While heart of Keynesian thought in the eyes of many protractors and detractors is invariably deficit spending, in my mind the most important argument he ever made was his stance that aggregate demand was the main economic driver. This is strange considering Alvin Hansen, who introduced Keynesian thought in the 1930s to the United States, made two predictions -- after the 1937 recession and World War II -- that was proven wrong by the growth of international and domestic demand. However, the real issue with Keynesian thought is how fertile it is to political exploitation.
But this will not be necessarily about Keynesian economics, neither as a vindication or an indictment. This is going to be about when government intervenes in an economy and conjuring solutions out of politics and not out of economic realities. The greatest example of this ever -- and I mean ever -- would be the Russian Revolution which bore the Soviet Union, but that's a whole 'nother subject for a whole 'nother day.
The exploitation is illustrated more so than ever with today's issues. Here's the truth: a lot of the economic turmoil of today is centered around public perception, the explosion in private debt, and more importantly, the decreasing value of labor through automation and globalization and the relative end game to what was a major philosophical shift in the 1980s where financial standing superseded production as the benchmark of success. Where government intervention would almost always focus on trying to spur investment and consumerism, it fostered not only unrealistic expectations amongst people; it also continued to deny the real issues at hand in exchange for political points.
I stumbled across an article a few months back about Canada's austerity programs in the 1990s. It noted that the Liberal Party, led by Prime Minister Jean Chretien and Finance Minister (and future Prime Minister) Paul Martin, bucked the social liberal tradition of the Liberal Party in favor of one of the infamous -- and successful -- austerity programs, ever. While many look at Canada's austerity model as inspiration (think Europe), it was largely buoyed by the Bank of Canada lowering interest rates, a weak Canadian dollar that made Canadian goods cheap, and international demand for Canadian products increasing throughout the later 1990s -- all things that made labor valuable. Yet, one point that got noted was that the Liberal Party still managed to win elections despite the austerity programs -- and I would imagine so whenever the cards fell into place like they did and turned Canada into an exception and not the rule.
However, the Liberal Party did not embark on an austerity program to score political points or to merely give the presence that they're "doing something about it" to the degree of what you see in Europe -- they embarked on it because they were one of the few countries in the world to actually get the new economic reality: how well finances are managed, not how high production levels are, is the new benchmark for investors to decide if a country's economy is worth it. That lesson, if anything, is the biggest lesson to be learned from Canadian austerity.
Turning back to the United States: we may credit the Bush and Obama stimulus packages for stabilizing the economy, but in truth, labeling it "stimulus packages" instead of the proper term of "stabilization packages" is nothing more than a glorified hedge bet of political capital. The programs did little to address the new economic world, but they sure did a whole hell of a lot to try to convince Americans that these programs would get the country "back to where it was." Even Obama's campaigning about gearing policies towards a "21st century economy" is more of "getting back to where it was" and less about moving forward in today's economic reality. These days, on both sides of the political spectrum, the loudest voices, from whatever arms of the media, are reinforcing the American economic romanticism which allows reality to be seriously distorted.
Thanks to globalization and automation achieved by technological advances, blue collar work, which was ultimate back bone of the American economy, is less valuable than ever thanks to the aforementioned philosophical shift. Financial deregulation throughout the 1980s and 1990s, culminating in the termination Glass-Stegall Act, made executive, financial, and other white-collar positions increase exponentially in value, and thus salaries. Technological advances led to greater automation, decreasing the need in anthropogenic labor, yet increasing the value of well-paid technological/computer engineers, designers, and developers that aim to maximize efficiency and thus maximize financial standing. A host of other factors, centering on globalization and the emergence of new economic powers and markets, led to the double whammy of stagnating and depressing wages and offshoring (incorrectly called "outsourcing"). Private debt, thanks to the loose credit of the late 1990s, remains astoundingly high (on average at 114% terms of percentage of disposable income here in the United States as of last year), which is one the leading factors hindering consumerism (the other, of course, are people just being straight up scared).
While there is some blue collar work still in existence in the United States (thanks shale boom), this blue collar work is extremely vulnerable because its rooted heavily in speculation-induced booms (shale gas) or jobs that are vulnerable to offshoring (such as manufacturing), granted some companies are bringing jobs back stateside -- credit the Federal Reserve's quantitative easing measures, which is also why you're seeing inflation right before your eyes at the grocery store.
While I just described mostly the American economy, this story can be replicated in any country that failed to gear their economic policies towards this new reality. And looking at Europe, led by austerity hungry Germany, it is a grave illustration of what happens when economic issues try to be solved politically. Sure, Greece, Spain, and Italy are all saddled with debt, but it is an example of why the Euro, which was a political, not an economic creation, would be eventually doomed: a uniform currency fails to solve sovereign problems. Countries have to be able to develop their own solutions to their own economic problems. This is why Iceland, whom refused to bail out financial institutions because they simply could not afford it, is slowly on the way back to recovery thanks to currency manipulation that made it cheaper to do business -- and thus more attractive -- to do business in Iceland; its an option not available for any country that is pegged to the Euro.
Yet, Europe buries itself a bigger hole by trying to solve a politically-induced economic problem (the Euro) with an even bigger politically induced economic problem (austerity). While it is clear they were all influenced by the Canadian model, Europe is hampered by the fact that there's no demand binge for European products to actually produce the expected payoff, let alone the fact that Europe, to an almost greater degree than the United States, has been hit hard by labor's devaluation.
But going back to the bottom line about this whole rant. It's sickening to see, on both sides of the aisle, that any economic solution that can be conceived is just made to score political points with lots of over promising and under delivering. Lassiez-faire advocates insist that the dissolution of government intervention in the economy would provide for an economic paradise, when that's not even the major economic sticking point; government invention advocates will claim the greater deficit spending and addressing debt later is the key to economic success, even while this still fails to address elevated private debt and depressed labor value. There's no critical thinking...just advancing political ideology for political points.
What is the solution, you ask? It goes beyond the argument as to whether or not the government should be involved in the economy, it goes beyond any argument that could be made by the social justice tinged Keynesian or Post Keynesian ideas or lassiez-faire pockets of the Chicago monetarist school and the Austrians, it goes beyond any argument that can be fueled by any nationalist romanticism that reminisces about days that existed, in truth, in complete contrast to what they thought. It comes down to public and private sectors adjusting to this Information Age, to this post-industrial world. It comes down to public and private sectors reestablishing value in anthropogenic labor and appreciate how many units of a product gets sold as much as how much profit it is gained from each unit. It comes down private debt reaching 65 to 75% of disposable income. It comes from people divorcing themselves from adhering to a political ideological adjective, and critically think about the large scale transition taking place as we move further along in this post-industrial revolution.
The Wire creator David Simon said it in a 2009 interview with PBS's Bill Moyers. When referring to urban blight, Simon noted that in today's economy, specific to the United States, "there's 20% of the population we just don't need." When you look at the decreasing value of labor, his assessment is not so ludicrous after all.
What is disturbing, however, is when governments gear economic policies towards scoring political points and just simply ignoring the real issues at hand.
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