In the previous two parts (see Part One and Part Two), we followed an example of how private financialisation encouraged, and led many to switch or, more recently, forced all future applicants to use the so-called defined-contribution (DC) pensions instead, the originally state maintained, defined-benefit (DB) pensions throughout the developed and, recently the developing economies too. While there is a very valid and widely accepted, neo-liberalist argument that private schemes and companies will be more competitive and, henceforth, beneficial for the customers than those state led ones, or, that private companies can also maintain the DB schemes, (as a few still do), it turned-out that, for many, if not the majority risk averse customers, the pensions became also more risky and, for some, even more expensive.

Some refer to (or, even promote) this policy trend as a “Democratisation of Risk” - a term, if not an euphemism, for shifting of the risk of mitigating the uncertainty of defined benefit scheme midst the uncertainty of financial market returns, from the pension provider on to their individual customers. However, by doing so, one could argue that it is then defying the very essence of the economic theory of financial security investment as a state contingent security. Namely, such, even partial, leveraging of some of the risk that buyer obtains security for, back to the buyer, would, in essence, reduce value of that state contingent security, in this case, one’s claim to income in time of inability to work in their old age. It was thus, likely forcing many of those who wanted to secure higher certainty of their future income and who could, also afford to do it, to save more in their pensions or, additionally invest on a side. This “democratisation” may have been one of contributing factors for many to re-adjust their own life-culture, shifting their leisure and family quality times, to private investment-club discussion parties and financing their new investments with “cheap” loans whilst boosting both the asset bubble and volatility of its markets.

Consequently, the so-called years of “great moderation”, marked by low inflation and low interest rates, turned to be all but that. They led to unsustainable rise of credit and both, sovereign and private debt. Also, as has been showed, the excessive borrowing by some and internationally re-redirected saving by those who could, have led to high investment into the developing, higher growth and investment return yield countries and a slight under-investment into the those already developed ones. This would have contributed to misbalances and eventually, to the recent 2007-2008 economic and financial crises [1].

The very neo-liberalists ideas driven businesses, originally arguing for a so-called thin-state, one focusing only on not much more than passive balancing their budgets for their two fundamental public goods, the services of physical and legal security (as, e.g. defined by Adam Smith), or a very small number of additional services, turned for financial help to their own states and central banks after the 2008 crash. The latter two then became the ultimate, re-financiers and lenders of the last resort, helping to rescue many of the remaining private financial institutions after the falls of several of financial giants such as Lehman Brother in the US and the Northern Rock in the UK.

Consequently, increasing number of economists argue that governments and their institutions have re-gained stronger grounds to play a larger role of an economic-actor, more than just maintaining the physical and legal securities of the state-markets, transfers for unemployment and social benefits, the old-style DB pensions, (and, where-if applicable, the costs of democratic and parliamentary institutions).

Unsurprisingly, another recent conference brought attention to the role of state in modern economy. The Post-Keynesian economics conference held at the University of Grenoble [2] less than a week after the Budapest SVOC (introduced in the first part of this mini-series, see …), brought about world-around economists committed to further improvements and application of Keynesian-type, fiscal intervention and effective demand-led growth theories. They presented and discussed varieties of the Keynesian, Minskyan and Kaleckian theories inspired policies or normative and practical policy recipes for usually state led or financed solutions of the current macro-economic problems such as private debt servicing, financialisation or inequality. Panel discussions and presentations were held by academics that included internationally renowned doyens of Post-Keynesianism and its endogenous monetary-circuit theory like Alain Parguez, Louis-Philippe Rochon, Marc Lavoie or Mario Seccareccia, and as well, Gerald Epstein and John King.

Among few others, we heard also several members of the French action-group "Les économistes atterrés" [3]: one of its founders - Dany Lang, above-mentioned Marc Lavoie, Eric Berr, and, as well, the conference's co-organiser, Virginie Monvoisin. Needless to say, this is a far too short, a flying-overview article, to bring-about even glimpses of the richness, complexity and the current poignancy of the Post-Keynesian ideas and theories there. I would hence advise the readers unfamiliar with their work to refer, for a start, to John King's excellent and brief “Advanced Introduction to Post Keynesian Economics”, or to the conference's abstracts (see the link below) and the contributors' working papers, many of which are available on-line. [4]

However, not even Keynes, of course, was the first to come-up with a theory of government intervention and obligation to support economy out of difficulties and smooth effects of downturns. One could say it was a Ramessesian idea. And, no, I am not misspelling the name trying to refer to a well-known, early 20th century British philosopher, mathematician and economist Frank Ramsey - I am referring to a Biblical story of an Ancient Egyptian Pharaoh, who, according to some accounts, is presumed to be Ramesses II the Great, and his, also legendary, adviser Joseph. It was one who, according to the Old Testament story, interpreted the pharaoh's dream of six fat cows followed by six thin ones as a warning to accumulate reserves over the following six years of good harvest so to use them during the times of shortages the following six ones.

This ancient, possibly the first recorded recipe for fiscal intervention in smoothing-out economic downturns, was probably borne from the experience of the collapse of the Old Egyptian Kingdom, apparently caused by a mini-climatic change bringing-about extreme draughts, probably something we should try not to forget. However, if you ask a classical-liberalist economist of the era of Charles Dickens’ novels [5], or even many neo-classical ones, the food reserve taxes should probably not have been collected by the state as the economy should have equalised itself in the long run. But, to paraphrase Keynes' famous quote, “in the long run...”, wouldn’t they, by then, ”have been all dead”?

[1] The actual mechanisms behind these developments will be covered in another text.
[2] See the Post-Keynesian conference programme and abstracts
[3] Les économistes atterrés, or their manifest in English
[4] I shall, however, be returning to some of the PK theories and criticisms in the follow-up to this article.
[5] And whose birthday would have been on this date.

PS: I also wonder if Keynes' famous statement may have been more than just a rhetoric hyperbole and more of a wisdom, possibly borne in the devastating consequences of the mid 19th C. Great Famine resulting in around 1 million deaths from hunger during the period of several years.