Keynes revival ?

Sunday Nov. 26, 2006

There are significant stirrings south of the border reported in Sunday's New York Times as populist progressive Democrats with strong ties to the American labour movement are pushing hard to move the Democratic party away from the three cheers for globalization and Calvin Coolidge economics of Bill Clinton and former Treasury secretary,   Bob Rubin closer to an interventionist approach that recognizes that globalization can only work to the advantage of ordinary workers as opposed to the upper classes if it is regulated and managed within the confines of a system committed to low unemployment and equitable growth in which the Keynesian social welfare state is robustly maintained and countervailing pressure applied in defense of popular interests.

It is too early to tell how this will work itself out but there are some good straws in the wind with respect to increasing minimum wages and insisting that trade agreements include social charters. It would be nice also to   see recognition that fiscal conservatism is not always a desirable approach and that deficits can be counter cyclical and that one must distinguish between social and capital investments and current expenditures.

But because the Bush Republicans also practiced a variant of supply side Keynesianism this will be harder to get the Democrats to agree to. Nevertheless, some things are starting to shift in a hopeful direction. The passing of Milton Friedman and the rising challenge of the Chinese and Indian economies, the explosion of literature and internet material on globalization and its limitations provides us with an important opportunity to shift course in public policy.

There is also an excellent piece by James Galbraith in the current issue of Mother Jones magazine on the forgotten importance of his father John Kenneth Galbraith's classic work The New Industrial State. This work which appeared in 1967, almost forty years ago, had important insights that focused on the changing nature of the corporation and its technostructure as the key planning apparatus of capitalism that was far closer to reality than the hopelessly utopian abstractions of the perfectly competitive Marshallian firm. Drawing from the work of Berle and Means, Thorstein Veblen and his own extensive knowledge of both Wall street and Washington Ken Galbraith's work was a tour de force that paralleled the arguments of Joan Robinson, Joseph Steindel and Michal Kalecki on the economics of imperfect competition but pushed the debate further.

In this respect the now largely forgotten work of another great Canadian economist from Montreal, Stephen Hymer who taught at Yale is also worth revisiting. I will return to these themes later.