Aeron Davis
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Pseudo-Keynesianism, debt and magic money trees
The financial fixers come to town
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Chapter four suggests that Keynesian-style demand management may have been wound down but, in its place came various manifestations of pseudo or privatized Keynesianism. These both cut Treasury expenditure and stimulated economic activity without immediate public costs. To enable such developments required outside experts and networks that spread across the top business consultancies, accountancies and investment banks. So emerged a group of financial fixers, intermediaries who moved between private and public and back again.

Pseudo Keynesianism came in several forms. In the 1980s it was privatizations, council house sales and North Sea Oil. For Labour in the 2000s, the golden elixir was PFI (Private Finance Initiatives) that allowed huge public investments to be made off-balance sheet. For both Labour and Conservatives, there were three more ‘magic money trees’: deregulated finance, enabling a large new source of private credit creation, puffed-up housing markets, and then QE (Quantitative Easing). As far as the Exchequer was concerned, all these initiatives generated income and stimulated economic activity without showing up as public spending. The hidden down sides were an ever-growing accumulation of long-term individual, corporate and government debt, and a stagnating economy that encouraged financial market trading and rentier behaviour rather than productive investment.

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Bankruptcy, bubbles and bailouts

The inside history of the Treasury since 1976


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