So Ritchie declares Keynesianism dead

He simply doesn’t know enough to be able to plug together his various brain spasms, does he?

It makes no sense to raise tax for its own sake: that process would simply take money out of the economy for which a government was responsible to make everyone worse off (which is also why running budget surpluses is also quite illogical).

At the heart of the idea of Keynesian management of demand in the economy is the insistence that that is exactly what the government should do at times.

We’re familiar with the idea that the job of a central banker is to take away the punch bowl just as the party gets going: that is, that as a boom gets going then interest rates should rise so as to temper that boom. This is the flip side of lowering interest rates in slumps. Pretty standard guide to monetary policy.

What Ritchie’s not getting is that Keynes (who was a very good monetary economist indeed) said exactly the same thing about fiscal policy. Sure, in the slump you increase the gap between government spending and the amount it takes in in tax. Increase the deficit, get fiscal expansion and boost aggregate demand. But note that this policy also has its mirror image. As the boom gets going then government should reduce that gap. And if the boom has steam then that gap should become positive: fiscal policy should become contractionary when there’s a real go go economy.

Yes, this includes “borrowing to invest” and all of the rest. And it’s not just implicit in Keynes it’s explicit. It’s not that running a budget surplus is illogical: it’s that Keynes actually requires it to happen at times. One of those times being 2003 to 2007 of course but that’s just me being mean.

The real point I’m making here is that if you declare yourself to be in favour of Keynesian demand management then you have, at the same time, insisted that a budget surplus is something that government must run at times. Because that’s how you do demand management.

And the problem with Ritchie is that he didn’t stay awake in his economics lectures so he’s entirely ignorant of how the subject pieces all of these things together. And do note that none of the above is neoliberal, neoclassical, free market or anything that he might disapprove of. It’s absolutely straight done the line, middle of the road, Keynes.

The man’s simply ignorant.

12 thoughts on “So Ritchie declares Keynesianism dead”

  1. He’s not alone here — as you note, the period ’03-’07 is yet another confirmation that there are no Keynesians in the good times, not when there’s all that flood of other people’s money to spend.

  2. He has recently said that his “all economics is wrong” rebellious phase was only in his first year at uni. When he got a third for that year he decided to toe the line (more likely, just work harder!). No indication of final degree level yet.

  3. What exactly is taxing “for it’s own sake”?

    If you tax low paid people and then give it back to them as benefits, then that could be described as “taxing for it’s own sake”. Lord knows what Richie meant

  4. “”What exactly is taxing “for it’s own sake”?

    Soak the rich, even if it raises less revenue.”

    Is that part of the monetary/ demand management thing? If the rich work and earn a bit less, there’s less money sloshing around, which is part of what you are trying to achieve.

  5. ‘He has recently said that his “all economics is wrong” rebellious phase was only in his first year at uni. When he got a third for that year he decided to toe the line (more likely, just work harder!). No indication of final degree level yet.’

    I suspect he took a double third.

  6. On my degree course you could argue in class, in assignments or in exams for something other the what was in the lectures. If you could back it up with references.
    I do have to wonder sometimes what academically accepted references this guy used. Or whether he talked the party line to simply get through while knowing all along it was bull.

  7. As an aside, Ritchie’s piece on the potential rate of VAT in an independent Scotland illustrates the way that the Yes campaign has dominated the internet debate.

    Approaching 100 comments, mostly from ‘new’ commenters and all from the Yes side. I’ve seen it on other sites as well: any negative articles towards independence are the focus of a swarm of replies from the Yessers until the author gives up by being overwhelmed.

    I don’t find it a particularly effective tactic. It’s usually obvious when the NatSignal has been lit up and the troops summoned, especially when it’s on a site that usually has relatively few regular commenters.

  8. Still the neo-classical gambit of imposing austerity in a recession is working a treat isn’t it? Half the population of Scotland wants to get the hell out of it. Probably the same percentage in England if they were given the chance.What was that figure for disposable income: 10% of people only have £10 of it a month? That’ll get the wheels of industry rolling again.

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