Articles tagged with: J. M. Keynes
Keynesianism suddenly seems back in policy vogue, which delights some and irritates others. It seems, however, a simplistic cant to think that increased public spending must be a good thing in itself, as the does the opposite view that it must be a bad thing. Much public debate about the policy utility of Keynesianism seems defined around these contours, however.
Lindbeck and Snower have written an excellent paper that has the potential to move the debate beyond this. It investigates the central Keynesian claim that product demand changes are transmitted to the labour market. The solution to the unemployment problem, therefore, does not lie in the labour market in itself but in a dearth of demand in the product market. Thus, public spending to correct this dearth transmits itself to the labour market in the form of reduced unemployment. Lindbeck and Snower examine the means by which such a transmission mechanism can exist. The paper should appeal both to those with an interest in theoretical economic questions and to those concerned with practical macroeconomic policy questions. I recommend giving it a read and confine myself here to reproducing one of the policy implications that Lindbeck and Snower see as following from their work.
“Government spending in the form of infrastructure investment may have a bigger impact on employment than tax reductions or increased transfer payments”.
This infrastructure investment should have this effect if it increases the marginal product of labour and capital. Policy debate, therefore, should focus on the extent to which proposed infrastructure investments are likely to produce these increases. So: the announcement from Geoff Hoon this week should be welcome insofar as transport projects have this effect.
