Recognition of a Keynesian Moment

I rarely take a lead editorial from the Vancouver Sun seriously. This Canwest/Postmedia corporate entity is at the center of right-wing propaganda in BC, and is representative of the very conservative outlook from Canada’s media generally.

Nevertheless, today’s editorial provides a sobering analysis of the American economy and its implications for Canada. It’s also a clear (though unstated) reminder that Keynesian economic theory still matters. The editorial admits that the gathering storm clouds of a double-dip American recession are a matter of demand – or lack thereof. There is no supply-side monetarism in the newspaper’s argument, primarily because near-zero interest rates have not overcome the massive debts that spring from a consumer society which is also stunningly unequal.

The Vancouver Sun decries the growing evidence of deflation, which is caused by “a drop in aggregate demand. That is clearly the case in the U.S., where consumers have simply stopped spending”. And the culprits are not interest rates or its neo-liberal brethren, tax rates. At the center of the problem is a demand-side drop in the expectation of profit: “the drop in demand for goods and services means business has little reason to invest, expand and create jobs”. In other words, in a society where the majority of the GDP is controlled by consumers, businesses will not invest in goods, services or productivity enhancements if there is no expectation that consumers will buy these goods and services. Paying less tax is irrelevant if there is no taxable profit.

Keynes, anyone?

Posted by Colin Welch at 12:05 PM
Edited on: Sunday, October 17, 2010 11:24 AM


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