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.
