Monday, February 21, 2011

Why large business fears active Keynesian policies

While I was reading blogs on The Oil Drum over the weekend, I noticed that literally everyone seemed to have a reasonable grasp of Keynesian economics.  They were often talking about things like the different multipliers to account for changing employment under different energy trajectories.

So if amateur economists "get it", why can't Washington or The Media get it?  Why can't they seem to grasp any economics with roots later than 1829 when JB Say himself repudiated his earlier Say's law with his analysis of the recession he saw then.  The Media and Washington keep insisting that the answer is austerity.  The best theory and evidence says that austerity will make the problem worse, in fact, the problem we face was caused by an austerity of only a slightly different kind (declining relative income growth for most people, and therefore growing inequality).

Of course the only answer is, rulers and their lapdogs don't wanna get it.

Over at Brad DeLong's blog I saw this interesting post from Duke Dixon:

A major reason why large businesses are proponents of austerity is because they worry about the effects of active fiscal and monetary policy on the static industries in which they hold a dominant, often monopolistic, position. These businesses believe that large-scale government spending and credit-creation could benefit competitors, shift consumer preferences, or make their industries technologically obsolete. Those outcomes are plausible, because the government has enough money to profoundly alter industry dynamics if it enters that industry (either as a consumer, producer, or financier); and though those outcome are improbable, even the slightest uncertainty is enough to scare a firm accustomed to largely controlling industry-level dynamics. Consequently, despite witnessing their revenues stagnating, and knowing full well (in most cases) that Keynesian policies would help the macro-economy, these large businesses would rather try to weather recessions living off their profit margins. They attempt to preserve those margins by, among other things, boosting productivity (laying off workers) and lobbying for lower corporate and high income tax rates (the latter benefiting the business' senior executives).

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