Red Alert

Posts Tagged ‘economic theory’

The Turning Point (III): The Keynesian Resurgence

Posted by on March 25th, 2010

In  the wake of the global financial crisis, the Washington Consensus is dead.

Keynes, however, is alive and well.

Keynesian fiscal intervention helped avoid a second Great Depression in 2008-9, just as it rescued economies from the first one in 1929-35.

Not surprisingly, there has been an explosion of recent writing on the Keynesian Resurgence.

From the Financial Times’ Martin Wolf and IMF Chief Economist Olivier Blanchard to Noel laureate economists Paul Krugman and Joseph Stiglitz, Dani Rodrik and Robert Reich, lessons are being drawn from the crash to answer the question: “what next?”

I am currently reading Paul Krugman’s ‘Return of Depression Economics” and will blog on this shortly. Robert Skidelski’s “Keynes: The Return of the Master” is emerging as a “must read” for social democrats, alongside Wilkinson and Pickett’s “The Spirit Level“.

Here is a quick taste of some common themes that emerge:

  • Neoclassical economics cannot prevent major cyclical crashes crashes and asset bubbles. Its theoretical underpinnings look increasingly shaky. Global financial re-regulation is urgent.
  • The inequality of wealth and income flowing from trickle down economics has been bad for everybody: more equal societies empirically do better. Reducing inequality has a strong economic payoff.
  • Active government is more necessary than ever in the wake of the crash, but will have to be smart and cost effective.  It will learn from both the post-War Keynesian period and the neoclassical consensus that followed it, and be different from both.
  • Counter-cyclical fiscal policy makes sense, and there is potential to automate some of the stabilisers to build the balance and resilience of markets.

Contrast this to the current National government: still preaching trickle down tax cuts for the richest few; ignoring the growing inequality and sense of despair among the many; hidebound by the ideas of an era that has already passed; bereft of leadership as it stares in the rear view missor of focus group entrails and last month’s polls.

The world is changing fast. New Zealand deserves new thinking. Fast.


Henry review on Australian tax system.

Posted by on March 7th, 2010

The Nats had the Tax Working Group and Australia had the Henry Tax Review.  Dr Henry is the Australian Federal Treasury boss. 

For some reason, Prime Minister Key and Finance Minister English have always operated under the assumption that the Henry review would recomend to the Rudd government that taxes should be cut - esp the company rate.   Key and English’s own tax working group also seemed to be operating under such an assumption. 

Dr Henry presented his report to Federal Treasurer Swan in December, and while the report has not been made public, Dr Henry said in a recent speech that the consequences of the aging population means that Australian’s will need to pay MORE taxes.  Mr Rudd has said that he is putting the Henry tax review on hold as he concentrates on major health reforms. 

Mr Key and Mr English seem to be stuck in a late 20th century economic timewarp when the rest of the world is concentrating on how to stimulate the economy by providing relief for those who actually need it – those 70% of salary and wage earners on $40k or less – those 800,000 New Zealand families with a combined household income of $60k or less.  How about doing something for these Kiwis Mr Key.!   Take a leaf from Mr Rudd’s book and put these tax increases for the many so as to cut taxes for the few on hold – then seek a mandate from the people in 2011 for such radical and unfair changes.  Go on.


The Bullshit factor #2

Posted by on February 21st, 2010

Economics. It’s a paradigm. It’s all about money. Not people. Maybe John Key could do a local version.