Macro economic policy after Keynes and covid
Professor Harold Chorney
Concordia university, Montreal
This course introduces students to the relevance and work of John Maynard Keynes to the solution of macroeconomic policy problems in the age of covid. Covid -19 has wreaked havoc on the global economy . It has tragically killed over 844 thousand people world wide and has produced 25.1 million cases. Canada has suffered 9120 deaths and the US 186 thousand deaths.
The rate of unemployment due to the public health lockdowns has risen from under 4 % in the U.S in February of 2020 to close to 15% in April. Since April it has dropped month by month so that in June it had fallen to 11.1 % and in July to 10.2%.In August it fell to 8.4%. It may fall below 8 % and even 7 % by November. In Canada the rate rose to a peak of 13.7% in May from 5.6% in February It then fell to 12.3 % in June and to 10.9% in July.It fell further in August to 10.2% (sources U.S. Bureau of Labour Statistics; Canada, Statistics Canada Labour force Survey)
This course is an intensive examination of macro-economic policy-making and macro-economic theory in the light of recent and earlier global developments, including covid 19;, the crisis of 2008 and 2009 and fraud in global financial markets, the sub prime mortgage market crisis, the accompanying collapse in asset backed commercial paper and the Keynesian backed recovery now the longest recession free recovery in post war history, the original fear of the possibility of a double dip recession and the recrudescence of monetarism, deficit hysteria and laissez-faire in certain conservative circles.
It examines in close detail the problems of inflation,deflation,disinflation, public finance, unemployment, recession,depression, stagflation and economic growth and the financial markets in the light of the work of John Maynard Keynes and his interpreters, co-creators and supporters like Michal Kalecki , Joan Robinson, R.F.Kahn, J.K.Galbraith, Abba Lerner, Hyman Minsky, Robert Eisner, Paul Davidson on the one hand and Friedrich Von Hayek,Lionel Robbins, Milton Friedman, Harry Johnson, David Laidler, Robert Lucas, Gregory Mankiw and their followers on the other hand, as well as the neo-classical synthesis that draws from both schools.
In addition, we shall examine certain aspects of the contemporary political economy and explore the bursting bubble in high technology in 2000 and the 2007-09 collapse of the financial markets, as well as the current turbulence over the periodic collapse in world oil and commodity prices; aspects of globalization and their impact upon growth theory as well as,the election battles of Barack Obama and Hillary Clinton’s and Bernie Sanders’ campaign for election against a Republican party that originally rejected Keynesian policy but now under Trump partly embraces some aspects of it; the surprise victory of the economic nationalist Donald Trump and his anti regulation populist politics; the Canadian success of Justin Trudeau running on a moderate Keynesian platform and the challenges he faces in winning a second but minority mandate;the credit crisis, the revenge of the bond markets in Europe and the ECB and Greece and shifting attitudes in public opinion and policy towards Keynesian intervention and planning and away from strict laissez-faire.
From 2008 a modest New Deal style Keynesian Intervention was introduced by the Obama administration including substantial investment in infrastructure and reregulation of the banking, financial, energy and transportation sectors. This had stabilized the slump that followed the financial crash . Growth resumed although it was not initially robust but up until the covid- 19 crisis it was prolonged so that the recovery was the longest in US post war history.
It is now replaced by the harsh consequences of the covid lockdown. A strong recovery from that may be threatened by global turbulence in trade relations, including a trade war with China initiated by President Trump and policy error. Nevertheless there is considerable evidence that Keynes is back and that his theories once brought up to date by innovations like quantitative easing or temporarily monetizing some of the debt (an innovation that I first proposed in detail in a number of scholarly articles and monographs in the early 1980s and nineties, but whose roots lie in the work of John Maynard Keynes and his circle in the early 1930s (see my papers on Keynes and the origins of quantitative easing and on the 75th anniversary of the General Theory posted on this site in June 2011) These innovations are clearly sound and are very effective in fighting recessions and reversing slumps. The dogma of the past twenty-five years that unregulated markets work best and are always rational is now partly eclipsed by both events and public opinion. The previous Canadian political party obsessive consensus on balanced budgets and fiscal prudence is now clearly anachronistic in the light of events in the global economy.
The course includes an intensive examination of the economic, political and social thought of Keynes, the relationship between Keynes and Bloomsbury, the way in which his ideas were received, interpreted and applied and the revolution and then counterrevolution in thinking which his work provoked. The clash between Keynesianism and Milton Friedman’s monetarism is explored in detail. An attempt is made to present the rudiments of an alternative theory of macro-economic performance that is more consistent with contemporary reality and incorporates insights from both schools. Presentation is through lectures and seminars. Extensive reading is expected of all students.
The severe recessions of the early 1980s and 1990s and the growing fear of disinflation becoming deflation in the first decades of the 21st century and the current shocks to global financial markets and national economies serve as the contemporary backdrop for the course. The controversies over the public sector debt and deficit,the use of surpluses, the neglect of infrastructure, full employment and the role of the state in modern capitalist society are thoroughly explored.
Texts and Basic readings and films. (All students should view the film The big short and several of the other documentary style films made about the crash. A good guide to them is available on Moyers and Company:Six films on the financial crisis Jan.27, 2012.
John Maynard Keynes, The General Theory of Employment, Interest
and Money *
Hassan Bougrine and Mario Seccareccia eds. Introducing macroeconomic analysis, Edmund Montgomery publications ltd. Toronto *
Robert Reich, Saving Capitalism for the Many Not the Few*
Richard Parker, John Kenneth Galbraith: his life, his economics , his politics. recommended reading selected chapters.
Athol Fitzgibbons, Keynes Vision * (several copies will be circulated among students )
Joseph Stiglitz, Freefall:Free Markets and the Sinking of theGlobal Economy *, N.Y. : W.W.Norton, 2010
Peter Clarke, Keynes:the Rise, Fall, and Return of the 20th Century’s Most Influential Economist, *strongly recommended
Richard Davenport Hines, Universal Man:the Seven Lives of John Maynard Keynes
Paul Krugman, End This Depression Now. N.Y.Berlin&London:Bloomsbury Press, 2009. *
Ben Bernanke,The Courage to Act:A Memoir of a Crisis and its Aftermath
Frank Stilwell, Political Economy: The Contest of Economic Ideas(highly recommended for students with limited economics background)
David Wessel, In Fed We Trust
Trust: Ben Bernanke’s War on the Great Panic, How the Federal Reserve Became the Fourth Branch of Government, New York:Random House, Crown Business, 2009.
Thomas Kuhn, The Structure of Scientific Revolutions (recommended )
Harold Chorney, The deficit papers *(available through me)
Haroldchorneypoliticaleconomist blog available on the internet
Scott Patterson, The Quants:How a New Breed of Math Whizzesconquered Wall street and Nearly destroyed It
Kevin Phillips, Bad
Money: Reckless Finance, Failed politics, and the Global Crisis of American Capitalism (Viking, 2008)
The Rotman School ofManagement, The Finance Crisis and Rescue:what went wrong?why? what lessons can be learned? U of Toronto Press, 2008
John Maynard Keynes, Essays in Persuasion (Reserve)
The Economic Consequences of the Peace
Treatise of Money, Vol 1 & vol 2(Reserve)
Henry M. Paulson, Jr.On the brink: Inside the Race to Stop the
Collapse of the Global Financial System, N.Y. Grand central publishing, Hachette, 2010
Charles Kindleberger, Manias,Panics and Crashes:A History of Financial Crises,London:Macmillan,1978
Scott Patterson, The Quants:How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It, New York Crown business,2010.
Michael Lewis, The Big Short: Inside the Doomsday Machine, N.Y. :Norton, 2010.
Justin Fox, The myth of the rational market,A history of risk, reward and delusion on Wall Street,N.Y. Harper, 2011.
Simon Johnson and James Kwak, 13 bankers: The Wall Street Takeover and the Next Financial Meltdown, New York :Vintage, 2011.
Gordon Brown, Beyond the crash:Overcoming the First Crisisof Globalization, N.Y.,London, Toronto &Sidney, Free Press
The General Theory and After: A Supplement Vol.29 ( R )
Robert Skidelsky, John Maynard Keynes, Vols 1 & 2 &3 (R )
Robert Skidelsky, Keynes The Return of the Master *
Donald Moggridge,John Maynard Keynes: An Economist’s Biography (R )
Zachary Carter, The Price of Peace:Money,Democracy, and the life of John Maynard Keynes NY:Random House, 2020
Richard Davenport-Hines, Universal Man:The Seven lives of John Maynard Keynes, London UK: William Collins, 2015
Harold Chorney, Revisiting Deficit Hysteria in Labour/Le Travail Fall 2004 No.54, pp.245-258. * (available on internet) *
Harold Chorney, The Deficit and Debt Management: An Alternative to Monetarism * (Reserve)
Harold Chorney, After the Crash:Rediscovering Keynes and the Origins of Quantitative Easing paper presented to the Eastern Economics Association, New York,Feb. 27, 2011. (posted on this site June 3, 2011) *
Harold Chorney, John Maynard Keynes and the General Theory after 75 Years:Preface to a Presentation to the Canadian Economics Association Special Panel on” Reconsidering Keynes in a Time of Crisis” * (posted on this site June 3, 2011)
A.Fitzgibbons, Keynes’ Vision * (Reserve)
Brian Snowdon & Howard Vane eds. A Macroeconomics Reader (Reserve)
Timothy Lewis, In the long run We Are All Dead: The Canadian Turn to Fiscal Restraint
Joseph Stiglitz, Making Globalization Work (Reserve)
Joseph Stiglitz, Globalization and its Discontents(Reserve)
Joseph Stiglitz, The Roaring Nineties(Reserve)
William D. Cohan, Money and Power:How Goldman Sachs Came to Rule the World
Dean Baker, Gerald Epstein and Robert Pollin, Globalization and Progressive Economic Policy (Reserve)
Doug Henwood, Wall Street (Reserve)
L.Randall Wray, Understanding Modern Money:The Key to Full Employment and Price Stability (Reserve)
James Macdonald, A free nation Deep in Debt (Reserve)
J.C.Gilbert, Keynes’s Impact on Monetary Economics
Harry G.Johnson, Macroeconomic theory and monetary policy,
Chicago: Aldine publishing, 1972.
Axel Leijonhufvud,On Keynesian Economics and the Economics of
Keynes,London: Oxford University press, 1968.
Gilles Dostaler, Keynes et ses combats, Paris:Albin Michel, 2005. (Also available in a new English language edition)
G.Boismenu &G.Dostaler, eds. La Theorie générale et le keyésianisme, Montreal:ACFAS, 1987.
Other Key Works:
Hyman Minsky, John Maynard Keynes (N.Y.:McGraw Hill, 2008); Stabilizing an Unstable Economy(N.Y.:McGraw Hill, 2008); Can it Happen again:Essays on Instability and Finance (Armonk, N.Y.: M.E.Sharpe, 1982); R.Dimand, The Origins of the Keynesian Revolution; Charles Hessian, John Maynard Keynes: A Personal Biography of the Man Who Revolutionized Capitalism and the Way We Live; Roy Harrod,John Maynard Keynes; A. Hansen, A Guide to Keynes; Fausto Vicarelli, Keynes:The Instability of Capitalism; Paul Davidson,Post Keynesian Macroeconomic Theory; R.Allen & G.Rosenbluth,False Promises: The Failure Of Conservative Economics; Lars Osberg & Pierre Fortin, Unnecessary Debts; D.Drache & R.Boyer,States Against Markets: The Limits of Globalization; Thomas Palley; Plenty of Nothing: The Downsizing of the American Dream and the Case for Structural Keynesianism; Adrian Ham, Treasury Rules: Recurrent Themes in British Economic Policy; James Rock, ed. Debt and the Twin Deficits Debate; Warren Young,Interpreting Mr. Keynes: The IS LM Enigma; Peter Clarke, The Keynesian Revolution in the Making; A. Carabelli, On Keynes’ Method; J.A.Trevithick, Involuntary Unemploment:Macroeconomics From a Keynesian Perspective; A.Asimakopulos, Keynes’ General Theory and Accumulation; Victoria Chick, Macroeconomics after Keynes; David Colander & Dewey Daane eds. The Art of Monetary Policy Maurice Lamontagne, Business Cycles in Canada; Frank Hahn, Money and Inflation; William Greer, Ethics and Uncertainty:The Economics of John Maynard Keynes and Frank H. Knight; Lydia & Maynard eds. Polly Hill&Richard Keynes; Jan Marsh, Bloomsbury Women: Distinct Figures in Life and Art; Quentin Bell, Virginia Woolf:A Biography; Frances Spalding, Vanessa Bell; Leon Edel ,Bloomsbury; G.E.Moore, Principia Ethica ; Armand Van Dormael,Bretton Woods:Birth of a Monetary system; Allan Meltzer, A History of the Federal Reserve ; Milton Friedman & Anna Schwartz,A Monetary History of the United States; Milton Friedman,Capitalism and Freedom; Lanny Ebenstein, Milton Friedman . Milton and Rose Friedman, Two Lucky People; James Tobin, Full Employment and Growth:Further Keynesian Essays on Policy.
Key Internet sites: http://www.Statistics Canada; OECD; Eurostat; U.S. Bureau of Labour Statistics;Statistics Canada;The Federal Reserve,European Union;D.Henwood’s Site; New York Times. The Financial Times.The Hayek list. The post-Keynesian list; The Wall Street Journal; haroldchorneyeconomist. a list of posts to read will be provided shortly. you can start with After the Crash:Rediscovering Keynes and the origins of quantitative easing, haroldchorneyeconomist, June 3, 2011.
Evaluation: Students will be expected to make a virtual zoom presentation to the seminar, , complete a major paper and write a take home test.They will also be expected to be regular , informed and active zoom members of the seminar. To be informed obliges one to do significant reading and attend the seminar regularly. Presentation and participation – 20 % ;Essay – 40 %; Test – 40 % .
- Introduction and Overview.Why study the work of Keynes ? Keynes in the age of covid-19.Contemporary economic orthodoxy. New technology and the business cycle. Globalization. The return of intervention and planning post 9/11, the New Orleans and covid-19 effect.The crash and financial crisis,the recovery its origins and prospects.the covid-19 pandemic Financial derivatives, the collapse of Wall Street and TARP.Canadian versus American; conditions. Stimulus and deficit finance and deficit hysteria. The Republicans rediscover Hayek and Ayn Rand.
- The macro-economic problem; The role of markets; laissez-faire and rational markets versus economic regulation;Paul Volker’s critique of the new regulatory framework; the world of classical economics.The monetarist counter-revolution.The economics of full employment. Galbraith’s notions of countervailing power, the technostructure, corporate planning and the new industrial state. The post modern age and the political economy of globalization and its impact upon policy making.An outline of an alternative model of market behaviour.OPEC and the theory of cartels.
- Say’s law and the question of unemployment; the question of wage rigidity.The labour market clearing model. Wage flexibility, the natural rate of unemployment and inflation, the problem of aggregate demand.Aggregate supply.
- Keynes before the General Theory:1. Keynes the quantity theorist;the Marshallian roots of Keynes. Keynes and Bloomsbury; The Economic Consequences of the Peace;
- Keynes before the General Theory: 2 Keynes and G.E.Moore, The Tract and The Treatise; The Essay on Probability, The Economic Consequences of Mr.Churchill, his liberal vision. Uncertainty.
- The Fundamental Equations. the Treatise on money and the problem of inflation and unemployment. The death of inflation and the return of deflation? Cartels and futures markets and inflation.
- The Great Depression, Keynes and the General Theory; Michal Kalecki .Uncertainty and the investment process; the role of speculation. the asset backed commercial paper crisis and the work of Hyman Minsky. The Canadian American reception of Keynes. The New Deal.
- The General Theory: towards a synthesis; Keynes versus
Hayek and the classics. Keynes and Shaw and Marx. The origins of quantitative easing. the Treasury view and bond market revenge.
- Neo-classical economics
and the bastardization of Keynes. Samuelson,Meade, Harrod, Timlin, Hicks and the IS -LM. The neo-classical synthesis and its vulnerabilities in the age of stagflation.
- Stagflation, the re-emergence of monetarism, the deficit and public finance, what to do with the surplus.Keynesian policy in a federal state.
- Supply-side and rational expectations theory. The natural rate hypothesis. The natural rate of inflation versus the natural rate of unemployment.
- Post -Keynesian theory and policy;New Keynesian theory; Canadian macro-economic policy since the war.Technology and economic growth. Can we banish the cycle ?
- Rediscovering full employment.A look again at an alternative model to current orthodoxy.Integrating the natural rate of inflation, OPEC cartelization and interest rate policy. Capital versus current accounting in public finance. The conversion of the Bush Republicans to Keynesian technique and its impact upon policy making in the US. The Obama Democrats and the 787 billion dollar deficit financed stimulus. The Republican counter-attack and the conversion of the party back to Tea party fiscal conservatism;The Return of deficit hysteria. The Stiglitz- Krugman critique. the need for a second stimulus.The bond market.Harper’s cautious conversion to Keynesian deficits. The road ahead.The economics of fuller employment.
Tentative presentation schedule:
HRC Sept 8. Covid -19 and the return of high unemployment.Tarp and the crash. Keynes in the era of globalization and covi-19. The current crunch over falling oil prices and the Canadian dollar. policy responses fiscal and monetary.Deficit hysteria, income replacement and stimulus.
Sept. 15 On Wealth and income inequality and unemployment; .Aspects of the macro-economic problem.The role of markets laissez faire and monetarism Globalization and post modernism., high tech and the dual labour market.
. Sept.22. Say’s Law. the labour market clearing model and NAIRU and aggregate demand versus aggregate supply.
Sept.29 Keynes before the General theory. hrc
October 6.The treatise on money, the fundamental equations the problem of inflation and unemployment.Asset speculation. Minsky..
Oct.13. Hyman Minsky and Michel Kalecki. financial markets speculation a post Keynesian approach. hrc Keynes Shaw and Marx. Latin American approaches. Keynes and Bloomsbury. Keynes vision;
Oct.20. QE Deficits and public finance.Keynes, Shaw and Marx. Keynes and Bloomsbury. Keynes’s vision continued.
October 27. further notes on deficit finance on crises and crashes. Keynesian policy in a federal state.hrc the Keynesian multiplier
Nov.3, Post capitalism ? Keynesian macro economics in a globalized post world
Nov 10 Euro zone crisis .Brexit, Reagan and Thatcher and rise of neoconservative economics. World Bank, IMF and Bretton Woods. The European union and NAFTA.Trade and full employment. The world bank and IMF need for reform.
Nov.17 The EU, Brexit and Nafta and Keynesian economics. IS LM and the distortion of Keynes.
Nov.24 IS LM and its distortions. Rationl expectations and irrational results.
Dec. 1 Inequality and wealth distribution and globalization. ,Monetarism and quantitative easing.Neo classicals and classicals versus Keynes. Impact on public policy. International development and the World Bank and the IMF. Full and fuller employment in a post-Keynesian world.
Dec. 8 Review