Treasury view

Abstract: The global economic and financial crisis has been marked by the following paradox. A much more severe depression than the global slump of 2008--09 was prevented by determined state intervention in the form of bank bailouts and fiscal stimuli. Yet this bout of apparently successful Keynesianism has been followed by a turn to fiscal austerity justified in terms reminiscent of the Treasury View against which Keynes relentlessly polemicised in the 1930s. This article explores the sources of this policy shift. Among the factors considered are the ideology of neoliberalism, the economic and political power of the banks, and the relative weight of finance in individual economies. The broader context of financialisation is also considered. The conclusion is reached that an oscillation between bouts of austerity and laxer policies encouraging the development of asset bubbles may be built into neoliberalism as an economic policy regime. The implication is that alternatives to austerity must embrace broad institutional transformation. Copyright The Author 2012. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved., Oxford University Press.

Abstract: This paper presents a new model of the British economy in the interwar period. The model is used for counterfactual simulations which are designed to shed light on major controversies over economic policy. In this way the claim made by Henderson and Keynes that expenditure on public works could have reduced unemployment can be tested against the opposing Treasury View which emphasized the importance of crowding-out effects. The effect of a change in the replacement ratio is examined, which is relevant to the controversy on the extent to which unemployment was induced by the benefit system and also the determinants of the natural rate of unemployment in the interwar period. Copyright 1995 by Royal Economic Society.

Abstract: The world faces an economic crisis of unprecedented proportions. But much of the policy response has certainly not lacked for precedent. National governments and international organisations, including the International Monetary Fund (IMF), have looked to crises of the past for solutions to the present—and austerity has become a familiar theme. The inability to effectively resolve the current crisis, however, gives rise to the question: ‘Is this time different?’ This article provides a broad overview to the origins and development of the recent economic crisis and the resort to policies of austerity. Although there is historical precedent for the resort to austerity—such as the UK ‘Treasury view’ during the 1920s and 1930s—this time, things are different. Many of the current problems are deeply rooted and reflect the impact of the shift towards free-market economics that started in the 1970s. 2. The origins of the crisis Since the beginning of the 1970s, the private sector—finance, in particular—has reorganised on an increasingly global scale. It has innovated in terms of both structure and products, and it has experienced significant growth. As Tridico (2012, this issue) shows, this ‘financialisation’ was characterised by a ballooning of stock exchanges, as many firms decided not only to list their shares but also to become involved in speculative finance. In response to pressures on firms to maximise shareholder value, together with the progressive erosion of worker and trade union rights and influence, labour markets became more flexible and real wages stagnated. Concurrently, profits rebounded, leading to burgeoning inequality. In this context, aggregate demand and consumption were bolstered by easy credit and the wealth effects of speculative bubbles—first in stocks and shares, and then in housing.

Abstract: Few economic doctrines have been apparently so fully discredited in the lifetime of those who held them as the "Treasury view" of I929 that "very little additional employment and no permanent employment can in fact and as a general rule" be created by loan-financed public works. 1 The "Treasury view", based as it was mainly on a belief that government would tend to 'crowd out' private investment, even though about IO per cent of the insured labour force was unemployed at the time, seemed absurd in the light of the new insights provided by J. M. Keynes's General Theory of Employment, Interest and Money in I936. For Joan Robinson, one of the economists closely associated with the "Keynesian Revolution", the Treasury's arguments in I929 were "simple" and "laughable".2 A. J. Youngson, on the other hand, writing at the end of the I950s, thought that "what the Treasury view really was is something of a mystery", but he believed that the Treasury made a "culpable omission" in leaving the multiplier effect of public works out of account when estimating their effects on unemployment.3 These early judgements were necessarily based upon the Treasury's published statements, but since the I970S researchers have uncovered much more evidence of Treasury thinking. An earlier article in this series of Surveys and Speculations rightly drew attention to the dangers of uncritical use of evidence from the state papers now in the Public Record Office,4 but at least we now