Thursday, September 3, 2009

Paul Davidson's "The Keynes Solution"

Paul Davidson is Holly Chair of Excellence in Political Economy at the University of Tennessee, Knoxville. He has previously held Professorships at the University of Pennsylvania and Rutgers University. He is editor of the Journal of Post Keynesian Economics, a former member of Brookings Economics Panel, and is the author, co-author or editor of more than twenty books and over 200 articles.

The result of the “Page 99 Test” applied to his latest book, The Keynes Solution: The Path to Global Economic Prosperity:
"Unfortunately page 99 of the book is the middle of a discussion of innovative policies to avoid the creation of future TOXIC ASSETS," Davidson reported. "This page, in isolation, will not make much sense to a reader who has not already read the previous 98 pages."
More about the book:
“The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else.”--John Maynard Keynes.

Economist Irma Adelman has labeled the quarter a century after World War II “the Golden Age of Economic Development... an era of unprecedented sustained economic growth in both developed and developing countries.” Keynes’s philosophy guided governments’ policies during this “golden age.”

In the 1970s, the ideas and philosophy of economists who claimed government interference caused economic problems and free markets solved all economic problems captured the minds of policy decision makers. Keynes’s view was relegated to the dustbin of history. The result was high inflation in the 1970s, a significant recession in 1979-81, smaller recessions in 1990-91 and 2000-01 - -and overall lower economic growth globally than during the “golden age.” This free market philosophy culminated in our current greatest global recession since the Great Depression.

This book explains the differences in the assumptions underlying free market theorists’s ideas vis-a-vis Keynes’s philosophy. It explains why the fundamental assumptions underlying the free market ideas are, as Nobel Prize winner and free market advocate Robert Lucas boasted, “artificial, abstract, patently unreal.” This book shows why these absurd assumptions condemn capitalist systems to recurring economic crises.

The book then explains why the axioms underlying Keynes’s analysis realistically reflects the characteristics of our monetary market economy. Consequently, Keynes’s philosophy suggests policies where goverment actions in cooperation with private initiatives and markets can create a prosperous civilized society. Topics cover in the book include (1) what programs are necessary to restore a global golden age, (2) why any necessary increase in the national debt that is required to restore prosperity will not burden future generations but will instead improve our children and grandchildren’s living standards, (3) how we should deal with “toxic assets” on financial institution’s balance sheets and resolve the housing problem while avoiding massive foreclosures, (4) reforming international trade policies including what should be done about “outsourcing” of good paying jobs to cheap labor nations, and (5) reforming the international payments system to assure global full employment and prevent financial problems occurring in any one country creating contagion across the globe.
Read more about The Keynes Solution at the publisher's website.

--Marshal Zeringue