Philip Whiteley's Blog

October 26, 2010

Zero-sum Keynesianism from the dismal science

Filed under: Uncategorized — felipewh @ 3:46 pm

It is extraordinary how simplistic thinking seems to infect left-wingers as much as right-wingers. I posted on 15 October about how Keynesianism and neo-liberal thinking increasingly look useless, as they’re based on two-dimensional projections of money-flow, rather than analysis of the real economy. Since then there has been a positive orgy of what I would call ‘zero-sum Keynesianism’ in the press, including even the FT.

Doom-laden voices warn of a double-dip recession because of Government ‘cuts’. I’m entitled to put the word in inverted commas, because the Coalition is simply trying to live within the country’s means; the critics imply that there is some magical alternative. But the bigger error is to assume that the aggregate sum of reduced Government spending shows up negative on some massive bean-counting chart. Real societies are dynamic. There is an opportunity cost when Government gets very big, especially when it is unionised. This is because small, growing companies find it difficult to compete with the terms and conditions offered by the public sector, holding back their growth and the potential to win export orders.

Of course, I can’t be sure that the positive effect of public sector cuts in releasing talented people to help the productive economy will outweigh the recessionary effect of reduced Government borrowing and spending. But we don’t know that it won’t either – and jobs earning export custom are by definition more sustainable than those built on the short-termism of borrowing.

The irony is that so-called ‘progressive’ thinking ends up as practically misanthropic – reducing economics to a zero-sum calculation and failing to support the creation of employment.

I’m no economist. But then, if we’ve learned one thing from the past two-three years, it’s that economists know very little about economics.


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