A Closer Look

Inequality, Source of Macroeconomic Instability – Keynes View

While Keynes rejected the view that over-saving could be a cause of slump, he recognized that it was more difficult to maintain continuous full employment in an economy in which wealth and income are highly unequal…. So what should governments do? Keynes suggested three expedients: they could either increase their own spending out of loans, or they could use monetary policy to force down the long-run rate of interest, thus ridding capital of its ‘usurious’ aspects (‘euthanasia of the rentier’) or it could redistribute wealth and income in favour of those with the highest propensity to consume. In the ‘Concluding Notes’ to the GT, he wrote, only experience would show ‘how far it is safe to stimulate the average propensity to consume, without foregoing our aim of depriving capital of its scarcity-value within one or two generations’. (GT,377)…

Choosen excerpts by JMM from

via Brad DeLong: The Hobson-Reich View Is That Inequality is a Major Source of Macroeconomic Instability.

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