Listen to my Alternative Vision radio show today, September 13, discussion of the European Central Bank’s decision to restart QE and lower interest rates further into negative territory. What are the consequences of negative rates? Why will the $17 trillion global negative rates mean for the pending global recession? Why is Trump demanding the US central bank drive rates into negative range as well? What are central banks worldwide cooking up as responses to the next recession, now that they’re ‘at the end of their ropes’? For this discussion, and first preview of the main themes of my forthcoming October 2019 book,’
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The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump’
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GO TO:
http://alternativevisions.podbean.com
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SHOW ANNOUNCEMENT:
Today’s show focuses on the recent decision by the European Central Bank to re-introduce QE and drive Europe’s more than $7 trillion in interest rates further into negative territory. Another $22b per month in QE and rate reduction to -0.5% when, over the past 5 yrs QE and negative rates have not stimulated the European economy. Reasons why QE and neg rates have little effect. How $17 trillion in negative rates worldwide is a growing problem and won’t stimulate the Euro economy. Lower rates as exchange rate currency/ trade move. Why Trump is now calling for US negative rates. Why central banks (including Fed) now secretly discussing new tools and tactics for the next recession, including ‘bail ins’ and calls are growing by high level capitalists for the Fed and central banks to expand their authority into fiscal policy areas (as predicted in my 2017 book, ‘Central Bankers at the End of Their Ropes’). Consequences of such for US Constitution and fiction of ‘central bank independence’. Rasmus discusses US deficit now officially projected to exceed $1 trillion a yr. The Democrat Party latest debate and opposition to Medicare for All. And what’s behind the recent ‘softening’ of US & China trade war (and why a deal may now be closer with ‘decoupling’ of technology issue). Rasmus introduces the show with brief outline of his forthcoming book, ‘The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump’, October 2019, and shares its main themes. (Review of chapters coming in following weeks of this show).
Dr. Jack Rasmus @drjackrasmus
Jack Rasmus 
Jack, Trump and China hawks like Navarro accuse China of stealing US technology for China’s own purposes. Is there a truth to that, or is it nonsense?
How about a tax “reconfiguration”?
michael zitterman
mikiesmoky@aol.com
I left the following comment at M. Robert’s recent post on the same topic. I wonder what Jack has to say about this Keynesian approach. ——-
“Pushing on a string”, is the often chosen description of this policy. Futile is the end result. I’m trying to read about the Reconstruction Finance Corporation which operated from 1932 to 1952. After WWII it was phased out. In the 30s it saved mostly solvent banks with emergency loans, and it bought railroad company debt. Mostly in the 1930s the WPA was the conduit of money, it transferred money directly to workers and families, it was direct job creation, the rate of unemployment dropped from 25% to 9.6%, 1933 to 1937. Keynes also had a solution for perpetual surplus nations, the creation of an International Monetary Clearing Union. This would prevent the race-to-the-bottom in wages that we see with China-US trade. And in the case of Germany, or any surplus-mercantilistic nation, it would require the surplus funds to be invested in the deficit countries. From Paul Davidson’s book The Keynes Solution, page 138: It would encourage creditor nations to “spend these excess credits in three ways: 1.) on the products of any other IMCU member (import more); 2.) on new direct foreign investment in projects in other IMCU member nations (projects, not financial assets); 3.) provide foreign aid similar to the Marshall Plan. And a fourth, maybe, raise wage income in the surplus nation such as increased Earned Income Tax Credits. It’s all about aggregate demand and a balance of income distribution, within each nation and between nations. Direct job creation is a good part of the Green New Deal, some of it targeted to specific low-income communities and geographies. But most of it spent on upgrades and transitions to renewable energy. I’m not sure what Marxists are calling for, but this is state-managed capitalism, and it may lead to the more socialized condition of a world economy. My blog: http://benL88.blogspot.com
Classical economics was big on supply side approaches to economic growth. Add more capital, more labor, more land and in the long run that produced more products–i.e. supply. They were not very big on consumer demand that might stimulate that production in the shorter run (except for Malthus who had the crazy idea to stimulate demand by diverting more income to landowners. Malthus was a landowner. Marx’s economics is in the classical economics tradition. He uses the same classical conceptual framework, which he redefines in some ways. Example: the classical labor theory of value gets a work over and becomes the basis for explaining Capitalist growth slowdown, in the long run (i.e. Marx’s breakdown theory). But Marx, like the classicalists before him, Smith, Ricardo, Malthus, et. al., never had an explanation for the business cycle. That’s short run. Even depressions. Nevertheless contemporary Marxist economists continue to try to apply his long run, supply side views on capital accumulation and labor exploitation to try to explain short run business cycles. BUt the classical framework, built to explain long run growth or the lack threreof, does not work to explain shorter run contractions. Nor does Marx and contemporary marxists give much attention to financial cycles and how they periodically impact real cycles in the short run creating recessions, great recessions, and even depressions. Capitalist financial markets were undeveloped in mid-19th century Britain (the basis for Marx’s empirical analysis). SMith, Ricardo and other classicalists understood banking and finance even less. (One exception might be the banker, Thornton, whose works are often not read). So Marx did not give sufficient attention to effective demand. (Yes it was part of his circulation of capital system of analysis but it was the consequence of production, which was primary. What he called realization crises recognized demand as a factor, but production (by what he called productive labor only) was the driving force of exploitation and therefore the movement of capital. Marx was the most advanced thinker among classical economists, working with their conceptual framework and even advancing it as far as it could go. But capitalism has evolved tremendously since 1850s Britain. It has become more financialized. It has become more globalized. It has radically transformed labor, product and money markets. The nature of money has changed. Unfortunately, contemporary Marxists (not all, but especially anglo-american) have not kept up with these changes (which is very un-Marxist by the way). They instead continue to try to ‘fit’ modern capitalist dynamics into 1850 classical economic theory. Or, in other words, ‘fit’ the round reality into the square past ideas.
Keynes broke from the classical and neoclassical economic traditions and tried to create a new analytical framework. He succeeded only partly. And was furthermore distorted by the counter-revolution in economics that followed after world war II. Which attempted to cherry pick what it found useful in Keynes but restore pre-Keynes economic nonsense of neoclassicalism and create a hybrid with Keynes. What purports to be Keynes today is mostly not Keynes but this hybrid ideological synthesis that is called ‘Keynesianism’ or Keynesian economics.
The real Keynes attempted to develop understanding of short term contractions called business cycles. The key he argued was household demand. That was driven by employment. And employment could only be driven by government spending in a deep contraction of a business cycle. He argued against cutting interest rates and cutting business taxes. That would not generate investment and a return to production and therefore jobs and income that would stimulate consumption. Raising consumption is what would restore investment (not tax cuts, low rates, wage cuts or price increases). Getting disposable income in the hands of consumers was the crux to recovery. That could be done in a variety of ways. Get the government to directly hire unemployed when businesses wouldn’t. Provide unemployment insurance payments. Set a m inimum wage. Start public works projects that would create construction jobs. Let unions become legal and form, and raise wages of those with jobs. Provide social security for retirees. Take over mortgages and refinance them for 30 years, instead of the then typical 10, in order to lower mortgage payments and in turn give households more money to spend (the Home Owners Loan Corporation which functioned much like the Reconstruction Finance Corporation). The programs go on but the idea was to raise disposable household income, that would drive consumption, that would in turn provide an incentive for business to invest again, and thereby hire more workers, raise income, etc. It was ‘bottom up’ recovery. Households and workers got recovered first, then ‘trickle up’ to business revenue, profits, and investment.
But capitalists, and especially bankers, don’t like ‘trickle up’ and they run the politicians who vote on programs and determine the composition and policies of the central banks. So we get instead now bail out the bankers and keep subsidizing them. Bail out the businesses with chronic trillion dollar tax cuts and direct subsidy fiscal policies. Hope that they then ‘trickle down’ some of their great profits to finance real investment to create jobs and income for workers and households to then boost consumption. But in today’s 21st century capitalism the ‘trickle down’ has become ‘drip drip’. Most of the tax cuts and monetary policy of near zero interest rates and free QE money doesn’t get into real investment in the US any more. It flows instead offshore in today’s globalized capitalism; it gets diverted into financial markets that cause stock, bond, and derivative bubbles (that don’t create any jobs); it goes into mergers & acquisitions financing that only makes shareholders richer; or it is left to sit on balance sheets waiting for the next financial or offshore investment opportunity. Keynes began to see this. Check out his Ch. 12 of his General Theory book. Marx had no idea of this in his first volume of Capital in 1867 (based on 1850s-60s data in Britain). Marx began to suspect the outline of this development in his unpublished notes in vols. 2,3 of Capital. Gathered together by Engels it is unclear who the author is sometime, Marx or Engels, the latter of whom was in no way an economist).
So both Marx and Keynes were on to something. Marx only vaguely so, Keynes more so. But both were still before their time. The economist Hyman Minsky attempted to take Keynes into the world of late 20th century capitalism that was beginning to transform. Minsky wrote from the 1970s to the early 1990s. So he had a clearly view of what was going on, but still could see only the early outlines of what was coming in 21st century capitalism.
Readers should go back and read Marx’s vol. 3, Keynes General Theory, and Minsky’s 1990 articles. (see my extensive Part 3 of my 2016 book, ‘Systemic Fragility in the Global Economy’, that reviews classical, Marx, Keynes and Minsky views, and then summarizes my own early views on how 21st century capitalism evolves as financial cycles interact with real cycles–sometimes producing ‘normal’ recessions, sometimes ‘epic’ recessions (that some call ‘great recessions), and bona fide economic depressions.
To summarize, Davidson’s book is in the tradition of trying to restore Keynes’ actual views, not just the errors and ideology of the hybrid Keynesianism that is a synthesis of pre-Keynes with Keynes in the worst combination. That hybrid view mistaught generations of young economics students from the 1950s to the 1970s, until it was overthrown by a full retreat back to neoclassical economics by Friedman’s monetarism, the Chicago school, and dozens of nonsense offshoot theories. Davidson is in the school of what’s called ‘Left Keynesians’, who try to go back to the original views of Keynes. Minsky would be a ‘Left Financial Keynesian’. Contemporary Marxists, especially the anglo-Americans (the Europeans and emerging market Marxists are at least trying to revise Marx to the realities of 21st century capitalism). Contemporary marxists aren’t really marxist economists. They are Marxist Philologists.
Keynes of course, and Minsky as well, do not have all the answers. Capitalism has evolved even beyond them. But they do have something of great value to add to our understanding of current day capitalism and should be read. But in the original. Don’t waste time with third party summaries that mostly distort purposely, or haven’t really understood Keynes or Minsky. (ditto for Marx who should be read backwards; that is, start with vol. 3).
Hope that addresses some of the excellent points made by Bl8, who always provides thoughtful questions and comments.