Post‐Keynesian Principles of Economic Policy

Citation

Henry, J.F. (2009), "Post‐Keynesian Principles of Economic Policy", International Journal of Social Economics, Vol. 36 No. 1/2, pp. 212-213. https://doi.org/10.1108/03068290910921271

Two of Keynes's famous bon mots speak to core elements of this collection: “I would rather be vaguely right, than precisely wrong.” “If economists could manage to get themselves thought of as humble, competent people on a level with dentists, that would be splendid.”

As the editors point out in their introduction to this collection of papers drawn from a conference in Dijon, France (no date specified), Post‐Keynesians (PKs) have had a problem in “selling” their program because there has been no agreement as to the specifics of PK theory or the policy recommendations that follow from theory. The one point of agreement is that they are not neoclassical economists.

The papers in this volume go a long way (though not all the way) to dispel the lingering notion that PK theory is incoherent or chaotic. To be sure, if one surveys the history of this approach, one does see discordance, disagreement, and sometimes heated debates surrounding the central features of what such a (singular) theory should look like. Much ink has been spilled in the horizontalists vs verticalists controversy, for instance. Also, and again as the editors point out, “Post‐Keynesians have been slow to turn their attention to policy” (p. xvii). Again, this volume in large measure speaks to the rectification of this issue.

While I cannot address much of the substance of the contributions here, several themes stand out for attention. Malcolm Sawyer, Philip Arestis, Giuseppe Fontana, Alfonso Palacio‐Vera, Virginie Monvoism and Louis Philippe Rochon write to inadequacies of the “new consensus” in modern neoclassical macro theory and critically contrast this new orthodoxy to that of PKs. Interest rate manipulation, inflation‐targeting, and the nature of money all figure prominently in these accounts. Thomas Palley develops some of the ideas expressed in these accounts with an attempt to specify an appropriate PK regulatory environment for monetary policy focusing on asset‐based reserve requirements directed toward the monitoring of financial intermediary balance sheets. A Brazilian case study employing PK theory is (very nicely) presented by Luiz Fernando de Paula and Antonio Alves that incorporates specific institutional analysis into the argument. As such analysis is usually ignored in the mainstream literature (in favor of universal, over‐arching, “grand” theorizing), their paper demonstrates the importance of an understanding of “the real world” in both getting the theory “vaguely right” in order to promote policy that actually addresses problems with tenable solutions. That is, de Paula and Alves are good dentists.

Spending and employment issues, including an analysis of the differences between the circuit and Chartalist theories of money in relation to government spending programs (Corrine Pastoret), occupy the central concern of the second theme. L. Randall Wray and Stephanie Kelton develop a Minskyian analysis of deficit spending programs, focusing on the relation between government surplus and private deficits (a still little‐understood identity) and the absolute requirement that a viable capitalist economy requires government deficits. If governments run surpluses, the private sector, in particular the consumer sector, must increase its debt and an unsustainable increase in the debt service ratio follows. Alain Parguez continues this theme, arguing that the conservative, budget‐balancing policy programs of the current period actually run counter to the interests of capitalists. Omar Hamouda returns us to Chapter 24 of the general theory, reminding us of what a Keynesian policy program looks like and how different this is from what we have actually experienced over recent decades. Rather than euthanizing the rentier, this noble figure has been given a new lease on life. Mark Setterfield challenges those who believe in the NAIRU “theory” to examine the empirics of the US economy in the 1990s, and develops a demand‐driven story in the context of a monetary (rather than a real goods or neoclassical) economy that is claimed to much better explain the history of the decade.

The last theme examines issues of the modern international economy and regional concerns within this setting. Marc Lavoie examines currency boards, arguing that under fixed exchange rate regimes, these monetary units are still able to set interest rates and national money supplies independently of balance of payments surpluses and deficits. Basil Moore, in what may be the most intriguing paper in this collection, puts forward a case for a no exchange rate regime, based on a common international currency (taking us back to Keynes's argument for the “Bancor”). Sergio Rossi turns our attention to issues that arise surrounding the inclusion of Central and Eastern European counties in the EU and adjustment policies that need to be addressed when these countries adopt the Euro.

While this collection, like almost all such collections, is uneven in terms of the relative strengths of the authors' respective arguments, it does provide the reader with an overview of recent approaches to both PK theory and policy recommendations. Granted, PK theory has not yet reached the stage of a unified approach – and the careful reader will see evidence of ongoing debates in this respect – but these papers certainly do evidence progress in that direction. And, they most certainly demonstrate that PK theory offers much more for a cogent, coherent policy framework than that of their neoclassical (in whatever form) opponents. In generally, there's enough food for fodder in this collection to warrant purchase, though a lower price would likely provide more incentive to add it to one's bookshelf.