There’s been a lot of discussion lately about Biden’s fiscal policy … the Green New Deal … how we’re going to dig ourselves out of the hole that Reagan began and the Republicans have continued digging for forty years. Somebody should compare America to the Israelites wandering in the desert, worshiping golden idols and complaining that they don’t actually like manna from Heaven (like bagels, only smaller).
In the depths of the Great Depression, American bankers and economists were somewhat confused as to how to revive the economy. Because they had experienced “runs” on the banks (hordes of scared, angry people demanding their savings in cash), bankers were reluctant to lend, businesses were reluctant to borrow, money was in short supply, and the American economy was stagnant. The Federal Reserve had reduced it’s discount rate to banks (sound familiar?), but that hadn’t had the desired effect, either.
Enter John Maynard Keynes, who in 1936 had published his General Theory of Employment Interest and Money (Keynes was a Cambridge don, thus no Oxford comma…). “Keynes had long been suspect among his colleagues for the clarity of his writing and thought, the two often going together … In the General Theory, he redeemed his academic reputation. It is a work of profound obscurity, badly written and prematurely published. All economists claim to have read it. Only a few have. The rest feel a secret guilt that they never will.” JKG*
“Arrayed against Keynes were the practical men. When not able to grasp an idea, practical men take refuge in the innate superiority of common sense. Common sense is another term for what has always been believed.” JKG* Prevailing economic theory pre-Keynes held that the household economy was an appropriate model from which one could extrapolate the national economy. Unfortunately, “…economic ideas that are admirable in theory can prove sadly deficient in practice.”JKG* (governments can impose taxes to offset deficits, households can’t) Thus with Say’s Law, one of the many shibboleths of orthodox economics. Say’s Law argued that with full employment, money will be spent not saved, and effectively drive economic growth, wages and prices will stabilize, interest will follow suit. What happens then, in a society with an acute shortage of cash and a quarter of the workforce unemployed? Starving is not quite the same as saving.
Sound economic theory held that “the market” (Adam Smith’s “invisible hand”) would somehow (magically) arrive at equilibrium … that we would cross over into the Promised Land where everyone was employed, wages were fair, prices stayed steady, interest and inflation were kept in check. Sound economic theory is BULLSHIT!!! Wall Street is a casino in which the gullible fritter away their money in a game rigged to benefit the wealthy. We’ve been living with this nonsense for most of my adult lifetime, and it’s high time to see something change.
Keynes wasn’t absolutely right about everything economic. Roosevelt saw that, and I believe Biden does as well. What Keynes did get right was profound. Government has a responsibility to look after the interests of ALL the people, not just the rich. The mechanism for that is public debt … literally floating money out of thin air (don’t be shocked, the Fed does it all the time) to finance public works programs: highways, bridges, communication systems, hospitals, parks, day care centers … and paying off that debt over a longer period of time by collecting TAXES from the wealthy. We may get there. If we do, there’s a chance we can work our way out of the abyss created by Reaganomics. If we fail at that, we’re FUCKED!
**John Kenneth Galbraith, Money (1975) Houghton Mifflin