October 29, 2010

IT'S NOT THAT DEMOCRATS SHOULDN'T HAVE PASSED A STIMULUS BILL...:

Beyond Keynes and Hayek: To speed up the recovery, look beyond the economic theories of Hayek and Keynes. There is a third, and fourth, way (Meghnad Desai and Robert Skidelsky, 10/29/10, guardian.co.uk)

The essential point is that both Hayekians and Keynesians believe that once the economy has collapsed, recovery takes a long time. Hayek believed that recovery from the crisis caused by over-consumption and under-saving has to run its course, and cannot be speeded up by a Keynesian fiscal or monetary stimulus. It requires time before consumers recover from their undersaving and business gains confidence that profitability has been restored. Keynesians believe that, once aggregate demand has subsided, a fiscal and monetary boost is the only way to get the economy growing again.

If we don't want to wait for Hayekian "natural forces", but at the same time recognise that orthodox Keynesian fiscal policy and monetary stimulus (if it works) will only recreate the old unsound structure of production, is there a way of speeding up recovery?

Two unorthodox policy moves to revive the economy are worth considering. First, in order to make consumers spend rather than save we could adopt Silvio Gesell's idea of stamped money. This money loses purchasing power if not spent immediately. The easiest way to put money in consumers' pockets would be to give them a shopping voucher valid for one month after issue.

Second, a recovery loan that will mop up money in banks, firms and households for which there is no present use – and use it for infrastructure projects: the high-speed rail link, road building and repairs, and house construction by local authorities; or projects to do with carbon emissions - insulating houses, and solar panels. A company could be set up to raise money for these projects that would not add to the deficit.

The idea is to do things that would boost spending immediately, with the aim of reviving private investment by changing business expectations.


....but that they should have passed a better one, returning money directly to consumers in the form of expiring debit cards.

Enhanced by Zemanta
Posted by Orrin Judd at October 29, 2010 5:12 AM
blog comments powered by Disqus
« IT'S ALL ABOUT THE PROFIT, NOT THE PROPHET: | Main | BUSH/CHENEY/OBAMA: »