Labour will bring Keynes not just Piketty to Downing St. If they win

There is an interesting article in the current New Yorker on line  by John Cassidy in which he claims that if Labour wins the British election it will be a victory not of Keynesian doctrine over Conservative austerity but of fiscally conservative redistributive doctrine inspired by Thomas Piketty.

The article though typically clever in the New Yorker style misses the profound connection of Keynes to the Beveridge welfare state that Miliband and Labour are seeking to defend against the onslaught of Thatcherist austerity. Redistributive justice was always part of Keynes’s doctrine. Its just that he always knew it,like the doctrine of deficit spending, would be difficult to implement because of the deep rooted ignorance and prejudice about public finance and the claimed superiority of the market in all circumstances despite the widespread and appalling evidence to the contrary. After all, it is Keynes who called for the gentle euthanasia of the rentier class through low interest rates designed to eliminate the rents obtained through the scarcity of capital. A prolonged bout of low to full employment is a great equalizer provided it is accompanied by progressive taxation.

Piketty who is French, of course, has a somewhat different take on economic growth and redistribution and a weaker grasp of Keynes. . He remains skeptical about reducing inequality through growth alone since in his theory the rate of return on capital will exceed the rate of return on income. Hence his advocacy of the taxation of wealth which Labour under Milband and Balls have embraced.Indeed Piketty’s preferred solution to public debt is to increase taxes on private capital.

Cassidy correctly points out that economists, as opposed to the general public, largely understand the virtues of deficit finance in overcoming a crisis. He stresses that many economists correctly advocate major public investments financed at the prevailing very low rates of interest as appropriate policy for these times. It is a pity that Cassidy does not appear to understand however that Keynes’s and Abba Lerner’s dictum was to separate out the infrastructure investment account from the current expenditure account and seek to balance the latter, but not the former except over a much longer haul. In the long haul once growth is resumed the debt to GDP ratio declines so long as the growth rate exceeds the rate of interest. Education , social services and most health care expenditures are essentially investments in human capital and the expenditures associated with them are best treated as long term investments. If one understands this, despite Ed Balls and Ed Miliband’s reluctance to discuss it if they win they will still be promoting a good chunk of Keynes’s humanistic vision from Downing street.


About haroldchorneyeconomist

I am Professor of political economy at Concordia university in Montréal, Québec, Canada. I received my B.A.Hons (econ.&poli sci) from the University of Manitoba. I also completed my M.A. degree in economics there. Went on to spend two years at the London School of Economics as a Ph.D. student in economics and then completed my Ph.D. in political economy at the University of Toronto. Was named a John W.Dafoe fellow, a CMHC fellow and a Canada Council fellow. I also was named a Woodrow Wilson fellow in 1968 after completing my first class honours undergraduate degree. Worked as an economist in the area of education, labour economics and as the senior economist with the Manitoba Housing and Renewal Corporation for the Government of Manitoba from 1972 to 1978. I also have worked as an economic consultant for MDT socio-economic consultants and have been consulted on urban planning, health policy, linguistic duality and public sector finance questions by the governments of Manitoba, Saskatchewan,the cities of Regina and Saskatoon, Ontario and the Federal government of Canada. I have also been consulted by senior leaders of the British Labour party, MPs from the Progressive Conservative party, the Liberal party and the New Democrats on economic policy questions. Members of the Government of France under the Presidency of Francois Mitterand discussed my work on public sector deficits. I have also run for elected office at the municipal level. I first began to write about quantitative easing as a useful policy option during the early 1980s.
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