Challenges for the EU New Member States
Edited by Massimo Florio
Chapter 3: Public Investment under Disequilibrium: A Post Keynesian Viewpoint
Massimo Cingolani* INTRODUCTION 1. If the neoclassical optimum is used as a reference concept for economic equilibrium, it should be recognized as a very specific ideal case. Real life policy choices would then have to be assessed in a disequilibrium context, with specific analytical tools. The chapter discusses the evaluation of economic policies in the field of public investment in a disequilibrium context, where underemployment of the labour force and a suboptimal utilization of the resources and productive capacity prevail. It is argued that the model of the monetary circuit as developed more particularly by Parguez and Graziani (Halevi and Taouil, 2002), put into the more general perspective of post Keynesian analysis (Eichner and Kregel, 1975), is useful to illustrate policy choices under disequilibrium. In the canonical version of the neoclassical model, given convex technology and preferences, equilibrium coincides with the optimum and can be reached through the decentralized decisions of atomistic producers and consumers that take prices as given parameters, in a barter economy with no State. This optimum is a reference for normative analysis. In a context where the State is present it leads naturally to a presumption that any economic policy will be harmful, as it will cause a departure from some conditions for optimality. Usually ‘out of equilibrium’ positions are ignored because of their transient nature, despite the fact that in general it is not possible to demonstrate the stability of the neoclassical equilibrium under sufficiently general conditions, which would be a prerequisite for its application...