|
INTERVIEWS
WITH ECONOMISTS
JOHN
KING
The recent
economic crisis in Asia has led to a revival of Keynesian policy
prescriptions. What is your view on this issue?
Unfortunately,
it’s taken a huge increase in human misery to demonstrate
the truth of some elementary Keynesian propositions: money is
not neutral; debt does matter; financial fragility has real economic
consequences; employment depends on aggregate effective demand,
not on individual labour supply decisions and demand management
works, both downwards (e.g. in Indonesia, evidently) and upwards
(e.g. in Japan, hopefully). It seems that even the most strident
anti-Keynesians now accept Keynesian policy prescriptions, if
only for Japan. It’s tragic that a re-learning of these ancient
truths has come at the expense of millions of unemployed Japanese
and Korean workers and their families, not to mention an entire
generation of malnourished Indonesian infants who will probably
suffer permanent intellectual impairment as a result.
Is there
a Keynesian explanation for the Asian economic crisis?
It’s
difficult to see any convincing non-Keynesian explanation. We
need to be careful, though, to reject what Joan Robinson used
to call ‘Bastard Keynesian’ theory. A bad example is
the AS/AD model found in most of the textbooks, where falling
prices and wages are linked to increased output and employment.
When commentators (rightly) highlight the dangers of ‘deflation’
(again, for example, in Japan), they’re implicitly recognising
that the aggregate demand curve is upward-sloping with respect
to the price level, not downward-sloping. This would come as no
surprise to Keynes, but it’s very difficult for both nonKeynesians
and the so-called ‘new Keynesians’ to swallow. The latter,
of course, are not Keynesians in any sensible use of the word.
Dornbusch
has recently described Joseph Stiglitz, the World Bank’s
chief economist, as being ‘eccentric’ and a ‘liberation
theologist’ because of the latter’s support for fiscal
expansion in Asian countries. Can you comment on this?
It is good
to see the World Bank, under Stiglitz, coming to its senses at
long last. Stiglitz is by far the best of the ‘new Keynesians’.
The International Monetary Fund, alas, remains under the influence
of Dornbusch’s old friend Stanley Fischer. I think the time
has come for the IMF to be shut down and replaced by an international
central bank that would do what Keynes originally intended; that
is, promote full employment around the world and (re)regulate
financial markets to achieve this end. This is the exact opposite
of the IMF’s current position.
We are
supposed to have learnt a lot about the working of the macroeconomy
in the last twenty years or so. Yet, the world economy goes from
one crisis to another, with no agreement on a proper solution.
How do you explain this state of affairs?
There are
two angles on this. Marxists claim that capitalism is inherently
unmanageable and that ‘globalisation’ simply makes it
more so. I have some sympathy with this view. (It’s hard
to imagine a more graphic confirmation of the crudest Marxian
theory of imperialism than the TV pictures of white men in suits
arriving from Washington to instruct brown men in Jakarta and
Kuala Lumpur on how to run their economies.) Keynesians, on the
other hand, claim that the world economy is manageable, provided
that the ancient truths that I referred to earlier are rediscovered.
This raises the further question of how they came to be lost,
and here I think the Great Inflation of the 1970s is largely to
blame. In fact it may well be the case that capitalism and full
employment are incompatible because of the inflationary consequences
of tight labour markets. To preserve capitalism, on this argument,
it was necessary to abandon full employment as a policy objective
and to repudiate the tools of economic management that had underpinned
full employment. This is the basis, I suppose, of the current
IMF line. It’s also how we got floating exchange rates, unrestrained
speculative international capital movements, pyramids of entirely
unrepayable debt and all the other ingredients of the Asian economic
crisis. If the IMF is right, of course, the Marxian pessimism
is also correct, and there is no ‘proper solution’ to
the crisis of the world economy. We shall see.
In economics,
certain ideas get more acceptance at certain times than others.
What advice would you give young students on how to think about
economic ideas in order not to drift with the tide?
Don’t
assume that something is rubbish just because it was published
more than five years ago. Be aware that retrogression in knowledge
is just as likely as progression. Study the history of economic
thought, and as you do so remember that economic ideas are always
political. Ask yourself who stands to benefit from them.
|