Re: zero average profit

From: Allin Cottrell (
Date: Thu Jun 12 2003 - 00:18:06 EDT

On Tue, 10 Jun 2003, Rakesh Bhandari wrote (re. Robert Eisner's
argument that high government deficits in the 1970s were the
endogenous result of recession, and did not indicate strongly
expensionary fiscal policy)

> Eisner's rescue operation raises the problem of why the 80s which
> had higher deficits than the two preceding decades even on an
> inflation-adjusted, high employment basis should have featured
> higher unemployment and slower growth than the 1960s.

The '80s present a classic case of falling unemployment associated
with fiscal expansionism, in the U.S. at any rate.  In late 1982 the
unemployment rate stood at almost 11 percent, following the Volcker
"monetarist experiment" and double-digit interest rates.  Over the
rest of the decade, Reagan's policies of increased military spending
plus tax cuts expanded aggregate demand and there was a more or less
monotonic fall in employment to around 5 percent by the end of 1989.
The rate of growth is another matter.  Nobody claims that government
deficit spending enhances growth regardless of the nature of the
deficit spending.

> I also asked what we are to make of Japan's Keynesian experiment.

What Keynesian experiment?  The topic here is fiscal policy, and so
far as I can tell Japanese public-sector demand in real terms peaked
in early 1997.  In 2002, a modest increase in government consumption
was entirely offset by a decrease in public-sector investment.  Take a
look at the data.


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