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Those of the younger generations will not remember, and maybe many won't be
familiar with Keynes. He was the architect of the economic strategy post WW
II. That was the strategy that advocated deficit spending as a means of
preventing new economic disasters like the 1930s Depression. His theories
lost capitalist support in the fact of the threat of runaway inflation in
the US in the late 1970s. Now, it seems, in the face of renewed crises,
they may be making a comeback. For those who can't open the article, here
it is:

If, like me, you feel like our nation is going through hell right now, then
you might also agree that it’s a good time to recall the admonition, “When
you’re going through hell, keep going.” But where are we to go? What is the
best path out of our intersecting crises: pandemic, recession and violent,
structural racism?

For that, I recommend turning to the renowned British economist John
Maynard Keynes. I’ve been reading Zachary D. Carter’s excellent new
biography of Keynes, finding the book and Keynes’s ideas remarkably timely.
Keynes’s towering body of work points toward a more inclusive economy and
society, one that throws off the yoke of dominant assumptions that, 74
years after Keynes’s death, still repress functional, representative

Most people associate Keynesian economics with governments spending their
way out of recessions, a policy playing out in real time across the globe.
That’s certainly core to the Keynesian revolution in political economics,
but to stop there fails to capture the scope of insights Keynes developed
long before he was pushing Roosevelt to spend expansively on the New Deal
during the Great Depression of the 1930s.

Through the First World War and especially during its aftermath, when his
sage guidance was ignored, Keynes struggled to reconcile the tragic
occurrences he saw unfolding with the classical assumptions that markets,
and thus the societies they support, would always naturally settle into
optimal conditions.

Keynes correctly predicted that imposing severe reparations on post-World
War I Germany would plant the seeds for the next world war. He saw,
contrary to the classical model in which he’d been trained, endless cycles
of booms and busts born of assumptions about money, wages and work that
relentlessly delivered high unemployment and stagnant earnings for workers
amid huge returns for “rentiers” (those whose incomes derived from
compounding wealth, not work).

He witnessed the political discontent that grew out of these dynamics and
understood how the failure of the capitalism of the day — underwritten by
untethered, often corrupt financial markets — provided powerful fuel for
communism. Keynes rejected Marxism, believing instead, as Carter notes,
that “it was time for capitalism not to be overthrown but to be ‘wisely
managed.’ ” But Keynes understood and feared the political outcomes of an
economic system that failed to deliver consistent security, if not
prosperity, to most people.

Why did capitalism need management?

Because, contrary to assumption, it didn’t manage itself. Keynes observed,
for example, that individual people often saved more than businesses
invested (again, contrary to assumption). To this day, economics students
are taught that savings equals investment, and that the way to boost
investment is to save more (this is a common argument against running
budget deficits).

But people worried about the future — maybe due to … oh, I don’t know, an
invisible, pernicious microbe — will, from the perspective of broad social
welfare, oversave and underconsume. There is no invisible hand to magically
balance such things out, and thus an enlightened government must intervene
to offset imbalances.

This all sounds theoretical until you realize that the U.S. labor market,
as I pointed out last week, has been at full employment only 37 percent of
the time since 1972 and the black rate has never reached that mark. In
other words, the assumption that full employment is the norm is thoroughly
disproved by the data now, and it was no truer in Keynes’s time. Yet it
still pervades economic thinking and policy.

Keynes saw that markets do not settle into an “optimal equilibrium” but can
diverge from such conditions for years on end. Moreover, markets exist in a
political context that determines who wins and who loses. Examples include
product and industry regulations, labor standards (e.g., minimum wages and
overtime rules), the extent of collective bargaining, anti-discrimination
rules and their enforcement, and employers’ leeway to fire workers at will.

In his time, as today, that political context is held in place by economic
“rules” that can be as damaging as they are wrong. Keynes argued for years
that tying currencies to the inflexible gold standard was a source of
endless, needless suffering. But you could find contemporary examples of
such fictive “rules” in ideas such as the conservative argument that we may
not like pollution but we must bear its costs, lest we thwart growth and
innovation. Even the economic signals we measure — the gross domestic
product, as opposed to people’s well-being (which are far from the same
thing) — are politically determined, and those decisions have implications
for who prospers and who struggles.

Keynes died in 1946, and a few decades after his death, a counterrevolution
in economics restored most of the false beliefs he labored to disprove and
displace. In the economic orthodoxy, a wide range of anti-Keynesian ideas
again took hold: Government was treated as the enemy of the “free market”;
any trade deal was assumed to be a good deal; and minimum wages, safety net
benefits and taxes on the wealthy all supposedly distorted incentives.
Economics, it was argued, must be concerned only about growth, never about
its distribution.

But because Keynes was so fundamentally correct about how economies
actually work, these false assumptions have once again been exposed for
what they truly are: rules of a rigged system.

So, where would Keynes guide us today? It seems unnecessary to tout
deficit-financed, Keynesian stimulus, as that tool has been applied
aggressively to offset the current recession (though it’s essential that it
not stop too soon).

But we are not hearing Keynes’s message in regard to inequality. He would
view our vast disparities in income, wealth and political power as
economically and socially damaging. He would stress the excess saving
problem when too much buying power is concentrated at the top, a problem
that is actively holding back the current recovery. He would handily
connect the dots between persistent inequality and the rise of false
populists who promise to depose the elites, all the while funneling even
more wealth their way. Perhaps most important, he’d recognize the plain
injustice and inherent instability of an economic system that generated so
much wealth but left so many behind.

Even with our feckless national leaders, we will carry on through hell and
get to the other side of this crisis. What we do when we get there,
however, remains an open question. I recommend the Keynesian path, as it is
the one most likely to lead us to the economy that we need now more than


*“Science and socialism go hand-in-hand.” *Felicity Dowling
Check out:https:http://oaklandsocialist.com also on Facebook
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