Sanders Economic Plan Sustained Stimulus Structural Change or Short Term Pump priming?

In order to properly assess the Sander’s economic plan one has to understand the original debate about economic stimulus that took place between Keynes, his closest followers , interpreters and his Treasury critics during the early 1930s. One also has to know the details of the plan to assess whether it is intended as pump priming to cover a sudden decline in private economic activity until the restoration of confidence in the private sector is accomplished and investment returns to its original level or a sustained stimulus that involves shifting the pattern of investment expenditure in the economy in a permanent way.

The treasury critics and most of the economics profession save for a few heretics were under the confused spell of the quantity theory of money and Say’s law of markets which assumed the economy was always at or near the full employment level. Hence any public expenditure on investment would be automatically followed by an equivalent reduction in private investment. This was the treasury view doctrine that Keynes and his circle fought against .

During the depression it was obvious that unemployment was not voluntary but involuntary due to a lack of sufficient aggregate demand. In such circumstances the crowding out of private investment by public investment was not plausible and the doctrine of Ricardian equivalence that stimulus today is a tax tomorrow and crowding out undermined stimulus was discredited.

Regrettably this false argument has come back from the dead to haunt western and market economies in the last few decades.

In the General Theory Keynes operated with R.F.Kahn’s version of the multiplier to make the case for deficit spending on investment in a sustained way to thereby alter the scarcity value of capital sufficiently to restore full employment and sustained prosperity. The notion of the higher propensity to consume among the moderate and low income classes and the excess savings proclivities of the wealthy was also central to the analysis. Senator Sanders appears to have in mind a sustained program to alter the structure of the American political economy in a Keynesian way. Making universal public access medical and health care and reducing after tax income inequality are permanent structural changes and not one time pump priming.

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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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