| In my earlier diary, "Three Lies of Saint Ronnie And One Truth From Michael Moore", I cited three lies that played crucial roles in defining the misdirection of our nation under conservative rule. The third one ways:
(3) The lie that we could cure our economic ills by slashing government regulation and spending, through the twin miracles of deregulation and trickle-down economics.
While much has been written about this lie--and much more needs to be said in order to give it the burial it deserves--there's a deeper aspect that is seldom discussed. It's not just regulation is absolutely vital if the economy is to be the servant of society rather than the master. Nor is it just that conservatives don't actually cut government budgets--much less deficits. No, the deeper point is that massive government deficits--which conservatives purportedly abhor, yet always produce--are actually a pathological form of Keynesian economics, the very core of the liberal economic philosophy that conservatives are supposedly opposed to. Thus, even the limited success that conservatives sometimes can claim for job growth, rising GDP or whatever, is due to them following fundamentally liberal economic policies, however bastardized and distorted those policies may be in the particular forms they are twisted into. |
| Keynesian Economics
Keynesian economics (named after British economist John Maynard Keynes) is a response to the Great Depression (and its precursors) which showed that neoclassical assumptions were fundamentally false: markets would not self-regulate to produce optimal levels of employment, production and consumption. While markets may tend to an equilibrium point, there is no guarantee that this equilibrium is will be optimal--although neoclassical theorists embraced the much stronger assumption that the equilibrium would be unique. It's the supposed uniqueness of the equilibrium that condemns any government action as "meddling" and gives the "unfettered free market" a quasi-religious status in conservative thought. But even before Keynes published his ideas in The General Theory of Employment, Interest and Money (1936), politicians in many different countries stumbled onto the basic practical idea--government spending during a depression could substitute for missing private demand, and help move the economy toward higher levels of employment, income and spending. Keynes was not, however, simply an advocate of government spending to grow the economy. The idea was to pump up the economy in the face of a depression or recession, and to replenish government coffers during a period of recovery.
This policy is called "counter-cyclical"--government acts to counter-balance whatever the larger economy is doing. One consequence is that Keynesian policies balance budgets (roughly) over the course of a business cycle. The deficits incured during hard times are paid down during good times. I wrote "(roughly)" because it's generally agreed that modest deficit growth is not a problem, so long as it doesn't increase as a share of GDP.
Conservative Variants on Keynesian Economics
While Keynes originally conceived of increased spending to stimulate the economy, there are also two conservative variations--tax-cutting Keynsianism and military Keynesianism. The first variant increases spending by putting money into private hands. This only works, from a Keynsian perspective, if (1) government spending doesn't decline and (2) the money in private hands gets spent in the domestic economy. If one cuts government spending as well, then aggregate demand (government spending plus private spending) doesn't grow, thus defeating the Keynesian purpose of the tax cut. And if money in private hands doesn't get spent domestically (if its saved, spent or invested abroad, used to pay off debts, etc.) then that, to defeats the Keynsian purpose. For all these reasons, conservative tax-cutting Keynsianism is less reliable than liberal Keynsianism--simply increasing government spending.
This brings us to the second conservative variation: military Keynesianism. While the first country to emerge from the Great Depression was Sweden, in 1935, using Keynesian policies to meet domestic needs, the second country to emerge was Nazi Germany, the following year, using military Keynesian policies. Generally spealing, military Keynesianism is inferior to normal Keynesianism for a very simple reason: military goods are not very good from an economic standpoint. This isn't true, of course, when a nation is faced with a potentially catastrophic war, as was the case in WWII, when military Keynesianism not only saved Western Civilization, but also definitively ended the Great Depression, and laid the groundwork for America's unprecedented post-WWII era of prosperity. But in more normal times, military spending does far less for the economy as a whole than spending money on roads, bridges, education, health care, etc.
Voodoo Economics: Keynesianism in Disguise
Because the conservative forms of Keynesianism are less effective, and because both openly acknowledge the fundamental Keynsian truth, they are decidedly not the best idea for conservatives. Unfortunately, however, Keynes was basically right, and there is no way to repeal the laws of economics. Which is why Ronald Reagan fronted for a mish-mash of "voodoo economics" as George H.W. Bush so accurately put it, that actually employed both forms of conservative Keynsianism, without admitting it, and without any counter-cyclic element to restore fiscal balance over the long run.
That is what Reaganomics was really all about, and it is why it necessarily produced far-and-away the largest peace-time deficits in American history. Then, as a result, conservatives could run around screaming about the need to get the national debt under control--a debt that they were almost entirely responsible for. Not coincidentally, the generation of this debt was one of the major contributing factors in the emergence of Ross Perot and the Reform Party in 1992, which in turn played a crucial role in flipping a small, but significant group of voters from Democratic to Republican alignment over the course of a few years, as discussed in the book, Three's a Crowd: The Dynamic of Third Parties, Ross Perot, and Republican Resurgence by Ronald B. Rapoport and Walter J. Stone, which I'll be discussing in another diary later today. |
