Keynesian Policy Today: More Employment and More Human Capital

Abstract

Keynes observed that the periodical crises of the early 19th century and the crisis that broke out in 1929 were both due to lack of demand, which in turn resulted from technological unemployment. He went on to argue that the misinterpretation of the crisis by the neoclassical economists of his time derived from the analysis made by Ricardo and the classical school a century before. Both Ricardo and the other classical economists denied that there was any persisting lack of demand, in contrast with the position taken by Malthus and subsequently by Keynes. From this point Keynes developed his critique of the “classical economists” and his project to get over the crisis with a policy of full employment to boost demand. Keynes’s approach proved highly effective in the context of welfare state policies. However, to implement full employment policies under the welfare state it was necessary to launch long-period structural transformations, unforeseen by Keynes. When the long welfare state boom came to an end, the transformations were left only halfway. Thus, technological unemployment and lack of demand returned, and have remained since. To leave them behind, the need would be to adapt the Keynesian policies to completing the structural transformations that were left suspended, and to set about some new ones.