France’s new president, Hollande, is unafraid to declare himself a socialist – but what does that mean in cash-strapped, debt-bound Europe. It was after-all nominal left-winger Liam Byrne, who left his Tory successor the note ‘There is no money’.
The answer is Keynes, or at least his latter-day church, which preaches we should invest our way out of a depression.
The problem, highlighted in Skidelsky’s Keynes: Return of the master or Steve Keens Debunking Economics is that banks are simply swallowing the increase in liquidity onto their sickly balance sheets. The banks are acting like a giant sponge, soaking up excess cash and releasing none of it in credit to the wider economy. Which is why quantitative easing , while a acting as a balm to the finance markets (and protecting our AAA rating) is doing nothing for employment.
So why he controversy? Well it comes down to this, if your basically a Monetarist at heart you’ll want lower taxation, cuts in public spending in order to allow the private sector to flower. Works in theory, but not in practice. In the real-world says Keen, The private sector does not need credit, it needs customers. Keen is scathing when he talks about theory over practice – a failing he believes (correctly IMO) has left the study of Economics pretty much useless.
A personal story to prove my point. I was recently working for a public sector organisation cornered by government cut-backs. It had to cancel several print runs with local businesses. I had one on the phone offering to run his presses at a loss, rather than have them stand idle. His company shortly went under, taking 20 jobs with it.
So can Hollande work his magic? Well, arguably other states, such as Australia and the USA already have. Australia literally handed out cash to its electorate to lift demand. TheUSA has delivered public sector contracts. France no longer has its much-vaunted AAA+ rating, but it can still borrow money relatively cheaply, certainly more cheaply than the private sector.
However, if the rest of Europe nosedives courtesy of Cameron, Merkel et al, then France will go to, dragged down by the Euro…but that’s another story.