In lieu of a blog - tweets on parliamentarism and left- Keynesian mythology

John Maynard Keynes

Some tweets on left parliamentary aspirations and Keynesian welfare state mythology.

One thing people pointed out is that some firms are currently sitting on a lot of cash rather than investing. So in theory, this money could be seized and redistributed, boosting consumer spending. But would that boost economic growth, or just provide a one-off shot of consumer spending? And when we say businesses are sitting on cash reserves, we mean they have them in the bank. To what extent are banks using these deposits as collateral, and making loads, or in turn holding on to the funds? Finally, investment decisions are based on expected profits, it's not clear that a one-off boost to consumer demand would have any effect on the rate of profit.

Posted By

Joseph Kay
Sep 4 2013 13:24

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  • The post-war compromise was only ever between capital and a section of labour under very specific conditions, which aren't coming back.

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Alasdair
Sep 4 2013 18:12

While you're quite right that investment is based on expected profits, and a one off boost to demand might well make little difference to the rate of profit in the medium to long term, the idea that because the money is sitting in a bank, it is probably being lent out and therefore invested somewhere is basically a version of Say's fallacy (nee law) (it also misses that loans are also made on the basis of expected return and not (primarily) on the basis of (deposit) funding available to a bank (banks currently have quite a lot of access to debt funding relative to demand for loans)). (that's a lot of brackets, sorry.)

Joseph Kay
Sep 4 2013 18:23

Ok, so say a load of money is sat in banks which isn't being fully leveraged as a basis for lending/investment. I think that's the case (didn't the quantitative easing money fail to translate into increased bank lending?). You could reasonably expect impoverished proles to spend it if given a lump sum (though it's not clear - precarious incomes and uncertain futures could lead to savings/clearing debts rather than spending, putting the money straight back into the banking system).

So a redistribution of hoarded cash would probably provide a one-off boost to consumer spending (and/or be swallowed up by landlords, Wonga, utilities...). But that still leaves the reason for the lack of investment untouched - low expected returns. Also, it doesn't touch on the practicalities. Any government announcing plans to seize idle funds is gonna see those funds fuck off to Switzerland/Cayman Islands pretty sharpish, or just force companies to invest in unprofitable ventures or bonus payments/dividends to avoid seizure. So I still don't think this makes a left-Keynesian solution viable.

Alasdair
Sep 4 2013 22:21

Absolutely, and I understand the original post is constituted of tweets, which obviously limits the depth of the analysis to a degree, but I think we need to be clear about why the Keynesian argument doesn't hold, and it's not (quite) because there isn't capital which the state could spend better than individual enterprises.

And you're right, a one off increase to consumer spending, a la Steve Keen's QE for the people, say, would just go towards deleveraging most likely, and have little effect on overall profitability.