Monday, August 6, 2018

Michael Roberts — China’s ‘Keynesian’ policies

China’s policy in the Great Recession was not just ‘fiscal stimulus’ in the Keynesian sense, but outright government or state investment in the economy. It actually was ‘socialised investment’. Investment is the key here –as I have argued in many posts – not consumption or any form of spending by government.…
As John Ross said on his blog at the time, “China is evidently the mirror image of the US …If the Great Recession in the US was caused by a precipitate fall in fixed investment, China’s avoidance of recession, and its rapid economic growth, was driven by the rise in fixed investment. Given this contrast, the reason for the difference in performance between the US and Chinese economies during the financial crisis is evident.”...
I would argue that "Keynesianism" is not Keynes of the General Theory, the full tile of which is the The General Theory of Employment, Investment, and Money. Investment drives production, which produces not only goods but also employment, and investment in capital goods occurs owing to the flow of funding to firm investment in capital goods, both as fixed capital — plant and technology, and also human capital owing to augmented "labor power" as knowledge and skill though investment in training.

Regardless of economic system, real (firm) investment, in contrast to financial investment in saving vehicles, leads to real growth (a flow) and "real savings" (stocks of capital goods and quality of labor).

Keynes realized this and so-called paleo-Keyensianism was about public investment in addition to temporary stimulus to address economic contraction. Public investment is not only in infrastructure, R&D, and other economic factors that directly relate to firms, but also welfare investment that indirectly do so, in particular education and health services. Public investment need not be limited to addressing economic and financial crises, and should not be in a modern monetary production economies, where growth must keep pace with population growth and increased productivity is desirable.

The notion that Keynes was chiefly focus on welfare and stimulus is simplistic. He understood the primacy of investment in the production-distribution-consumption cycle and addressed it specifically, as shown in the title of his major work.

Addressing effective demand is key in addressing demand-leakage to saving is central for Keynes. Effective demand is important since without it, investment will fall. Moreover, when private investment slows, public investment needs to pick up the slack. Investment, both public and private, are key to economic performance and social wellbeing, which is the intended meaning of "welfare," rather than transfer payments as "welfare" has come to be interpreted.

China appears to understand this and increases the rate of public investment in addition to providing stimulus for welfare to address crises. This did not happen in the Western capitalist countries in the follow-up to the crisis and they suffered for it as a result.

While Michael Roberts is out of paradigm with MMT, he makes some points worth considering from the Marxian perspective, too.

Michael Roberts Blog
China’s ‘Keynesian’ policies
Michael Roberts

See also
Kaldor, the famous Hungarian economist of Cambridge University, claimed in 1978 that countries with the most dynamic economic growth tended to record the fastest growth in labor costs as well. The renown “Kaldor-paradox” may be confusing for policymakers influenced by the neoclassical mainstream. It tells us that keeping costs low may not lead to competitive advantages and faster economic growth. So let’s resurrect the Kaldorian ideas and see whether the relationship has changed at all (hint: it has not)....
Wages as dynamic investment.
Could the Kaldor-paradox imply that most of the examined countries are wage-led (or demand-led) economies?…
Economic Questions ± formerly The Minskys
There is no such thing as low-wage competitiveness
Daniel Olah, economics editor, writer and PhD student, and Viktor Varpalotaiis, Deputy Head of Macroeconomic Policy Department at Ministry for National Economy, Hungary


Calgacus said...

Yeah, he is just suggesting to do what Keynes actually said, rather than follow the dumbest form of "Keynesianism". And it was done in the past. TVA. He also belittles some welfare spending wrongly as you say. And what are all of the USA's blank-industrial complexes but government investment? James Galbraith calls it privatized Keynesianism. Not the best thing, but a lot better than austerity. There are reasons why the USA is still on top. People forget that in the 70s Europe as a whole was surpassing the USA, while since then the US has grown significantly more.

GLH said...

Unfortunately Michael Hudson says that neo-liberalism is taking hold in China because for the last thirty years the Chinese have been studying economics in the US.