Hating Keynes

From CounterPunch:

This is what fiscal stimulus is all about; helping the economy to recover by generating activity (eg. government spending) when consumers are on the ropes and businesses refuse to invest. The alternative is higher unemployment, lower revenues, falling prices, soaring defaults, slower growth and a reinforcing downward spiral. That said, we could see deflationary pressures reemerge as early as next month when Bernanke's QE2 ends and the flaws in the Fed's strategy become more apparent. Here's Keynes on the topic:

"The way to keep economies booming was by maintaining a high volume of investment and increasing the propensity to consume 'by the redistribution of incomes...so that a level of employment would require a smaller volume of current investment to support it." (Robert Skidelsky, "Keynes; The Return of the Master", page 68, Public Affairs, New York)

So Keynes supported redistribution? You bet. He had the foresight to realize that gross inequality leads to flagging demand. When workers no longer have sufficient wherewithal to keep the economy growing via consumption, then the system has to be rejiggered to shore up demand. It's not a question of Big Government "soaking the rich" to create a socialist Utopia. That's bunkum. It's a matter of recognizing the inherent shortcomings of the system and finding ways to make it operate more efficiently. And, that was Keynes strong-suit, transforming an unstable, crisis-prone system into a vehicle for widespread prosperity and wealth creation. That's why he devoted so much time to unemployment, because he knew that unemployment was symptomatic of a deeper problem, an unwillingness of the private sector to invest. When businesses withhold investment--because they see no growing demand for their products--then joblessness rises, spending falls and the economy slips into a deep funk. Keynes realized that this state of affairs (Depression) can last indefinitely unless the government steps in and fills the gap created by the absence of private sector spending. Thus, when consumers have to trim their spending and patch their balance sheets, and businesses cannot find profitable outlets for investment, it's up to the government to run deficits for as long as it takes to rev up the economy and create a self-sustaining recovery.

More here.

That is, when the fact that nobody is spending has stalled the economy, or even caused it to contract, the only economic force available that has any chance of making up the gap and kick starting the economy into expansion is the federal government. But I guess hard-nosed economic pragmatism is no longer in style. Voodoo's all the rage these days. Magical capitalism, throwing money at the rich, neoliberalism, whatever you want to call it, the ruling class and a large percentage of the public paying attention to such issues seem to be convinced that Gilded Age economics is all we need to create economic prosperity.

Unfortunately, instead of correcting market imbalances, supply side economics ultimately destroys markets.

I think it's pretty clear that as far as economics goes, I'm a Keynesian. Of course, I say that as though I'm an economist, which I'm not. What I mean is that I've read some Keynes; I've read some stuff by his dark right-wing counterpart, neoliberal guru Milton Friedman. I had a good high school macroeconomics class; I was taught macroeconomics at the college level by a neoliberal Friedmanite. I've read and listened to the economic debates in the news. I've read some other economists like Paul Krugman and James K. Galbraith. I even once attended a far right-wing economics seminar back when I was a senior in high school. So over the years I've cobbled together a decent lay understanding of the field, but of course, I'm no expert.

It just seems that Keynes' stuff is much more associated with what happens in the real world than any of that popular throwing-money-at-the-rich stuff that dominates the political imagination today. I mean, I have to admit that I'm probably attracted to Keynes because he gives us the best of both worlds, functional markets that include the needs of the little guy. But it just so happens that the little guy, when collectively considered with hundreds of millions of other little guys, is absolutely vital when it comes to the actual functioning of markets. That is, if you don't have masses of people wanting to buy shit, you don't have a market.

I mean, that's pretty obvious, right? If you don't have buyers, business can't sell products. But the prevailing view today, the neoliberal view, insists that supply creates its own demand. That is, and you must keep in mind that most of the establishment believes this, if you throw money at the rich, they'll make more products, which (in theory) creates jobs, which (in theory) gives people the ability to buy those products. So, in theory, neoliberalism does an end-run around the Keynes-defined demand problem.

But if only the theory had anything to do with the real world.

At the moment, American business is sitting on top of mountains of cash and buttloads of excess manufacturing capacity. According to the neoliberals, we ought to have a rip-roaring economy right now with rising employment levels, and prosperity for everyone. But that's not happening. Bye-bye neoliberal economic theory. It doesn't work in reality. Sounds nice, but it isn't real. I mean, we can throw more money at the rich, which, in fact, we recently did by extending hundreds of billions in tax cuts from the Bush era. And that didn't work either.

The problem, first observed by Keynes back in the 1920s, is that consumers, being afraid of job loss, or not having jobs, or fearing other economic distresses like foreclosure, are holding onto what disposable income they have. It's funny to hear these idiot pundits talk about business "uncertainty" when the real problem is consumer uncertainty. Okay, fine. Easy solution: let the government make up for the loss of consumer spending which ought to bring the economy into a more desirable state for consumers, which will, in the long run, get them to start spending again.

It's not socialism, or communism, or fascism. It's simple pragmatism. Or, at least, that's how it all seems to my layman's perspective. Unfortunately, nobody in the debate appears to have any understanding of these ideas at all. So most of us don't even know they exist. Most of us don't even know this shit actually worked back during the Great Depression. Of course, it's by design that we don't know these things: capitalists hate Keynes, even though he's really all about making sure capitalism stays alive and kicking, so they do everything in their power, which is vast, to make sure we don't know these things.

If we lived in a functioning democracy, we would have a thriving marketplace of ideas. That we do not is yet more persuasive evidence that we do not live in a functioning democracy.

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