I’ve been reading David Graeber’s “Bullshit Jobs” which I got into after reading his essay on it a few years ago (here). At the time I was struck by the comments from Keynes (Economic Possibilities for our Grandchildren – here), who believed that in 100 years, technological developments will be such that all activities will be conducted by machine’s and so humans would only choose to work around 3 hours a day. Keynes believed that people would still choose to work a little amount – witnessed by the fact that at the time, the wives of the very rich, often spent some time doing charitable work – so that we have a sense of purpose and because some jobs are enjoyable. [...]
Neoclassical Story of the Monetary Policy Transmission Mechanism
The traditional orthodox story tells us that interest rates affect the economy through a number of channels including (i) the investment channel whereby higher interest rates reduce investment, as it becomes more costly to invest thereby inducing firms to either invest with retained earnings or forego investment because expected profits will be too low at higher interest rates (ii) the consumption channel, which is similar to the investment channel, in that higher interest rates make borrowing more expensive and so higher rates mean consumers cut back on big-ticket items such as houses, cars and white-goods; furthermore higher rates not only make borrowing plans more expensive, but also make actual borrowing more expensive: those with loans already will face higher payments and may thus cut-back elsewhere (iii) the wealth effect stems from the effect of rates on asset prices; higher interest rates mean investors can get higher rates from putting their savings in bank accounts rather than in the stock market (and other financial assets) and so demand for assets falls causing a fall in their price (pushing up the return on that investment) which leads to a negative wealth effect as asset prices fall (iv) finally we consider the export effect, whereby a higher interest rate increases demand for a domestic currency (hot money flows in to take advantage of the higher rate) causing an appreciation which leads to fewer exports and hence lower aggregate demand. [...]
Day 1 – Talk 2
After our Introduction to Post-Keynesianism from Engelbert Stockhammer we were given a talk by Ozlem Onaran, from Greenwich University, on “Aggregate demand, income distribution and unemployment”.
She begins by adding to Engelbert’s introduction, highlighting that fundamental uncertainty can lead to path dependency – that is decisions made today (as a result of fundamental uncertainty) will have knock-on effects into the future. Post-Keynesians believe that full-employment is a special scenario, unlike neo-classicalists who believe that full-employment is the natural equilibrium and deviations are temporary and as a result of external shocks.
The determinants of investment are reminded as: capacity utilisation (how much of existing machinery is being used), credit availability, animal spirits, technological opportunities (after WWII there were many new technologies – partially discovered/created through military efforts – which helped aid the post-war boom as firms rushed to invest in these new technologies to make profit from them) and future profitability. [...]
I recently wrote an article on the situation in Greece, and mentioned the effects of hysteresis which I will expand upon in this blog article.
Hysteresis is a theory developed by the Keynesians to explain why laissez-faire economic policy may be damaging in the long run. Neoclassicalists would argue that during an economic downturn, when an external shock causes demand to fall, wages should be allowed to fall which would increase the international competitiveness of the economy so that exports can grow to increase demand and provide a boost to the economy fueling further growth until the economy is out of the slump and growing again. [...]
I recently attended a 3 day Post-Keynesian Study Group (PKSG) workshop at Kingston University, and here is some of what I learnt on the course. I am sure this will spawn many other research interests, leading to future blog articles on some of the theory discussed.
The course was to be split up into 3 days, on the first day we would cover Post-Keynesianism, on the second we would continue with PK and financial crises in the morning, followed by Marxist Political Economy in the afternoon and then on the final day we would round off what we had learned, ask any further question and debate the success of student movements in encouraging pluralism. [...]
Keynes talks a lot about confidence and the animal spirits of firms and people when making decisions. So how important is confidence to the economy?
Without confidence businesses wouldn’t invest. This can be seen in the present climate, many firms have a lot of spare cash on their balance sheets, which could potentially lead to high investment which would be a massive boost to the economy and would provide thousands of jobs. So why aren’t they doing so, they aren’t making any returns leaving their money in a bank account (in fact they may be receiving a negative real interest rate on their savings), the alternatives to saving money for firms is to either return it to shareholders in the form of dividends (which would result in the government gaining capital tax gains as well as stamp duty, and the investors are likely to either spend it or invest this money in other assets thus increasing their value) or to spend. [...]