Keynesianism

[bindeweede]

Possibly the wrong title for the thread, but I came across this article in the Independent and found it very interesting. I know there are many members here who would wish to comment.

Throughout the nineties and the noughties, Ireland was held up as a poster child by the right. People like John Redwood and (yes) David Cameron said its model of low taxes and almost-total deregulation showed the way forward for Britain. In fact it produced the most corrupt and over-extended banking sector outside Iceland. Just one bank – Anglo Irish – is now on course to receive a €30bn extended bailout, equivalent to every penny of tax collected in the country in 2009. The Celtic Tiger had its claws ripped out, and it's shaking at the back of its cage.

http://www.independent.co.uk/opinion...t-1868347.html

[asthmatic camel]

Isn't it the case that Ireland has benefited from huge EU subsidies which are now drying up? As for Keynes, I suspect that he's spinning in his grave over policies enacted by those who pay lip-service to his theories. Also, I'd have thought that Cameron and Redwood are more influenced by Milton Friedman's thinking than Keynes'.

[Tony Williams]

I seem to recall that the Scottish Nationalists were arguing pre-crash that they could follow the example set by, er, Ireland and Iceland, and make a success of going it alone. Seem to have gone a bit quiet recently...

[Pebble]

Isn't it the case that Ireland has benefited from huge EU subsidies which are now drying up? As for Keynes, I suspect that he's spinning in his grave over policies enacted by those who pay lip-service to his theories. Also, I'd have thought that Cameron and Redwood are more influenced by Milton Friedman's thinking than Keynes'.

Not sure it is yet drying up:

http://www.irishexaminer.com/EUinire...aspx?id=104553

It is always difficult for small countries trying to take advantage of huge multinational corporations to boost employment, development and revenue - they simply don't have the ability to control these beasts and cannot understand the risks involved.
Having said that Ireland of the 1970s was verydependent on agriculture, the politics and organs of the state were corrupt and while the EU funds helped to provide the infrastructure and keep much of the farming community afloat while a staged transition toward an modern society took place - without attracting huge corporations to provide manufacturing and financial sectors, such investment would have been wasted.
I suspect it was a no win situation in the end.

[Legaleagle]

If Ireland acheived 20 years of prosperity and economic growth out of deregulation then wasn't it worth it?

Downturns don't tend to last.

[Tony Williams]

Japan had ten years of stagnation in the 1990s following the SE Asian recession. And what Ireland's experienced over the past couple of years seems to be much worse than that.

[davidrodway]

Japan had ten years of stagnation in the 1990s following the SE Asian recession. And what Ireland's experienced over the past couple of years seems to be much worse than that.

Irelands economy was transformed over the last 25 years - from almost third world, or at least on a par with Portugal, to as god as, at least in terms of personal income, West Germanys. For the first time in many years more people enterd ire;land than left. No doubt the eU money helped, but they also had a lot of inward investment because of low taxes. The big problem they did have was that being in the euro they could not set the interest rate, which wa too low for them, ans so had high inflation. When the crunch struck a high porortion of their economy depende on construction Interestingly, they have gone aboiut solving their economic woes by massive cuts in govt spending - even cutting wages and benefits., which is a continuation of the free market policies they wewre already using. Time will tell if this works, but i suspect it wil.

It seems that often in economics there is never an ideal solution - eg Germany has suffered because it s economy was based on high exports of high quality goods such as machine tools. when the recesssion struck the countries they exported to no longer needed or couyld afford these goods. Yet woulkd you say the previuosly it was a good or bad thing that they were making and selling these goods? nI would have said good.
In the Uk of course a lot of our earning s came from the financial sector, so we clearly got stung.

Perhaps tohe lesson is that countries needed to play to their strengths, but also not keep all their economic eggs in one basket. In the UK we have the chance to increase earnings from tourism, education (if the govt dont wreck the universities first) and energy (Huge coastline with large tidal ranges ideal for barrages and tidal lagoons, with the opportunity to exprt electricity and also offer cheap energy for industiral production)

[Floppit]

I'm going to read here with interest. I'm short on knowledge but interested.

[Legaleagle]

Maybe the lesson from Japan is that economic growth is neither necessary, nor achievable in developed economies. Provided that over the medium to long term the economy is not shrinking, and inflation is low, the people can still enjoy rising living standards. Japan tried Keynsian style public spending and works programs in the 1990's and these failed to stimulate growth. It has also tried the Friedman style money supply and interest rate policies, again, without success.

If we could achieve Steady 0-1% growth and a balanced budget with low inflation, might this not be more beneficial than the boom and bust cycle we are normally in?

[Croydon Bob]

If we could achieve Steady 0-1% growth and a balanced budget with low inflation, might this not be more beneficial than the boom and bust cycle we are normally in?

Lucky for us then that in 1997 we got a Chancellor who promised to deliver just that. Often using the soundbite: "No more boom and bust". This has ensured that for over 12 years the UK has been recession free. Hasn't it?

[asthmatic camel]

Lucky for us then that in 1997 we got a Chancellor who promised to deliver just that. Often using the soundbite: "No more boom and bust". This has ensured that for over 12 years the UK has been recession free. Hasn't it?

Unfortunately for us, said Chancellor is a liar. Had he really followed Keynes' theories, we wouldn't have seen an explosion in public spending during the recovery but a reduction. Now, when we do need to increase spending, we can't afford to. Brown's been a disaster.

[barefoot]

Lucky for us then that in 1997 we got a Chancellor who promised to deliver just that. Often using the soundbite: "No more boom and bust". This has ensured that for over 12 years the UK has been recession free. Hasn't it?

"12 years recession free" could also just be read as "a really really big boom", and it was followed by the biggest bust since records began. So in my books, that doesn't count as no more boom and bust.

[barefoot]

Unfortunately for us, said Chancellor is a liar. Had he really followed Keynes' theories, we wouldn't have seen an explosion in public spending during the recovery but a reduction. Now, when we do need to increase spending, we can't afford to. Brown's been a disaster.

I'm not sure that is quite correct. Well, Gordon is a liar and a disaster for sure. With regard to Keynes though, he said is that government policies can reduce unemployment by increasing aggregate demand. While saying that governments could spend their way out of recession by picking up the slack of the private sector, he wasn't necessarily advocating governments should do this all the time.

Governments can run a surplus in a boom, and then if there is a general glut, they can spend their savings and/or go into debt if necessary to encourage economic activity . There is basically two steps... 1. save up in the good times 2. if there is a glut then spend. Labour just forgot how to do step 1 for 12 years - should we give them half marks lol?

[Legaleagle]

I'm not sure that is quite correct. Well, Gordon is a liar and a disaster for sure. With regard to Keynes though, he said is that government policies can reduce unemployment by increasing aggregate demand. While saying that governments could spend their way out of recession by picking up the slack of the private sector, he wasn't necessarily advocating governments should do this all the time.

Governments can run a surplus in a boom, and then if there is a general glut, they can spend their savings and/or go into debt if necessary to encourage economic activity . There is basically two steps... 1. save up in the good times 2. if there is a glut then spend. Labour just forgot how to do step 1 for 12 years - should we give them half marks lol?

I thought that was precisely the point Asthmatic Camel was making. The explosion of public spending (much of it using borrowed money) during the boom years was not what Keynes would have advocated.

[barefoot]

I thought that was precisely the point Asthmatic Camel was making. The explosion of public spending (much of it using borrowed money) during the boom years was not what Keynes would have advocated.

Oh, may be I misunderstood, it was this sentence in particular that I didn't think was quite correct "Had he really followed Keynes' theories, we wouldn't have seen an explosion in public spending during the recovery but a reduction.". If the word 'recovery' was replaced with 'boom period' or similar, then I would have understood better, because Keynes advocated the opposite of what was said, i.e. increased public spending during the recovery, not a reduction.

By the way, (not that I ever have or ever could vote Labour unless they dramatically changed their policies) but in the interest of fairness, (because I dislike Gordon Brown as much as the next guy) - in the last few years of the boom before the recession hit, he did actually manage to reduce debt that he built up in the first part of the boom while increasing spending - if you are interested, have a look at the 10 year chart:

http://www.wolframalpha.com/input/?i=uk+government+debt