Re: GLOBAL KEYNESIANISM

To Ismail Lagardien
 
Since you probably missed my first posting on this subject, which started
this discussion, I am now enclosing it. 
 
I worked out this posting last year, when the Asian crisis hit Chile and
unemployment doubled to more than 11%. Such an occurrence might be
tolerable in countries with an effective unemployment insurance, but in
Chile where such insurance is only now being planned, it left many of the
afflicted with the alternative of either begging in the streets of
resorting to crime, in order not to starve or to starve their families. 
The minister in charge of public finance was a convinced neo-liberal
economist, who promptly REDUCED spending on public works. Only belatedly
some funds were made available for communal work projects, most of them
without any lasting value.
You might be interested to know, that this minister was later nominated to
a very high position in the IMF, where he can now apply his ideas on a much
wider scale.

Hoping to hear from you soon    I remain  
yours very truly                Paul Riesz


INTRODUCTION: THE PAST HISTORY OF KEYNESIANISM
Lord Keynes' basic principles were formulated in order to address the great
depression of the thirties and to dampen the business cycle. They were
logical and straightforward and can be expressed in the following short
summary:
1. BOTH the private and the public sectors must cooperate to keep a
country's economy flourishing.
2. During recessions MORE investment from government is needed to
compensate for reductions in the private sector. Such measures do not only
benefit workers, who lost their jobs in the private sector, but also most
small and medium-sized private companies.
3. In boom-times governments should reduce their outlay and accumulate such
savings for later use during recessions.
To make his principles clear to anyone, one could compare them with the
principles of achieving an abundant harvest in agriculture, where BOTH
natural rainfall and artificial irrigation are needed. Logically during dry
spells one needs MORE irrigation and to have such water available, one must
save it and accumulate reserves behind dams during periods of abundant
rainfall.

During several decades after WorldWar2 such ideas were practiced by almost
all developed countries, leading to an enormous and unprecedented economic
progress and a reasonably satisfied citizenry. They were then abandoned
during the seventies for a variety of reasons; most of them due to bad
management, such as
1. overambitious goals, needing more funds than were available, which led
to a vicious circle of tax and spend.
2. Inefficient and sometimes corrupt personnel.
3. In developing countries, where even prudent public spending and
investment could not be financed from tax receipts, governments started to
simply print money, leading to hyperinflation and loss of investment from
local and/or foreign capital.
Such evident shortcomings led to an overreaction, with the tendency to rely
on market forces alone to solve all of Society's problems. Worldwide
results are not encouraging, if one considers them from the viewpoint, that
the real goal of any society should be the greatest good for the greatest
number or maybe a reasonably happy population, without too much anger and
resentment from minorities.

To confirm this view one can observe the following facts:
1. Automation, technological progress and a globalizing economy take away
the jobs of more and more factory workers in the developed world, who have
little or no chance for finding some equally rewarding employment. Such
people cannot but feel a growing resentment and anger towards their society.
2. In most middle-class families both parents must work in order to
maintain their living standard, forcing them to neglect their children, who
all too often express their resentment with extremely violent or even
criminal behavior.
3. The income of the great majorities of people in many developing
countries is so low, that they can barely keep alive, while small
minorities enjoy a lifestyle comparable to rich people in the first world.
Such conditions might have been tolerated in past times, but in our age,
when the afflicted can see on TV how other people live, their resentment
can easily be imagined.

On the other hand the competing system of Marxist Socialism has not done
any better, since even in their most benevolent Society (Cuba), thousands
of citizens risk death on the Ocean in order to escape from their
collectivist paradise.

In spite of such problems of their own, Marxists and fellow travelers in
Capitalist countries are only too eager to point out the mentioned problems
of neoliberal democracies and confidently predict a complete breakdown of
our present world order within at most another 25-30 years. Similar views
are expressed by some prominent members of the opposite camp (on Lord
Rothchild), who feels, that the anger and resentment of the millions left
behind could lead to a new revolution, that might be bloodier and more
violent than the French or Russian one.

Therefore, looking for a better alternative, one might try to combine the
best features of both systems, which brings us back to the basic ideas of
Lord Keynes, that BOTH the private and the public sectors must cooperate to
keep a country's economy flourishing and its citizens reasonably contented. 

To be able to carry out such a program, one must first try to find ways to
avoid the human errors committed in he past, which would mean to adjust
goals to available means WITHOUT trying to increase the tax load beyond
reasonable limits and to find ways of attracting and keeping efficient and
honest people in the public service.  New checks and balances might be
needed and some kind of cooperation and control from the private sector
could be helpful. Furthermore Keynesian principles should be applied
globally, since in the meantime a GLOBAL economy has been at least
partially developed. Hoping that the members of this discussion group shall
start contributing with ideas on how to achieve such a goal, I shall now
give you a summary of what I feel ought to be considered:

CONCRETE PROPOSALS FOR APPLYING KEYNESIANISM GLOBALLY

A group of countries suffering from rising unemployment and/or periodic
deep recessions and therefore interested in applying Keynesian policies,
would form a cooperative around a central entity. It could be a new one or
something affiliated to existing organization such as the IMF or the
Worldbank. This central entity would serve as a combined bank, insurance
company and evaluation office, where participating countries could
accumulate savings to be used for antycyclical public works, when
unemployment would rise above a critical point. Contributions to such
saving accounts should be calculated according to projected needs (see
point "2") and to the time estimated until the expected next recessions.
1. Any means provided by the entity should NOT be used for pure "make work"
projects, but for public works needed by the respective country anyhow, but
which are not of the first priority and can therefore wait until their
positive impact would be greatest and their cost lowest. 
2. Such projects should be studied and planned beforehand by each country,
with estimates of costs and benefits worked out as accurately as possible
and then be presented to the evaluation office, which might recommend
changes and would finally have to give their approval.
3. Governments to poor to save any relevant amounts during normal times,
could contribute some nominal yearly fees, which would entitle them to
receive loans when recessions strike. Such loans would have to be repaid
after unemployment again falls below the critical point.

If such activities turn out to be as successful as anticipated, GLOBAL
KEYNESIANISM should go beyond such antycyclical measures and promote
structural improvements in participating countries. With such objectives in
mind, the central entity would have to take on additional tasks and at its
most ambitious level could become the UNITED KEYNESIAN NATIONS. They would
need a permanent executive board, with the capacity to study the economies
and social organizations of their poorest members in order to recommend
needed changes. Such recommendations and the needed special financial help
would have to be approved by periodic full meetings of all members.
Countries acting on such recommendations could then count on receiving some
organizational help from other, more fortunate  members, over and beyond
the mentioned financial contributions. 
Here are some of the many tasks to be contemplated by such an executive 
board:
1. Priorities for investment in education, health care and infrastructure.
2. Special incentives needed to attract more foreign investment.
3. Eliminating barriers to intergroup trade to almost zero, but stipulating
that if the trade between any 2 individual countries becomes too
unbalanced, both sides should negotiate measures for achieving a rough
balance; otherwise the country with the trade deficit would be entitled to
take one-sided defensive measures.
4. A gradual rise of the minimum wage in the countries with the lowest
level, until such wages become roughly equal among all member countries.