvIu Ius undergone u demogrupIIc coIIupse.
Young uLvIuns Iuve IIed LIe counLry. n 1qq1 LIe popuIuLIon wus
z.; mIIIIon. TIe mosL recenL census sIows LIe popuIuLIon Ius
dropped Lo Lwo mIIIIon, buL Is probubIy Iower becuuse oI
conLInuIng emIgruLIon.
TIe UK governmenL Is sLIckIng wILI uusLerILy und IL Is noL
workIng. BuL uusLerILy Is noL LIe onIy, or even LIe muIn, cuuse oI
LIe UK's sLugnuLIng economy. One recenL sLudy Iound LIuL LIe
reIuLIveIy LougIer IIscuI udjusLmenL In LIe UK compured Lo LIe US
Ius conLrIbuLed sIIgILIy Iess LIun IuII LIe percenL poInL
dIIIerence In reuI GDP growLI beLween LIe Lwo counLrIes over LIe
IusL LIree yeurs . TIe reuI cuuse Is LIe IuIIure oI LIe "renLIer"
economy LIuL Is BrILIsI cupILuIIsm. ProducLIvILy In producLIve
secLors oI LIe economy Is sLugnunL und InvesLmenL Ius coIIupsed.
HoIders oI cupILuI ure uccumuIuLIng cusI, sendIng IL ubroud or
http://www.socialistreview.org.uk/article.php?articlenumber12273
Page 4 oI 6
buyIng IInuncIuI usseLs. BuL LIey ure noL InvesLIng. So LIe reuI
economy sLugnuLes und LIe uuLIorILIes cun do noLIIng ubouL IL
becuuse LIe cupILuIIsL secLor domInuLes.
Steudy decline
TIe reuson LIuL UK compunIes ure noL InvesLIng uL Iome Is LIuL
corporuLe proIILubIIILy Is sLIII weII beIow ILs peuk In zoo; und,
even more sIgnIIIcunL, LIe ruLe oI proIIL In LIe producLIve secLor oI
LIe economy, munuIucLurIng, conLInues ILs sLeudy decIIne Irom
1qq;, und Is now IILLIng Iows noL seen sInce LIe recessIon oI LIe
eurIy 1qqos.
NoL surprIsIngIy, UK compunIes ure on un InvesLmenL sLrIke.
So wIuL Is LIe correcL poIIcy response Lo LIe Iong depressIon? A
MurxIsL unuIysIs, In my opInIon, recognIses LIuL LIe underIyIng
cuuse oI LIe crIsIs In LIe IIrsL pIuce Is Lo be Iound In LIe IuIIure oI
cupILuIIsL producLIon Lo generuLe enougI proIIL. TIen, unLII
cupILuIIsm cun desLroy enougI oId or "deud" cupILuI (empIoyees,
oId LecInoIogy und unproIILubIe weuker cupILuIIsL enLerprIses) Lo
resLore proIILubIIILy und sLurL LIe wIoIe LIIng uguIn, IL wIII
IunguIsI. n LIIs Iong depressIon reckon LIIs muy weII requIre
unoLIer bIg sIump.
KeynesIun-sLyIe governmenL spendIng progrummes cun uIIevIuLe
some oI LIe puIn Ior Iubour und governmenL InvesLmenL cun IeIp
creuLe new jobs. TIIs wIII noL boosL proIILubIIILy, buL InsLeud wIII
be uL ILs expense. And us Iong us cupILuIIsm Is LIe domInunL Iorm
oI socIuI producLIon, LIuL wIII meun more governmenL spendIng
wIII deIuy LIe cupILuIIsL recovery, noL speed IL up. I we wunL Lo
end LIe Iong depressIon und uvoId unoLIer bIg sIump, we need Lo
end LIe cupILuIIsL mode oI producLIon und repIuce IL wILI
democruLIcuIIy conLroIIed, pIunned socIuI producLIon.
Michcel Roberts blos ct thenextrecession.uordpress.com
WrILe Lo us
We weIcome IeLLers on uII Issues ruIsed In Sociclist Retieu.
PIeuse keep conLrIbuLIons Lo under oo words II possIbIe, und
IndIcuLe wIIcI urLIcIe you ure respondIng Lo.
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Your uddress
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