From New Perspectives and our favourite economist. Snippets..
By Marshall Auerback
Deficit spending by the government is merely the counterpart of private sector saving. What government deficit spending does is to permit the private sector to achieve its level of desired saving. When the latter changes, government spending ought to be adjusting in the opposite direction to offset it (unless the current account balance happens to do the job)…..
….It appears that massive build ups of cash flow facilitate all sorts of mischief – zaitech (i.e. financial engineering), accounting frauds, control fraud, etc. And this would be about the time modern compensation systems began to change, tying, more and more, management bonuses to share price. So you see firms “investing” their earnings in massive buybacks of their own stocks.
In Canada, the reversal of the net lending/borrowing position of the business and household sectors is of critical importance in understanding the evolution of financial capitalism over the last decade, with much of the speculative drive having been fueled by the growing savings of the corporate sector. It was the rentier behaviour of the corporate sector, with the latter finding it ever more lucrative to engage in financial acquisitions, which largely led to an abandoning of productive investment since the 1990s.
When an economy becomes financialised and therefore far less productive, it becomes more prone to fraud, greater financial instability, and higher rates of unemployment. But it serves the interests of the economic rentiers. Minsky was right: you need a “big government” to act as a stabilising bulwark against the financialisation of the economy. Taxing retained corporate earnings is clearly another aspect of dealing with the ravages of money market capitalism.
