On the Abstraction of Contemporary Crisis

On the Abstraction of Contemporary Crisis
Or, Why Today Feels Different From the 1930s

One of the oddities of the ongoing economic crisis is its apparent separation from everyday life.[1] Consumers still consume, luxury items are still produced. Starbucks is still filled with coffee drinkers, and Apple still sells its overpriced goods. Scanning the media, one finds its coverage devoid of lengthy soup lines or surges in tent cities. While most have had to cut back on their indebtedness, there hasn’t been a collapse on the scale of the Great Depression. This is in spite of some measures suggesting the current crisis is as deep in some ways.

Most obviously, the phenomenological severity of the crisis has been mitigated by the rise of the welfare state. Despite cutbacks over the past four decades, the current welfare state in North America and Europe still retains major advantages over the minimal states of the 1920s. Particularly in the more coordinated market economies of Europe, automatic stabilizers have dampened the worst effects of the crisis, allowing people to continue on with their lives in a relatively undisrupted way.

Yet even taking into account these moderating factors, there’s still a curious lack of any bodily experience of the crisis. The closest we approach is the now near-daily refrains about major market movements, with the stock markets providing a vicarious terror to replace any material manifestation. Headlines such as “Dow drops 500 points” still affectively feel like a freefall even if we know Wall Street is distinct from Main Street. But the stories about sovereign debt crises, liquidity evaporating in eurozone markets, bank reserve ratios, and stress tests all highlight the abstraction of contemporary capitalism. Few professionals can make intelligible the interconnections between these factors (witness debates over what to do with the eurozone crisis), and to many people they appear as symbols devoid of any meaning.

It is this financialization and subsequent abstraction of contemporary capitalism which is mirrored in the abstraction of contemporary crisis. The current economic catastrophe has its primary effects not on the immediacy of everyday phenomenology, but instead on the abstract structures of possibility that invisibly shape everyday life. In particular, two means of abstraction separate out the effects of the crisis from the everyday experience of them: first, the effects are often deferred into the future; second, the effects primarily shape what is possible rather than what is actual. The economic crisis is inflicting its havoc largely on future possibilities.

For instance, it is not that food suddenly disappears from shelves as agricultural production declines. Rather, the unseen inflation of commodities gradually raises prices and establishes barriers to more and more people. Likewise, pensions evaporate either in market fluctuations, or straightforward shifting of responsibility away from the public purse. It’s not that higher education is suddenly stricken from existence, but instead that the financial barriers to entry are raised beyond what many can afford. Moreover, the very debt that results from going to university isn’t immediately present, but instead deferred until a future post-graduation life. Life – for most intents and purposes – can continue on as it did pre-crisis, but now with added ties of debt. A similar operation occurs at the public level – the costs of bailing out the financial system, combined with the influence of automatic stabilizers that decrease tax revenues and increase unemployment and benefit costs, all contributed not to immediate reductions of government services (see the stimulus packages), but instead to thousands of smaller cuts being made to the public body over time.

Part of the uniqueness of the present crisis is therefore its abstract mode of destruction. The scope of what is possible in the future (and increasingly in the present) is narrowing in a way that isn’t immediately apparent in our daily actions. So while the welfare state plays an important role in moderating the phenomenological experience of crisis, the abstract structures of contemporary existence are shifting in just as significant ways. The objective forces of economic crisis require an outlet for their effects, and while government programs have managed to disperse some of their force, the remnants are winding their way through our global economy. In the words of James Galbraith, the current crisis may be significant not for its overt destruction but instead for “the pall it casts over life.”

[1] There are three important caveats to this claim. First, there is the obvious exception of many developing countries. The food crisis afflicting developing countries has been sharp and painful as a result of spiralling food prices led on by financial speculators. The continuing famine in Somalia is the most disastorous, but protests in Tunisia, Egypt, Uganda, India and many other places are also expressions of this same dynamic.

The second caveat is that there are some fragmented reports of tent cities and lengthening soup kitchen lines in America. Absent the more substantial welfare state of most other developed countries, it’s not surprising to see the effects of the economic crisis exert a more bodily shape here.

The third qualification is that this discussion is premised upon the current stage of the crisis, and things could get significantly worse when (not if) Greece defaults and the debt fallout comes back to haunt Germany (taking out Italy, Spain and possibly France in its path). A recent UBS report argued that Greece’s GDP would likely collapse by 50% in its first year of a post-Euro existence. Such drastic collapses would inevitably be too much to handle for any welfare state or any deferral and dispersion of the fallout. While the 2008 crisis had the fiscal room for major stimulus packages to smooth out the experience of economic collapse, any future crisis risks facing up to a situation where the political will for Keynesian solutions is rapidly diminishing, and where the economic means to implement such large packages are potentially limited.

19 thoughts on “On the Abstraction of Contemporary Crisis

  1. Unsurprisingly wonderful stuff. I particularly like the ‘abstract mode of destruction’. I would also push the point that the shallow spread of interest in Marx would seem related to the extent to which the abstractness of capital seems to fit the pattern of economic power today (economies overly dependent on financialisation and the like), I assume in a much more comprehensive way than was previously the case.

    But I also wanted to push a further explanation for the abstractness of our current experience, which is that, compared to the 1930s, ‘the’ working class is distributed rather differently in territorial terms. I would have thought that massive swings in employment and harsh consequences in terms of hunger and deprivation will therefore largely cluster in the global south in the immediate future, since that is where productive activity (in terms of producing goods) now largely resides.

    I don’t know how much the observation of stagnant real terms wages in the West over the last decades might contradict that point, but it seems that this is one element in the deferral of the consequences of crisis, the other being the ability of costs to be transferred in a series of steps thanks to greater financial interconnectedness and regionalisation.


    • Yeah, I think that’s a good point – the global dispersion of crisis, and to what extent developing countries act as release valves for the pressure of crisis in the developed countries. The most difficult part in making this argument – it seems to me – is in tracing out the transmission mechanisms. What are the particular ways in which the specific problems of the current crisis are distributed to other sectors? In this regards, even tracing the food crisis to the 2008 crisis can be a bit difficult. Is it part of a general tendency towards speculating on commodities markets – and therefore, part of the crisis, but not necessarily its effect? Is the unwillingness to properly regulate financial institutions to blame – and therefore, a problem with the response to the crisis, rather than a necessary effect of the crisis?

      It seems to me that the most effective way to understand the transmission of the crisis through the financial sector would be to look at the continued provision of cheap credit. Most central banks are trying to prop up the economy through two means: (1) keeping interest rates at historical lows, which means that lenders have to seek out more risky investments to get the same returns as before, and (2) using programs like quantitative easing, which (ostensibly) make it easier for borrowers to get credit and leverage that money in markets for things like commodities. As a result, you have a situation where bubbles in commodities (e.g. gold!) can inflate relatively easy, but with the consequence of pricing out those who can’t afford the goods. Strickly speaking though, this doesn’t seem to so much be a proper cashing-out of the crisis, so much as a mere deferral of the inevitable. That is to say, we really haven’t had a proper resolution of the crisis yet…


  2. Great article. I see a lot of parallels with the abstract and deferred destruction caused by climate change. The brunt of these changes are also bourne by the developing world (current drought and famine in east Africa is a case in point).


  3. I’m still somewhat troubled by the question of who is experiencing the crisis as an abstraction? And no, Nick, that’s not the “my, aren’t you terribly middle-class!” line. To use autobiography, I think immediately of my father who spent nearly a year on unemployment, racked up massive medical bills in the process because he lost his health insurance and now has taken on a job where he is earning less than he did 10-15 years ago and working under tougher conditions. It’s not standing in line at the soup kitchen, but its hardly abstract. There’s certainly much to be said for the remnants of welfare state doing some work (unemployment, publicly funded hospitals that can’t turn the poor away), as well as existing on the last fumes of the blaze of debt-financed consumption – my father basically racked up credit card debt while unemployed and ill, and then told the banks to get stuffed and filed bankruptcy. I imagine, though can’t provide evidence at the moment, that such stories are common throughout the rich economies, and much worse is being felt in poorer countries around the globe.

    I think my point is that, to some extent, the consequences of the financial crisis are abstract because those who suffer are abstract, at least within the discourse of crisis – the destitute, the working poor, the global south, etc. – these are abstractions that refer to segments of the social world and the body politic that lack a place in the public discourse – in the desiccated public of neoliberalism, even. It’s telling that the first photo you used by Margaret Bourke-White (http://en.wikipedia.org/wiki/Margaret_Bourke-White), Bread Line during the Louisville flood, Kentucky, was taken by a photographer that was committed to representing the lives of working people and the effects of poverty in the US – this sort of activity was supported by major media publications (Bourke-White worked for Life) and government programs, such that in a less full public domain the consequences of financial crisis were rendered more explicitly.

    This abstraction, which is different than the deferred consequences you rightly highlight, is a hole in the vision of those responding to and commenting on the crisis, but it’s effects, I think, are deeper, as the abstraction of the consequences and those suffering the worst effects makes it more difficult for those human beings obscured from view to represent themselves – to themselves or to the public – as more than abstract subjects of deprivation, but as bearers of grievances and equals worthy of recognition. I think this sits next to your point, and I certainly don’t want to deny the important point made.


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  5. Sorry to arrive at this thread so late, but your point raises interesting questions. I tend to agree with Joe that the extent to which the experience of the crisis is abstract depends on your experience of it. However, the theory of wealth expectations might suggest that this abstract dimension is not new to economics. It might, however, also suggest that there was something abstract about the reassurance of perpetual growth. It might further suggest that it was giving too much ground to this sort of abstract thinking that got us into this mess in the first place. I’ve said this before, but there is a tendency to regard the economic crisis as if it was just some sort of accident, or the consequence of a conspiracy perpetuated by a whole class of people. Whereas – it seems to me – that it is merely the direct and forewarned consequence of bad economic policy in which an untenable promise of future prosperity was the ‘mess of pottage’ for which the current generation sold the birthright of the next. This is not so different from the 1920s, nor is it abstract. I’m curious about your use of the phrase ‘automatic stabilizers’ which you use to describe the ameliorative effects of welfare payments on individual circumstances. I don’t mean to be a pedant, but the phrase is meant to capture the macro-level effect of propping up GDP in the face of a downturn. This is important because when even welfare is instrumentalised as a growth driver this must surely raise difficult questions about prevailing economic philosophy. Lastly – and lest I be accused of ‘trolling’, I mean this respectfully – your point about a diminishing appetite for Keynesian solutions does not do justice to the growing realization that there is simply no such thing as a Keynesian solution, which is what explains the diminishing appetite for them.


    • Hey Douglas,

      I admit I’m not quite sure what you’re referencing when you say “there was something abstract about the reassurance of perpetual growth”. If you just mean that this idea is ultimately an illusion/unsustainable, I entirely agree – though it’s a different sense of abstraction than what I meant.

      The point about automatic stabilizers is a bit philosophical to my mind. Yes, automatic stabilizers are about propping up GDP during a recession. But most economists would agree that welfare payments are a major part of that. And I’m pretty sure everyone would agree that welfare payments during a recession help mitigate the worst of a recession (which was my point in the post). Now you can argue that welfare payments actually don’t help GDP at all and therefore aren’t an automatic stabilizer, but that’s a pretty unorthodox position to take.

      It seems to me that your other points are the Big Questions: what caused the crisis, and does fiscal stimulus work? I’ll leave aside the former because everyone has their own theory and we’re still arguing about the causes and policy mistakes of the Great Depression.

      But your other point about there being some sort of realization that Keynesian policies don’t work (specifically, fiscal stimulus) seems to fly in the face of what the IMF is saying, what UNCTAD is saying, what the US government is saying, and what the head of the world’s biggest bond fund is saying (let alone what academics say.) I just see little evidence that there is some newfound recognition that Keynesian policies don’t work.


  6. The fact that there is still a debate about the 1920s only goes to show that there is still some relevance today to how the Great Depression is interpreted. That does mean the debate can be passed over. Paul Krugman revealed in his lectures at the LSE that economists basically thought they had solved the problem of the business cycle, which really means that a large number of economists thought they had solved the problem, and found out that they were wrong. They are still wrong, but it doesn’t stop people offering up alternative explanations for the Great Depression as a prelude to a certain type of policy prescription today.

    However, with regard to your last point about all the Keynesians out there:

    1/ it does depend on a definition of what counts as Keynesian. If we take Krugman as the arbiter, then he does two things. 1/ suggests that debts are not really that big and consequently 2/ that the problems experienced by Greece and Portugal are caused by their austerity programmes. Neither of these positions would be endorsed by the IMF, who are insisting on greater austerity for the Greeks etc. and demanding that governments deal with their debts. There has been some movement in their position over the austerity package in the UK, going from fully supportive, to suggesting that they might need to alter direction a little – again, not Krugman’s position, and more a measure of the escalating scale of the crisis than any actual Keynesian conversion. Furthermore, the IMF is run by a European, and the mixed messages that emanate from it indicate that were it to be run by someone else, it would revert to its older, more traditional stance of not being in the slightest bit Keynesian. Funny how when it was developing countries that turned to the IMF, they never advocated fiscal stimulus… There is room for a more detailed analysis of institutional dynamics, but not here I think.

    2/ I don’t know enough about UNCTAD to say, but I would think their focus is development, not macroeconomics.

    3/ The US Government is really struggling to sell it’s message at the moment, but I would agree that they are arguing for fiscal stimulus. They are also negotiating very deep cuts in public expenditure, much to the horror of Keynesians everywhere.

    4/ I presume this is the guy from PIMCO? I have no idea why anyone would take seriously the advice of someone who stands to make billions from your taking it. Stop a few city economists and it will become obvious that even if the PIMCO guy means what he says, he is in a tiny minority among those who follow these things for money.

    5/ Academics. It’s true there are a lot of Keynesian academics around. There are also a lot of academics who are not Keynesians. Keynesians make up the mainstream just like realists and liberals in IR. I have always regarded this to be a causal factor in our current difficulties.

    6/ On Keynes himself. I actually admire him, and many things he said. I often wonder what he would think of the economists who call themselves Keynesians today, but one thing I am sure of is that he did advocate a tax on trade surpluses at the Bretton Woods negotiations. It was overruled by the American (possibly Soviet) representative, but I bet they wish they had listened to him now. And there is one stimulus measure that might actually work (not to solve the euro crisis) which would be for surplus countries like China and Germany to spend like drunken sailors on imports. It won’t happen, of course, but for hugely indebted countries to increase their indebtedness in a forlorn attempt to cook the GDP books is madness. It is just a continuation of what they have been doing for years, and the very reason they find themselves in such dire straits.

    I’m a bit technologically challenged but will follow up with a link to a recent paper written by economists at the Bank of International Settlements (not exactly Keynesians) which addresses the long neglected topic of debt. It sinks Krugman.


    • There’s some changing of the goalposts here. Your original comment asks about Keynesian solutions; my reply focused specifically on one Keynesian solution: fiscal stimulus. You now appear to be setting the criteria for being Keynesian as three things:

      (a) the belief that debts aren’t that big;

      (b) that Greece and Portugal’s problems are from austerity (though I’m not sure who would argue that austerity is working for them), and;

      (c) that the organization be institutionally (and not just personally) Keynesian.

      Needless to say these are vastly different critiera than the original question. But even if we limit the primary criteria for being Keynesian to a belief that debts aren’t that big, I don’t know of many Keynesians at all then. (I’m not even sure Keynes would be a Keynesian then.) If instead we’re talking about typical Keynesian solutions as per the original question, then yes the IMF and the rest of the organizations I pointed out are advocating Keynesian solutions.

      As for Krugman, I’ve seen him arguing that deficits aren’t a major issue specifically for the US – a view which is held up by the market producing record low yields on Treasuries. Now if you want to say that America is in a unique position with the dollar being the international reserve currency, well yes, that’s the point. Applying the same standards about debt levels to Greece (a country without even sovereign control over it’s ability to create money) and to the US (a country which acts as international lender of last resort and international reserve currency) is to ignore some of the most important facts of the situation.

      (As an aside, I think you’re placing far too much emphasis on the single figure of the Managing Director. There is literature on the changing set of approaches within the IMF and it demonstrates it’s not reducible to individuals.)

      2 – UNCTAD does do macroeconomics work, though from a different perspective than the IMF.

      3 – I think with the political climate in the US, even the attempt to pass stimulus policies (even monetary stimulus!) is indicative of how much the economists in charge believe it’s necessary. But, to return to the original question, it’s also a sign that they think Keynesian policies work.

      4 – what’s fascinating about PIMCO is that a fund which makes money off of sovereign debt being worth something is worried not about unsustainable debt levels, but instead about growth. Take it for what it’s worth (a single data point), but that still seems quite suggestive to me. And of the people in finance I know, it is pretty evenly split between those who think austerity is the way to go and those who think stimulus is the way to go. It’s anecdotal evidence, but I think that’s all either of us will be able to present on how finance thinks of these issues.

      5 – I’m not sure if you misinterpreted my point here, but the issue at hand is not about what the percentage of Keynesians is in economics. The issue is that the academic studies that have been done on the US’ recent fiscal stimulus policies have overwhelmingly shown that it worked. If we want to be scientific about this issue, the evidence has to be taken into account.

      6 – I do agree with you about the trade imbalances issue, which is a problem that’s being shoved under the rug as the world deals with more immediate problems. Which doesn’t bode well for the future of the global economy.

      I’ll read through the first BIS paper in a bit too – it does look interesting, though not entirely anti-Keynesian if the abstract talks about leaving room for fiscal measures during recessions.

      A point about the second paper – there’s no argument against Keynes here. You’d be right to argue that Keynes is left aside in the paper, but that’s not really surprising since it’s focused on a different question than what Keynesian solutions are focused on: eliminating global trade imbalances versus stimulating an economy in recession that has reached the limits of monetary stimulus.


  7. Actually the last paper does take the same view that Keynes took on imbalances. but this is part of Keynes that gets forgotten, along with his advocacy of fiscal stimulus for economies that were broadly closed by comparison with today. It also implicitly suggests interest rates are too low in the UK and the US, and directly argues against deflationary policies. Mix this with the first paper that argues debts must come down now, and I think that does weigh up on the anti-Keynesian side of the balance (at least what passes for a Keynesian policy mix today). Of course this all comes back to what counts as Keynesian.

    I did not shift the goal posts, I just think fiscal stimulus is too narrow, and the IMF does not advocate fiscal stimulus in the way Keynesians like Krugman do.

    Funds like PIMCO make money off Governments being wrong. They bet against political vanity. Trust them, and their advice, at your peril.

    5/ When Keynesian academics argue that Keynesian policies worked, you have to ask what they mean by worked I can imagine that some policies have helped to keep the whole system from freezing up, but again, this must imply a very contextual meaning to the notion of ‘worked’. When the US and UK economies have stabilized their finances, are growing, with balanced budgets, balanced trade, rising employment, falling debt and a chicken in every pot, that is when economists would be entitled to use the word ‘worked’. Otherwise it’s just George Bush on an aircraft carrier all over again.

    I have read Krugman make that argument for Greece. For the US, their situation is different, and gives the US more flexibility, but it is this difference that makes the US a difficult context from which to justify Keynesian policies in general.

    To your initial points:

    a/ fiscal stimulus depends upon the notion that debts are not already too big. Even the IMF would concur with this.

    b/ austerity is a disaster for Greece, but Keynesians routinely suggest that it is the austerity that is the cause of their problems, rather than the monumental debts that make fiscal stimulus out of the question. The situation in Greece is made more complicated because of their membership of the Euro. Either way austerity is just a symptom of the disaster.

    c/ I’m not sure what you mean. The IMF is not traditionally understood as supportive of Keynesian policies. They used to be criticized all the time for their insistence on economies cutting public spending, devaluing, and opening up to trade. I just note that the change to a set of policies that might be more sympathetic to a Keynesian analysis coincides with European economies getting into severe difficulties. It smacks of double standards, but more than this, the economies that had to take their old-fashioned medicine, also seem to be doing alright now. I’m sure there are problems ahead as their export markets dry up.

    This is a bit disjointed, but I’m surrounded by four very active infants…


    • 1 – There is absolutely a shifting of the goalposts going on. Your original argument was that there’s a “growing realization that there is simply no such thing as a Keynesian solution”. I specified in my reply that fiscal stimulus is the archetypal Keynesian solution and pointed to a number of institutions who are advocating precisely this Keynesian solution.

      You are now saying that “it all comes back to what counts as Keynesian.” Which is why I chose fiscal stimulus as the key indicator, since it’s so closely tied by everyone to what is understood by Keynesianism. But you now claim that fiscal stimulus is “too narrow” (not clear what you mean here) and that the IMF’s version of fiscal stimulus is different from Krugman’s. If you mean by the size they think is necessary to jumpstart an economy, sure, but they’ve both already accepted that government spending can stimulate an economy. That is to say, they are both accepting that Keynesian solutions can and do work. (You make the odd suggestion at one point too that these institutions are only taking to Keynes because of fear. But it would be an odd thing when you’re in fear of economic collapse to turn to policies you think don’t work.)

      You are also consistently taking Krugman as the only representative of Keynesianism, and somehow missing all the internal debates going on amongst those who would represent themselves as Keynesian. Many Keynesians would have different versions of fiscal stimulus than Krugman, but this doesn’t mean they aren’t using Keynesian policy tools.

      2 – I’m still not sure what your point is with regards to global imbalances. This hasn’t been the issue at hand – which in the original post and in the comments has been focused on government spending to prop up an economy. The policy responses to reducing imbalances can be (and the author of the 2nd paper admits are) in tension with policy responses to a stagnating economy. Now we could have a debate over which is the more important problem to be dealt with immediately, but that’s an entirely different topic.

      3 – Your original response to PIMCO’s claim was to say that he’s a minority figure in arguing against austerity. You now claim that we shouldn’t trust people in finance anyway. If both claims are true, it seems we shouldn’t trust the majority in finance who advocate for austerity.

      I’m being uncharitable with that interpretation here, but it’s also unfair to just write off an institution’s argument because you think they’re trying to fool everyone. I could say the same for every financial institution when they argue for policies I don’t agree with. To demonstrate your point, you’d have to at least show a plausible way that PIMCO plans to profit by tricking governments into increasingly unsustainable debt levels.

      4 – With regard to the academic literature on the US stimulus, if you clicked on the link I posted you would see what they define success as. And it’s not about returning the global economy to perfect equilibrium.

      5 – I don’t understand your claim that “fiscal stimulus depends upon the notion that debts are not already too big” and that the IMF concur with this. Perhaps you just meant to support my point – since the IMF is advocating fiscal stimulus, therefore they must not think debts are too large at the moment.

      6 – You’ll have to point me to any respectable Keynesians who argue that austerity is the initial cause of Greece’s problems… I just don’t think anyone actually argues that. Austerity may continue the problems, and it may be making things worse (which you seem to agree with), but I personally have never seen anyone argue it’s the initial source of their problems.

      7 – With regard to the IMF, you’re arguing about a correlation and turning it into causation. You’re saying that the IMF typically advocated austerity, but now that there’s a European in charge it’s no surprise that they’re turning away from austerity. (And you’ve also changed your claim here – you originally cited the fact of a European being in charge as the cause for the policy shift. In this last comment you are claiming the cause is instead because the crisis is in the eurozone. The second claim suggests that even with an American in charge, the IMF would have changed its policies.) My point about ideas being organizational rather than individual is because of your initial claim. The evidence I pointed to on this topic suggests that individuals make relatively little difference and that changes in ideas result from much more dispersed and varied sources than can be attributed to a single European in charge.


  8. Actually, I was not suggesting that it is with a European in charge that the IMF has changed it’s policies. There is always a European in charge at the IMF. My point was only that, now that it is European economies that are turning to the IMF, this helps explain why the basic policy preferences have changed. Were I to link it to individuals, it would be to Strauss-Kahn, but I think it is more complicated than this. Sorry if my comments caused confusion. More later.


    • Yes, that was my mistake – I was thinking an American had been Managing Director before for some reason. I do think there’s some weight to the idea that the IMF response is different for eurozone economies than developing economies, though I’m very hesitant (because of the reasons cited above) to simply chalk that up to it being led by a European.


  9. 1/ Your original comment left it open, your response to me refined what you understand as Keynesian as ‘fiscal stimulus’. I think this is not even fair to Keynes. I take Keynesianism to be a broader set of policy preferences that are oriented around smoothing the business cycle by managing demand. This is quite explicitly what Keynes was talking about back in the 1920s. The monetarist position developed after many Nobel prize winning critiques of the effects of Keynesian demand management (inflation, increases in the long term unemployment rate etc.) and became oriented around the idea that what was most important in macro-economic policy making was managing the money supply in order to match increased productivity. Without rehearsing that debate again and again, I tend to think there are many things you can do to manage demand that are not simply ‘fiscal stimulus’ measures which is why I think we need to take a broader view about demand management. In particular, the ‘Greenspan put’, is – in effect – a Keynesian stimulus, not a fiscal stimulus, but an attempt to cook up a bit of demand when GDP growth looked like it was slowing down. The ‘great moderation’ was therefore the point at which Keynesians like Krugman and so-called monetarists like Greenspan found common cause. The effects of trying to cook up a bit of demand and keep the GDP show on the road was to widen trade imbalances and to create a permissive context for enormous savings and consumption imbalances, which in turn are the root of the problem we are currently living through.

    Fiscal stimulus in states that have been consuming too much and not saving enough is essentially trying to get them to consume even more, once again, just to keep the GDP show on the road. Which is why plenty of states are unprepared, or unable to do it. The US Govt does advocate fiscal stimulus, but I happen to think that without efforts to rebalance trade, such efforts will be futile. Hence this bill now going through the Senate… In any event, I don’t think I was shifting the goalposts, just resisting the erection of goalposts around such a narrow definition of Keynesian policy making that it become difficult to say very much about it.

    2/ Global imbalances, see point 1. They are very much the issue at hand. The two papers I sent are not dealing with two separate issues, but two facets of the same problem.

    3/ My point about PIMCO still stands. He’s basically one guy. I disagree that finance organisations are evenly split, but I agree that my evidence is little more than anecdotal. Except, the credit ratings agencies seem agreed with me. Standard and Poors just reaffirmed the position of the UK government with the explicit warning that any diminution in their commitment to fiscal consolidation (not stimulus) would be met with a credit downgrade. And S&P don’t have a stake in the outcome. The credit ratings agencies are calling time on over-indebted countries launching fiscal stimulus. I did not say that we shouldn’t trust people in finance, just that guy from PIMCO, and George Soros as well. A lot of finance institutions are those that are lending money to governments, so their decisions to lend or not lend are evidence of their views. At the moment that means, cut your debts, or get no money, seems pretty clear to me. Your point about treasury yields is an important one, but merely reflects the safe haven premium, and are not an endorsement of governments engaged in fiscal stimulus.

    4/ I believe you. I clicked on your IMF link and got through to a report, hundreds of pages long, so did not click on further links. But my point stands. If you want to increase GDP with government spending, no problem, what impact this has on the balance sheet is almost invariably neglected. In the UK, for example, we had a long boom from the 1980s onwards (excepting one sharp recession caused by joining the ERM), but the latter parts of this period (if you look at the balance sheet) show the UK becoming poorer, more indebted, and more exposed to exactly the kind of crisis that has now seized hold of global capital markets. What is more, the scale of the UK’s indebtedness (see first paper I linked to) will prevent the UK from ever growing its way out, as it has top sliced the long term growth rate. Hence the market view that fiscal consolidation is the only real choice for the UK, alongside a bit of devaluation. In fact, the UK is pursuing exactly the kind of strategy the IMF used to recommend as a matter of routine. Which makes their change of attitude, surprising, and worth investigating.

    5/ The IMF are only suggesting that certain countries can afford to engage in some fiscal stimulus. They are absolutely not talking about fiscal stimulus for Greece or Ireland, and are in fact insisting on fiscal consolidation for these countries. The proper – reductionist – Keynesian position is that these countries should engage in fiscal stimulus to grow their way out of debt. Unfortunately, no one will give them the money to do it, and they cannot print their own. So the IMF are suggesting some fiscal stimulus for some countries. As I said in my first response to your reply, I think this position is a strange one for the IMF, I think it will unravel, and I think questions are already being asked about how the IMF came to endorse it. However, it may be a highly contextual position because of the perilous state of the global economy.

    6/ The initial cause, I don’t think anyone is suggesting that. But many people are suggesting that the austerity measures are the cause of their current problems, and that if only they would stimulate, then they would not be experiencing social breakdown etc… Stiglitz and Krugman have both argued this. I think they are respectable Keynesians, if there is such a thing.

    7/ The IMF has had American’s in charge, but only standing in until the next European is chosen. There was one recently courtesy of an incident in a hotel room with a maid. I do take the point that organisations do not simply reflect the views of their head, or indeed the sponsor nation of the head. But I wonder why, for example, Europeans fights so hard to keep the privilege of nominating the head of the IMF? I don’t think it is an accident that as soon as European economies find themselves going to the IMF for assistance, that the organisation finds itself beholden to the same political pressures that encourage European governments to avoid structural reform. It is worth remembering that the UK had to turn to the IMF in the 1970s when the economy collapsed after years of industrial unrest. Their solution? Cut public spending, reform industrial relations, devalue. The Labour Prime Minister commenced the program saying ‘you can’t borrow your way out of debt’, and the difficulties he faced gave rise to the election of Mrs Thatcher. That was the IMF then, whereas now, it seems engaged in an effort to save the Euro. A matter of some importance, no doubt, but I question their commitment to Keynesian fiscal stimulus in extremis.


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