I’ve been rethinking some of my earlier writings (this is almost always true), and have changed my views on the political economy of Keynesian fiscal policy.
Old view: Keynes offered the twentieth century’s most influential example of an economic policy that depended on, and also galvanized, a coalition between workers and employers. By recognizing that workers are also consumers and that profits depend on consumption, expansionary fiscal policy à la Keynes identified a common interest in high levels of employment, and therefore wages. While it would not be in the individual interest of any employer to raise the wages of his or her own workers alone, it is at least potentially in the collective interest of the class of employers to enlist worker-voters to support an economy-wide program to bolster worker incomes. This coalition has atrophied for a number of reasons during the past generation or so, and seriously expansionary policy is invoked only in times of economic distress.
New view: Keynesian fiscal policy was central to class coalitions in the liberal, English-speaking world, as above. In the main non-liberal capitalisms coalitions formed over policies to achieve high employment through high levels of investment. This was pursued through public ownership, public-private partnerships, worker and public stakeholder influence in corporate investment policy, and other “microeconomic” mechanisms. As long as these policies worked, additional stimulus via fiscal deficits, at least during non-recessionary times, could legitimately be criticized as inflationary. This helps explain why fiscal expansion has a bad reputation in Germany and Scandivia and a dubious reputation in France. These investment-centered coalitions have proved more durable than consumption-centered ones, although the current crisis, which may yet result in a prolonged period of dampened investment, could put them to the test.
How does Japan fit into this story?