Today I did my bit for the economy. I boosted aggregate demand. Specifically, I bought a copy of John Maynard Keynes’ seminal work “The General Theory of Employment, Interest and Money” at my local bookshop.
Of course, according to standard Keynesian doctrine, I’d have done as much for the economy if I’d bought Katie Price’s seminal work “Being Jordan” instead…
When I made this joke earlier, I was asked by a friend why boosting aggregate demand is automatically considered “good”. It’s an interesting question, and one which I just about have the knowledge to answer. (Although not necessarily to answer correctly…)
As far as I can tell, Keynesians view recessions as basically like when you lie on your side and get a dead arm: the blood (cash) isn’t flowing, so everything that relies on it starts to atrophy. So, during recessions, anything that gets the blood flowing again is “good” in the sense that it will stop your arm (economy) going green and dropping off. Metaphorically speaking.
This is why Keynesians want government to boost spending round about now. It compensates to some extent for the blood that the heart (private sector) is no longer able to pump. It’s like massaging the limb, or possibly installing a pacemaker (or possibly I’m just pushing this analogy too far!).
Austerity, to this way of thinking, is like trying to cure a dead arm by applying leeches. It’s changing the system dynamics in precisely the wrong way: slurping more blood out and giving gangrene even more room to set in.
In the short term, none of this is obviously wrong. In the long term, though, it seems intuitively obvious that there’s a difference between buying Keynes’ opus vs buying some model’s ghostwritten autobiography. So this over-focus on protecting the infrastructure of production seems to be skating over some important details. There is also the question of how the government spending is funded, and whether it displaces private spending.
I’ll no doubt have more commentary when I’ve actually, y’know, read the book. Stay tuned.