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Re: <nettime> Keynesianism is IN
Brian Holmes on Mon, 10 Nov 2008 21:08:07 +0100 (CET)


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Re: <nettime> Keynesianism is IN


Stefan Heidenreich wrote:

> maybe we should figure out some differences between what Keynes had in 
> mind and what happens today.

This is totally interesting. But there is also some difference between 
Keynes and Keynesianism. The ism is used to talk about deficit spending 
on public works and arms races in order to "prime the pump" of national 
economies during the long postwar boom (1945-75). Deficit spending 
basically meant that the government issues bonds, collects savings and 
prints more money on the basis of that. I suspect the difference between 
that and whatever Keynes himself could have witnessed may well be of an 
order of magnitude similar to the difference between whatever is now 
coming down the pipe and what actually happened in the postwar period. 
So I like your intervention, Stefan, and I'd like to go further. 
However, we might have to be a little more precise about a few things...

> - Keynes was not aware of the credit money (or as some say: fiat money), 
> that we have today - sticking still to some kind of gold standard. so 
> generating further credit - and be it via the state - has become 
> something entirely different from what it was in the 30s / 40s.

Hmm, is that true? In my understanding the gold standard had 
definitively collapsed by the mid-thirties.... And I am by no means an 
expert on Keynes (fuck, I studied romance languages and I write about 
art!) but I though our whole contemporary concept of fiat currencies 
came out of the General Theory.... Certainly both Britain and the USA, 
but also Germany, were already engaged in this kind of deficit spending 
in the 1930s. Certainly Keynes proposed fiat money for the entire planet 
with the plan for the "bancor," which was not accepted at Bretton Woods 
and instead we got the system of currencies pegged to the dollar which 
itself was backed by gold. So it seems Keynes wanted to INVENT the kind 
of fiat money we have now!

> - Keynes could never have imagined the amount of credit given hto 
> consumers. He regarded the consumer as someone saving. And he saw credit 
> as something given to an investor and to be paid back through the return 
> on investment.

Well, Keynesianism certainly did not regard the consumer as someone 
saving. It regarded the consumer as the source of "effective demand" for 
industrial production. And effective demand is THE central principle of 
the General Theory! The whole point of Keynesianism was to make sure 
there is enough of it, by providing tax breaks, by lowering interest 
rates, by creating jobs through public works projects. Now again, OK, 
Keynes died in 46 I think, so he never saw that put into full force. But 
unless I am wrong, that kind of deficit spending is EXACTLY what he 
theorized. Or no? Keynes specialists to the rescue!

> - Keynes had the idea that an initial push would be sufficient set the 
> whole capitalist machinery of production and consumption again into 
> maotion and to avoid the "liquidity trap" of money being just kept lazy. 
>  The huge bubble of finance money stuck in derivtives that we have now, 
> he did not think of.

Well, maybe, but Keynes was clearly preoccupied with the financial 
sector, he thought it was too big and famously prescribed the 
"euthanasia of the rentier." On the other hand, with approximately $60 
trillion worth of credit default swaps ALONE currently in circulation, 
we are definitely somewhere unprecedented! Look at the apparent 
impossibility of bailing out AIG and the new plans for isolating the 
toxic waste in separate companies that can be split off from the 
corporation and then treated directly by the government. Obviously, the 
euthanasia started to wear off from the 80s onward...

What seems really new here are the geopolitical implications of these 
derivatives: because today, the USA sells its bonds to the same 
countries that are holding mortgage derivatives insured by AIG. Will 
those countries buy US Treasury Bonds if they are also being asked to 
take a loss on US derivatives? Japan did so in the late 1980s. Will it 
continue to do so? Will China do so? I am not enough of an economist to 
know whether China's $500 billion stimulus plan will necessarily swallow 
up the money it might have invested in Treasuries. But that is the kind 
of thing I wonder about, and that is also why I posted the article about 
the possibilities of an Asian Bond market a while back.

> I'm not sure myself what to take from it. But I suspect, that nowadays 
> state spending is not as Keynesian as we might think. Because behind all 
> the new credit now generated by the state we still have a banking system 
> lurking, that nurtures itself by fresh credit. The whole securitization 
> pyramid would break down if the total amount of credit would shrink. So 
> somebody has to generate it. And as the consumer is turned off ... the 
> state is the last source of new credit.

Here's where we agree. The above is a good description of the situation 
in the US today under Paulson, and probably of Britain too. It's all 
about renewed credit to the banks, to keep the pyramid of securitization 
up in the air. If that were to succeed we would not have any 
Keynesianism, for sure. However it appears to be failing, and someone 
like Nouriel Roubini is calling for $300 billion of public works 
projects in the US (apparently he testified to that effect in Congress 
about 10 days ago). The point of sending the article about China was to 
show that a major economic power is definitely going to engage in public 
works projects. It looks as though the US will too and I believe Germany 
just announced some $100 billion euros along those lines, no? The big 
political question is how this money will be spent....

> This might still look like Keynesian politics, but it might also just be 
> a service to the banking system. And it might finally turn our state 
> into a rogue, as Derrida said: an institution generating credit, 
> collecting taxes, nurturing a banking system on the brink of collapse, 
> and finally putting at risk the state guaranteed money itself.

Yeah, this I totally agree with, this is the danger of the solutions 
being pursued so far. They are trying to hold off the complete 
deleveraging and therefore, to hold off the day when banks that 
overinvested in speculative assets must go bust. But this is why 
everyone is now talking about the Hoover-Roosevelt sequence. After 1929, 
Hoover would never close the banks and purge the ones that were failing. 
He delayed for around two years. Then Roosevelt immediately declared a 
bank holiday upon entering office and restructured the entire system, 
cleaning out the banks that could not be saved. Will Obama and other 
presidents have to do something similar?

It is claimed by most commentators that we will not reach the 25% 
unemployment that characterized the Great Depression. But today Claire 
Pentecost sent me an amazing article predicting that you will have 
exactly that in Spain, and one could also wonder about Britain since 
they too were run in an extreme neoliberal fashion. Under such 
conditions of unemployment, there is no choice: the government has to 
reorganize the economy or you will have a revolution. In Germany in the 
30s, the revolution was fascist and they then resorted to a full-on war 
economy. Honestly, this is what scared me when I looked at Palin 
whipping up the fury of crowds... These historical precedents are, I 
think, very imperfect reflections of the kinds of choices that are on 
the table today. We need to consider the reflections but we should not 
get lost in them, because conditions are quite different. Still, if I 
were a bookseller I guess I would stock a few copies of the General 
Theory!!!

best, BH

PS - Here's the article on Spain:

Spanish unemployment raises depression specter
http://www.reuters.com/article/gc04/idUSTRE4A63HN20081107?sp=true


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