Archive for January 10th, 2023

The War in Ukraine and the Revival of Military Keynesianism

January 10, 2023

Prof Jan Toporowski of SOAS in this INET article:

Following the Russian invasion of Ukraine, Western governments are committed to increased defense expenditure. But their armaments industries, under conditions of peace-time economic efficiency, do not have the spare capacity to ramp up production. Many are already operating shifts around the clock to satisfy orders comings in. To increase production they need to invest in new capacity. However, this is only worthwhile if armaments companies can be assured of contracts into the future expected lifetime of any new productive equipment. Industrialists with interests in arms supplies are now complaining about the time it takes to get contracts signed. An additional worry for them is the prospect of peace breaking out, which may leave armaments manufacturers with costly, but unused productive capacity that may have to be scrapped with the next technological innovation. (Much the same dilemma is faced by oil and natural gas producers who are being urged to expand production to replace sanctioned Russian supplies).

In short, weapons producers want governments to underwrite the profitability of their investments. This is precisely the alliance between industry and the state that formed the basis of the military Keynesianism that Michal Kalecki criticized during the 1950s. He showed how, at the height of the Cold War, Western governments subsidized private capital with arms contracts paid for by taxpayers. This arrangement lay at the heart of what has come to be described, somewhat misleadingly, as a ‘golden age’ by heterodox economists, who lament its replacement by “neoliberalism.” The real danger is not neo-liberalism but the takeover of the state by industrial interests which cannot be denied because of the external and internal threats to democracy.

The advent of military Keynesianism is a warning against complacency about the moral superiority of the West in defending Ukrainian democracy. The resurgence of what President Eisenhower once called the military-industrial complex brings our industrial magnates closer to centers of power. In this respect, our oligarchs are no better than Russian oligarchs, even if we defend existing democracy because it offers more scope for progressive politics than autocratic nationalism.

Military Keynesianism challenges democrats about the limits of the democracy that is being fought over in Ukraine. Is the future of that democracy assured by a state which underwrites industrial profits? Or does that future also require the extension of civil rights and welfare to all classes? If the struggle for democracy is just to save Ukraine for democracy, or to extend democracy in the Russian or Chinese spheres of influence, then that struggle will take the West down the path to the oligarchic capitalism of Russia.

I am not sure whether Military Keynesianism is the right word. Keynes wrote ‘Eonomic consequences of peace’ after the first world war, worried that stiff reparations will create diffirculties for Germany.  He also actively led bretton woods agreement despite poor health and tried to build institutions to prevent future wars.

Economic Literacy: What Is It and Why Is It Important?

January 10, 2023

Madeleine McCowage and Jacqui Dwyer of Reserve Bank of Australia in this article:

One of the core objectives of the Reserve Bank’s public education program is to improve economic literacy. While the social benefits of economic literacy are well established, defining what is meant by this term is not straightforward and has been the subject of debate over many decades. This article explores the meaning of ‘economic literacy’. To arrive at a working definition, it discusses the economic principles that should be understood for someone to be considered economically literate, along with the topics they should be familiar with and the ways of thinking that we would expect them to display. In doing so, it distinguishes between economic and financial literacy. The article concludes by posing questions for future research on how economic literacy in Australia might be measured and how it might be supported.

On eco literacy vs fin literacy:

Financial literacy is focused on the capability of someone to understand their own situation. Economic literacy is focused on the capability of someone to understand their own situation, its broader economic context and thereby the situation of others. For example, while a financially literate person would understand what an interest rate is and what it means for their personal finances, an economically literate person would also understand why an interest rate has been changed and how this change will affect the broader economy. Consequently, there is a sense in which financial literacy is nested within economic literacy

Future of Money and Its Implications for Society, Central Banks, and the International Monetary System

January 10, 2023

Prof Eswar Prasad of Cornell University discusses future of money in this speech:

Economists are storytellers at heart. So I have for you today a story of remarkable technological innovation, some unfulfilled promises, and unintended consequences. The story, of course, revolves around money, which makes it especially appropriate that I’m giving this lecture here today. I am very privileged to be following in the footsteps of many distinguished people who have delivered the Homer Jones Memorial Lecture, which, after all, is to honor somebody who had a great deal to do with the development of monetary economics and thinking about how money affects us.

The story I have for you today is going to revolve around how money is going to be reshaped: in the way we think about it, the way we relate to it, and the way it helps us organize our economic activities. And it’s going to go through a lot of terrain. We’ll start by thinking a little bit about basic financial innovations, then delve into the world of cryptocurrencies (including Bitcoin and much more), and then talk about the possibility that we might have digital versions of the paper currency we are all used to. But then we’ll think about what all of this means for financial markets and institutions, for central banks such as the Fed, and, indeed, for the international monetary system. But it’s not just going to be about finance and economics. It’s ultimately going to have some implications for thinking about how we organize society and our day-to-day interactions. 

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