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What follows is a brief diary (inspired by my recent reading of political philosopher David Schweickart's book After Capitalism) about something in which I can claim no expertise: economics. I post it not because I think that, as a general rule, non-experts ought to muddy the waters of important topics with half-understanding (as I'm sure I'm about to do), but, instead, because I agree with Schweickart that an important part of the leftist identity is the articulation of a positive, alternative vision for the economic future, and because, in my limited browsing of DailyKos, I didn't notice any review of Schweickart's book (which is, in my opinion, quite good). I ask anyone with the requisite knowledge to explain where I have made mistakes – what is not supported enough, what is just flat-out-wrong, what doesn't follow, etc. – to please be vicious in the comments section.

That said:

I propose, first, to outline what I take to be the Keynesian prescription for dealing with a recession and then, briefly, to explain why (following Schweickart's analysis) Keynesianism won't work (or at least won't work as well as it used to) in the contemporary economic environment.

I then propose to do the same thing with what I take to be the opposite side of the economic coin – Neoliberalism (i.e. provide a rough summary and then a critique).

This accomplished, I will provide an exposition of an alternative model of economic organization (Schweickart's Economic Democracy) and explain why I think that this model would prevent future recessions (and, moreover, would be an at least similarly efficient and decidedly more humane economic system than our current capitalism).

I encourage everyone interested in economic reform on the basis of justice to read Schweickart's book ( UTF8&qid=1294378369&sr=1-1) – which is both lucid and convincing. If something in my summary of it strikes the reader as particularly wrongheaded or dubious the reason is probably my own ineptitude (as opposed to a glaring weakness in Schweickart's proposal). In the interest of full disclosure I'll also mention that I've had Professor Schweickart for class once at Loyola.

  1. Keynesianism

What I take to be Keynes' fundamental insight about recessions is that they are caused by diminished efficient demand (i.e. demand backed up by purchasing power).

In our case efficient demand was stifled by the housing market crash.

Banks, because they had lots of bad assets on their books, stopped lending money to individual consumers and businesses (and home prices in neighborhoods with foreclosures declined). As a result consumers/businesses couldn't purchase as much as they had previously. Consumers stopped buying non-necessities. Businesses stopped expanding and then started to contract. There was insufficient efficient demand – so a downward spiral began:

Newly out of work consumers cut back even further on consumption. This led to further lay-offs. This led to even less consumption. And then to even more lay-offs. An on, ad nauseum.

Keynes' solution when private investment doesn't step up to increase efficient demand is for government to do the job. Government goes into debt to bolster efficient demand. The reason this works is the multiplier effect.

To wit: Government money creates a job. The previously unemployed person who gets that job is then able to spend money on consumption. The money he spends (say at a restaurant) either creates a new job or keeps someone in their job. The money that the restaurant and the employee (say the cook) now have and spend does the same thing (albeit to a lesser degree since some money is lost in savings along the way). So government spends some amount of money (say $100) on creating a job, and, by so doing, pumps more than that amount of money (say $150) into the economy. Unemployment goes down. The recession ends.

The problem today, according to Schweickart at least, is that the multiplier effect has been somewhat diminished:

“Keynesian deficit spending depends on a “multiplier effect.” The government spends $X more than it has, putting Y people to work. These people now have money, so demand for goods goes up, which generates more employment, which generates more demand, and so on – a virtuous upward spiral. Hence, the deficit does not have to be excessive.

However, if an economy is wide open to imports, which contemporary capitalist economies increasingly are, then the multiplier effect is attenuated. A significant portion of those $X buys imported goods – which may increase employment abroad, but not at home. Hence, to reinflate the economy, a government must go much deeper into debt than in the past.” (After Capitalism, 97)

So the problem with a Keynesian approach to ending the recession is that the economy is global today. If I go out and spend the money from my government-financed job on products which are made overseas (which, as we all know, is a much more likely proposition today than it was when Keynes was writing in the 1930s), I increase domestic effective demand much less than I would have if the company which benefitted from my purchase had been American. So more stimulus is needed than before.

Moreover, even if Keynesian spending works, there is the problem of stagflation.


“To the extent that the government engages in deficit spending to boost aggregate demand, and thereby succeeds in reducing the unemployment rate, the economy tends to “overheat.” If labor markets become tight, workers demand higher wages. These extra costs are passed onto consumers, and inflation ensues. Workers, feeling cheated, demand still more, and so inflation accelerates – until the capitalist class decides enough is enough and slams on the brakes.” (97)

So, if Schweickart is right, it is unclear that Keynesianism, even if it does eventually bring down unemployment, is a good long-term solution. By decreasing unemployment it emboldens workers to push for higher wages. But these higher wages don't come out of the capitalists' bottom line. They are, instead, passed on to the consumer. But, since the consumer is also the laborer, laborers now demand more money so they can keep up with the cost of inflation.

  1. Neoliberalism

By neoliberalism I mean something like 'market fundamentalism' or 'Reaganomics'. For the sake of simplicity I'll use David Harvey's definition, from his book, A Brief History of Neoliberalism:

"Neoliberalism is in the first instance a theory of political economic practices that proposes that human well-being can best be advanced by liberating individual entrepreneurial freedoms and skills within an institutional framework characterized by strong private property rights, free markets, and free trade. The role of the state is to create and preserve an institutional framework appropriate to such practices. The state has to guarantee, for example, the quality and integrity of money. It must also set up those military, defense, police, and legal structures and functions required to secure private property rights and to guarantee, by force if need be, the proper functioning of markets. Furthermore, if markets do not exist (in areas such as land, water, education, health care, social security, or environmental pollution) then they must be created, by state action if necessary. But beyond these tasks the state should not venture. State interventions in markets (once created) must be kept to a bare minimum because, according to the theory, the state cannot possibly possess enough information to second-guess market signals (prices) and because powerful interest groups will inevitably distort and bias state interventions (particularly in democracies) for their own benefit." (A Brief History of Neoliberalism, 2, emphasis mine)

On what I take to be the neoliberal economic conception the job of the government in a recession is to make pro-business changes to the taxation policies and regulatory apparatus of the state (and, thus, to make it more attractive to potential investors). Republicans pretty much adhere to this perspective en masse. They say so explicitly in their Pledge to America:

“A plan to create jobs, end economic uncertainty, and make America more competitive must be the first and most urgent domestic priority of our government. So first, we offer a plan to get people working again. We will end the attack on free enterprise by repealing job-killing policies and taking steps to assure current businesses and future entrepreneurs that the government will not stifle their ability to compete in the global marketplace.

By permanently stopping job-killing tax hikes, families will be able to keep more of their hard-earned money and small businesses will have the stability they need to invest in our economy and help grow our workforce. We will further encourage small business to create jobs by allowing them to take a tax deduction equal to 20 percent of their income.

We will rein in the red tape factory in Washington, DC by requiring congressional approval of any new federal regulation that may add to our deficit and make it harder to create jobs. In addition, we will repeal the costly small business mandates contained in the new health care law.

If we've learned anything over the last two years, it's that we cannot spend our way to prosperity. We offer a plan to stop out-of-control spending and reduce the size of government.

With common-sense exceptions for seniors, veterans, and our troops, we will roll back government spending to pre-stimulus, pre-bailout levels, saving us at least $100 billion in the first year alone and putting us on a path to balance the budget and pay down the debt. We will also establish strict budget caps to limit federal spending from this point forward...” (see, emphasis mine).

The obvious problem with attempting to end a recession through remaking the state in a pro-business mold is that it cedes too much control over the viability of the state to private investors. Say, for instance, that we took the Republican's advice and cut business taxes and reigned in regulation. Further say that, for a time, this was enough to coax businesses into hiring American workers again. Even if this strategy worked, the precedent set by such a move makes establishing any sort of social safety net, or, for that matter, any program opposed to business interests whatsoever (like an ecological program designed to combat global warming), extremely difficult (at least if the programs in question require that businesses take on any additional costs).

Put simply – remaking the state so that it is more attractive to business is essentially competing in a race to the bottom. It is in the interest of business to reduce labor costs. So if we want to attract business we will do things to make labor less costly – cut the minimum wage, make it more difficult for workers to unionize. But even if this attracts investment initially, what will we do when some other, more desperate country offers up a pool of equally skilled labor at an even lesser cost? Will we cut even more?

All told, the neoliberal/pro-business model adopted lately by the Republican Party seems far too prone to the possibility of an investment strike – solving a recession by catering to business interests essentially replaces the will of the people with the will of the capitalist.

  1. Economic Democracy

David Schweickart's alternative economic proposal, which he terms Economic Democracy, would solve the problem of periodic recessions by democratizing investment and instituting a humane tariff on goods imported from countries with low wages or poor environmental standards. I'll first sketch out Schweickart's proposal generally and then suggest directly how it would mitigate the threat of recession.

Economic Democracy refers to an economy with three main characteristics:

  1. Workplace Democracy (as opposed to investor control of the workplace)
  1. Public Investment (as opposed to private investment)
  1. The use of markets to coordinate consumer desire and economic production.

These features result in an economy that would have (relative to something like our current capitalism) less unemployment, less overwork, less economic inequality (thus more chance at genuine democracy), and fewer recessions.

3.1 Workplace Democracy

Under Economic Democracy businesses are run by the workers. Workers make decisions and elect their managers (if the business is so big that representative democracy is necessary) on a one-person, one-vote basis.

Through the democratic process workers decide how to split profits. Economic inequality is therefore reduced (insofar as worker-run firms are less likely than their investor-managed counterparts to pay an excessive amount to upper-level management). Moreover, since workers are no longer thought of as costs of production (which it is otherwise in the interest of business to minimize) unemployment and overwork are both reduced (unemployment because workers will not find it in their interest to eliminate their own jobs in order to save money, overwork because workers will be more likely to take on new employees in order to relieve the burden of excessive intensity and duration of work).

3.2 Public Investment

The second feature of Economic Democracy, public control over social investment, is the crucial characteristic of the system which makes it practically immune to the periodic recessions which plague capitalism.

Under Economic Democracy a network of public banks (as opposed to private investors under capitalism) fund new businesses and expansion of production for existing businesses. These banks are funded by a capital assets tax which all companies in the country pay. The proceeds of this tax are distributed by the banks (in the form of grants) to companies which seek to expand their productive capacity. The banks use a rubric of profitability and job-creation to decide which companies will receive the grants. If a bank routinely makes bad investments (read: investments which do not result in increased profitability or employment) then it is shut down.

The great advantage of Schweickart's use of public banks is the impossibility of an investment strike. Private interests cannot, under his system, refuse to invest in the economy because they think that it is a “bad business environment” (read: taxes are too high, regulation is too strict, or workers are too strong a constituency). Instead, investment is guaranteed. The banks will invest every year. Thus new jobs are regularly created and efficient demand is regularly bolstered. Economic Democracy is, then, essentially recession-proof.

The use of public banks as opposed to private investment also reduces inequality insofar as it brings an end to the process of capital accumulation. Whereas, under capitalism, private investors (who make no real contribution to the process of production) appropriate the profits of a business and then re-invest them (making compounding interest on their original investment); and workers, who are treated as a cost of production, make a bare subsistence wage (their going-price being driven down by competition with other workers); under Economic Democracy the investor is replaced by the public bank. The chief consequence of this change is a general reduction in income disparity insofar as the compounding interest of capitalist investment is eliminated and workers gain control over the distribution of profits.

Public banks, because they incentivize hiring when they decide which companies will receive grants to start up or expand production, also reduce unemployment and over-work.

3.3 Market Economy

The third characteristic of Economic Democracy is the use of the marketplace in order to coordinate consumer desire and social production. Companies under Economic Democracy compete with one another as they do under capitalism. Thus they have incentives to be efficient and innovative. Workers, since they are directly in control of profits, are directly rewarded for both of these characteristics.  Schweickart's proposal, therefore – although consciously socialist – is no centralized planning disaster waiting to happen. Indeed, it could be understood as a set of thoughtful reforms (from the standpoint of justice) for contemporary market economies.

3.4 Economic Democracy and Recessions

Schweickart's system is essentially recession proof insofar as it insures regular social investment (see section 3.2). Given the nature of the global economy, however, a fourth component is necessary in order to insure the viability of the domestic economy under Economic Democracy.

This fourth element is a humane tariff on imports from countries which can offer cheap commodities by taking advantage of desperate labor (in developing countries) or refusing to abide by ecological best-practices. Such a tariff is necessary in order to insure that businesses under Economic Democracy are not constantly being undercut by foreign companies which exploit cheap labor or lax regulations.

Schweickart's tariff is humane, however, because the proceeds generated by it are rebated to the countries penalized under it in the form of aid (distributed by whatever means is most efficient – NGOs, direct aid... etc.).


Given the evidence offered above, I believe that leftists who are truly committed to the ideal of the social contract have good reason to support the reforms that Schweickart proposes in After Capitalism because they would both make the state fairer, and, unlike other forms of socialism, they would work. As an ultimate goal for the left, an ultimate dream, then, Economic Democracy more than passes muster. Its achievement would be the inauguration of the better world that we are all striving for.

That said, criticize away. Does (my presentation of) Schweickart's proposal seem likely to address the problem of periodic recessions? Does it seem a more humane/fairer system? Does it seem practicable?

Originally posted to Aidan Sprague Rice on Thu Jan 06, 2011 at 09:47 PM PST.

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Comment Preferences

  •  How can you critique if you don't understand? (1+ / 0-)
    Recommended by:

    Your lack of understanding as to why Neo-Keynesians like Krugman say that demand was insufficient is getting in the way of your analysis. This makes no sense at all:

    However, if an economy is wide open to imports, which contemporary capitalist economies increasingly are, then the multiplier effect is attenuated. A significant portion of those $X buys imported goods – which may increase employment abroad, but not at home. Hence, to reinflate the economy, a government must go much deeper into debt than in the past." (After Capitalism, 97)

    Krugman, BTW, just got his Noble Prize for trade theory.  Trade, in this case, cuts both ways: some of our demand buys foreign goods, but some of their demand buys ours.

    Your author doesn't understand this stuff, and makes basic errors.  Reader beware.

    You can't govern if you can't tell the country where you are taking it. The plot of Obama's presidency has been harder to follow than "Inception." -- F. Rich

    by mbayrob on Thu Jan 06, 2011 at 09:57:38 PM PST

    •  k (0+ / 0-)

      Okay, fair enough - trade cuts both ways (although we run a significant trade deficit in some places - China, for instance). How about the possibility that rising employment eventually leads to demands for wage increases, that these are passed on to the consumer, and inflation thus ensues?

    •  also (2+ / 0-)
      Recommended by:
      samddobermann, Kurt from CMH

      Also, Schweickart only claims that the multiplier effect has been attenuated - reduced. On a purely conceptual basis, given the multiplicity of choices that confront virtually every consumer in the global economy,  it would seem that he must be right.

      In the 1930s the economy was much less global. If you had money to spend you were more likely than you are today to spend it on a nationally produced product. So the money was more likely to stay within the confines of the domestic economy.

      Today, however, if I go out to WalMart and buy something, it's very likely that my purchase will be from a foreign country. It's true, you're right, that the money I transfer to some citizen (or group of citizens) in that foreign country could come back to the US if they buy something US made. But because the pool of potential trade partners for every country has increased so much since the 30s and 40s, the likelihood that the next purchase will be of a US product seems significantly lessened (compared to the time when virtually every commodity available for purchase would have had a domestic origin and the money wouldn't have gone overseas at all).

      I'm generally a fan of Krugman, and Keynesianism makes some sense to me. The sort of economy that Schweickart is advocating seems far superior to our contemporary capitalism, however... much less prone to crisis, much fairer.

      •  I think (0+ / 0-)

        Schweikart's argument about a weakened multiplier effect is plausible given that the U.S. has a large structural trade deficit due to the disestablishment of manufacturing industries in the U.S. and their movement overseas.

        I have a degree in economics, and so I can evaluate Schweikart's argument with an understanding of the arguments and political POV.  I think your analysis in the main is accurate. What Schweikart is calling for is a fundamental change away from the corporate capitalism that is the main driver of the global economy today.  Keynesianism and neoliberal approaches to the economy are policy prescriptions within corporate capitalism. The dominance of the multinational corporation is breaking down the effectiveness of government policy measures to help the economic situation of average people, and a new way forward is needed.  It's a matter of reforming the political system so that Economic Democracy has a chance to be enacted.

        "Do I have any regrets about the hard votes I took?" No. Not at all...and I never will. --Mary Jo Kilroy

        by Kurt from CMH on Fri Jan 07, 2011 at 07:29:48 AM PST

        [ Parent ]

  •  In today's increasingly competitive and high tech (1+ / 0-)
    Recommended by:
    Aidan Sprague Rice

    world, most of the the higher-paying jobs require more technical knowledge, most of which are only obtained through either Higher Education or through apprenticeships, or both.

    The solution, for America, should include Government financial help for training and re-training Americans for the good jobs that can only be obtained after learning many complex concepts and skills required in the applicable trades and businesses.  Government should also be involved in investing money in research needed in applied science to develop the technologies that will be utilized in creating today's and tomorrow's jobs.

    -4.75, -5.33 Cheney 10/05/04: "I have not suggested there is a connection between Iraq and 9/11."

    by sunbro on Thu Jan 06, 2011 at 10:24:30 PM PST

    •  agreed, for now at least (0+ / 0-)

      But is endless competition with other countries really the answer? The fact that we need to attract investment - convince the relatively small group of people with excess money to invest it in the US rather than some other country - seems strange to me. Isn't that too much power for a small group to have? Doesn't that run counter to basic fairness? And what do we say to the countries that we beat? Sorry? I guess you'll have to suffer instead of us? There has to be a better way - one which takes account of the radical value of each person. It seems like Schweickart points the way to an alternative which would be much more humane.

    •  So...say you are 40 or 50 yrs old with a HS (2+ / 0-)
      Recommended by:
      Egalitare, Aidan Sprague Rice

      education and just laid off from the factory that moved to asia?   That is what has happened to scores of people... in the rust belt particularly.   This does not provide a workable answer for most of them.    

      Higher ed and retraining go only so far even if they are free.  The entire population cannot and should not be transformed into techies..or proles for that matter.  There are natural limitations and aptitudes that must be taken into account...and age (sigh).

      Then too... diversity is necessary for survival of the just maybe for an economy too.

      Think sustainablity, not growth.  Think fairer distribution of wealth...currently it is all going to the top and the actual workers are not getting their fair share.  

      "I think it is much more interesting to live not knowing than to have answers that might be wrong." Richard Feynman

      by leema on Fri Jan 07, 2011 at 12:02:26 AM PST

      [ Parent ]

  •  I'd prefer an expert's take. n/t (0+ / 0-)
  •  EVIDENCE: Keynesianism worked to end... (2+ / 0-)
    Recommended by:
    Mighty Ike, Kurt from CMH

    ...the Great Depression; Neoliberalism causes depressions, including the current one. Before one can claim that Keynesianism failed to get us out of the current depression, it would be nice if we actually tried it first -- we have not.

    Consider me a Tea Party Democrat, but it's not my "country" I want back:
    The Corporations stole the People's party -- I want my party back!

    by Jimdotz on Fri Jan 07, 2011 at 03:17:45 AM PST

    •  agreed... (0+ / 0-)

      I think Keynesianism is the best chance we have to recover some degree of stability in the economy. It's the best immediate solution. But even if Keynesianism worked we would still have to face the fact that we have a capitalist economy - and that, in the grand scheme of things, means few winners and lots of losers.

      No one doubts that capitalism causes serious inequality (and thus encourages polyarchy as opposed to democracy), requires unemployment in order to function, (paradoxically) increases the intensity of work for those lucky enough to be employed, makes it difficult to deal with our impending ecological problems... etc.

      Given these straight-up bad and unfair effects, Isn't it at least worth thinking of Schweickart's proposal as a possible alternative, and, if viable, an orienting device and ultimate goal?

  •  Infrastructure Employment... (3+ / 0-) next to impossible to off-shore. That's why an updated WPA would certainly be an effective Keynesian tool to employ right now.

    And there is an "X-factor" regarding imported goods: energy prices. For the first Holiday shopping season in recorded history, gasoline averaged over $3/bbl. Peak Oil is real, and now there is evidence that Peak Coal is a dirty secret that won't be hidden much longer. If we would follow the European example and focus economic energy and capital on building the infrastructure to harness renewable energy - that is another large pool of jobs that would be difficult to out-source.

    Keynesian solutions  aren't perfect, but they suggest a path to much more domestic job creation than we've seen in nearly a decade.

    The so-called "rising tide" is lifting only yachts.

    by Egalitare on Fri Jan 07, 2011 at 04:03:04 AM PST

  •  Biggest problem is that you can't get there (0+ / 0-)

    from here, not with our Constitution that is. Takings of property (rights) have to be with compensation. So taking over a business to give full control to the workers would mean paying the prior owners, buying them out. That would be impossible.

    Plus some big companies ± and even smallish frequently need management skills that random, especially elected workers probably won't have. One of the problems for some really great up and coming businesses it the inventors, the wunderbars who got everything going do not have the management skills and knowledge to run it properly. They frequently have to take in a managing partner to make the business function as it grows.

    Germany has a good system which requires significant labor representation on every board of directors. An American who went to head a big corp in Germany recently thought this would really be unworkable but found it worked really well. I wish I could recall where I read the story about it. That would be a great way to start and it would give workers' interests  a real boost without really costing anything.

    Any way, neo republicanism is a failure but it sure uses great PR. How people can stay so conned baffles me.

    I think this guy is in love with his own ideas. But they are pie in the sky when there is no way to implement even one of them. There is no partial "in" to be a starter position.

    There are some worker owned firms but they start from some crisis like Republic Windows which was essentially left bankrupted and the owner just abandoned it. The union members were very smart and unified and had significant help from the union to survive it. And the Stimulus bill's provision for doing weatherization for low income people came along to beef up the need for windows and doors at the right time.

    Any way I think a progressive thing that we could work on would be to get law that mandates say 10% of board of director positions be labor. You would have to limit it to exempt small family owned businesses, maybe limit it to publicly traded companies.

    To bed for me; I shouldn't have even looked at this fascinating diary. It was well presented. I disagree with some of his statements about Keynesian effects but that's enough for now.

    G'Nite all.

    I'm asking you to believe. Not in my ability to bring about real change in Washington ... I'm asking you to believe in yours. Barack Obama

    by samddobermann on Fri Jan 07, 2011 at 04:58:00 AM PST

    •  Where is it written in the U.S. Constitution (0+ / 0-)

      that corporations have the right to survive in perpetuity? That comes from law enacted that allows a corporate charter to be written to allow for perpetual existence.  It didn't start out this way; most corporations in Britain and the U.S. had charters with defined end dates that forced a corporation to renew its charter with the legislature.  This required an act of Parliament or Congress or a state legislature to renew the charter, and thus the corporation was under the scrutiny of a body ultimately accountable to the people.  This would not be a "taking" of private property, it would be the dissolution of a corporation not acting in the public interest.  The shareholders would still get the equity they invested. It would be no different than selling a piece of real estate and getting the equity that you have in the property, whether you made money on your investment or not.

      This could be the opening for Economic Democracy: the government needs to take back responsibility for oversight of corporations, and to impose the death penalty on those that are acting irresponsibly. The end of perpetual charters is the starting point.

      "Do I have any regrets about the hard votes I took?" No. Not at all...and I never will. --Mary Jo Kilroy

      by Kurt from CMH on Fri Jan 07, 2011 at 07:43:33 AM PST

      [ Parent ]

      •  Purpose of corporate form (0+ / 0-)

        was to allow for perpetual life.

        There is no requirement for corporations to act in the public interest.  Maybe there should be but there isn't at present. You go pass a law giving the/a government the power to require that. the was an attempt to do that in the area of alcohol. That was a disaster.

        When you take control of something you take away the rights of ownership. That is what ownership is.

        For the shareholders to get the equity they invested (?) the corporations would have to be dissolved and the assets sold.

        You can't be serious.

        I'm asking you to believe. Not in my ability to bring about real change in Washington ... I'm asking you to believe in yours. Barack Obama

        by samddobermann on Sun Jan 09, 2011 at 01:28:26 PM PST

        [ Parent ]

  •  related writing 'round these parts (0+ / 0-)

    There are a few other folks who explore similar topics here. You may be interested in this person's writing, for example, as an entry point.


  •  The Idea Sounds Good But I Would Add One More (0+ / 0-)

    thing. In addition to a "humane tariff" on goods produced in cheap labor countries, I would like to see a temporary halt to visas issued to foreigners (i.e. HIB visas). During a recession, this would help to reduce the pool of labor in this country, thus helping unemployed Americans vying for the smaller number of jobs available. Once recovery is underway, the visa program could start up again.

  •  interesting (0+ / 0-)

    i think you make some good points.

    i agree the multiplier effect is much less.

  •  Keynes would have loved this line: (0+ / 0-)

    So, if Schweickart is right, it is unclear that Keynesianism, even if it does eventually bring down unemployment, is a good long-term solution.

    In the long term, we are all dead.

    FYI, Schweickart isn't even close to being right. His "stagflation" critique is that Keynesian economics works too well and creates full employment.  Laughable.

    •  hmmm (0+ / 0-)

      what's your explanation for stagflation?

      I'm no expert, but Schweickart's story (i.e. Keynesianism does work. Unemployment goes down. Workers get new leverage to push for higher wages. Investors are unwilling to allow these wage hikes to be taken out of profits. The costs of the wage hikes are thus passed on to the consumer. Workers demand more money to keep up with the cost of inflation. The same thing happens. Investors decide that an economy undergoing an upward inflationary spiral is a bad business environment. They take their investments elsewhere. We're left with a combination of inflation and rising unemployment.) makes sense to me.

      Have a better one? I'd love to hear it. I mean that genuinely. Teach me, please.

      •  Ok, here you go (0+ / 0-)

        First, remember that stagflation only occurred once during the late 1970s, so it is clearly an unusual phenomenon.  But it can develop as follows in a Keynesian world:

        The economy reaches full employment and workers therefore have leverage to raise wages and labor costs which creates "cost-push" inflation (prices being pushed up by rising costs) as opposed to the usual "demand-pull".  This "cost-push" inflation causes the marginal utility of capital, i.e, the expected return on additional capital investment, to plunge near zero (rising labor costs eliminate any profit potential for adding production capacity).  Consequently, businesses stop investing and growth grinds to a halt along with productivity.

        Without productivity increases, inflation accelerates due to cost-push and demand-pull.  So, just like in the early 1980s, high inflation results in a large recession which drives down labor costs.

        Obviously, as Keynes pointed out, when full employment is reached, demand needs to be limited to prevent labor costs accelerating too much, but politicians are always reluctant to do that.

        OTOH, due to the off-shoring of many jobs over the past 3 decades, labor costs have never again gotten near causing stagflation in the U.S. because businesses have many ways now of avoiding cost-push inflation and therefore maintaining the marginal utility of capital investment.

  •  Keynes et al (0+ / 0-)

    Thanks for the diary.  I think you did a good job on Keynes and on the Schwickart book.  I am looking at this also.  I particularly find the David Harvey book insightful.  While I agree in general with Schweickart, and agree with his goals, I don't think this is a matter of over turning Keynes.  here are some thoughts.

    The world wide economic crisis was created by  U.S. finance capital and banking, mostly on Wall Street ,ie. Chase Banks, Bank of America, AIG, and others.   Finance capital produced a $ 2 trillion bailout of the financial industry, the doubling of U.S. unemployment rate and the loss of 2 million manufacturing jobs.  More than 15   million people are out of work.  At the national level almost all of the projected deficit through 2020 will be the result of three factors: the Great recession, the tax cuts of the early 2000s under George W. Bush, and the hundreds of billions of dollars of war spending.
    Since we are integrated into the national economy and effected by the decline of the U.S. economy,  some stimulus money generated and spent in California will be spent in other states, thus stimulating other states- and of course money spent in other states will stimulate the California economy.  However, over 60% of all economic business is local.  Money spent in California will help the California economy to grow.  Keynesian stimulus will work- it just won’t work as directly as the original theory predicted.
    The economic stalemate in California has produced school funding cuts far beyond reasonable levels.  At present,  the state ranks 47th among all states in its per-pupil spending, spending $2,856 less per pupil than the national average.
     In California we need to spend more state money to improve schools, to develop roads and infrastructure, and to create jobs.  Those who are well educated are more employed and paying taxes while those with less education, those who leave school, are in a prolonged economic crisis.  
    California government must protect and empower our citizens. To foster prosperity  it must prepare the young for civic participation. (BTW. This has been recognized since the first California Constitution of 1849).  Protection includes health care, social security, safe food, environmental protection, safe streets, job protection, etc.
    Our economy needs roads, bridges, telephone lines, communications systems, energy and quality education.  These services make freedom and prosperity possible. Conservative opposition to these services ignore the economies need for infrastructure.
    The finance capital collapse and theft on Wall Street produced this crisis, not immigration.   Now Wall Street has recovered, but the states and specifically California is left with the destruction.  The best available response is for California to tax and spend to stimulate the economy- that is Keynesian stimulus. The anti tax radicals and the Republicans will oppose this approach.  They must be defeated.  
    Pass an oil extraction tax.  Require that the oil companies pay taxes when they take our oil out of the ground and then refine it and sell it back to us.  Gain.10 Billions.  Pass the 10.1 billion dollar jobs package as proposed in the Assembly last year.  This would pay off debts to local governments and keep teachers in classrooms to avoid massive layoffs.
    Pay for the Jobs package with a new oil severance tax.    Imposition of an oil severance tax. California is the only oil producing state in the country that imposes no taxes on the pumping of oil. The proposed tax was to be 6% of the sales price of oil.  Alaska and Louisiana both charge 12.5%.    
    Establish a  public state bank such as the Bank of North Dakota. Initially move 25% of all state revenue, receipts and reserves into this bank and 25% of all PERS and STRS funds. Manage the bank as a public service. Over time, finance state borrowing from our own bank.   Gain.  6% of the budget.
        Academic economists will dismiss these proposals as not possible.  They are by and large not interested  in the  looking at real alternatives to their present theories  like applying Keynesian economics to a state economy.  University departments and their publications  continue to promote the same  neo classical economic theories.  Recall, these are the very scholars who gave us the “myth of the rational market” and argued that markets would correct themselves we did not need governmental intervention.  Now, in this depression, we see the results of their theories.   Foundation based economists such as those in the Hoover Institute or the Peterson Institute, are funded by the super rich and are unlikely to see alternatives that would require significant taxation of the super rich. These economists  have, in fact, been deeply implicated in the construction of the new systems of technocratic  politics which serves  them well and the oligarchy.   Few seem predisposed to engage in self-critical reflection of why their theories missed the greatest economic crisis of the last 50 years.  

    Gar Alperovitz, America Beyond Capitalism: Reclaiming Our Wealth, Our Liberty, and Our Democracy.  (2005) John Wiley and Sons
    Dean Baker,  Plunder and Blunder: The Rise and Fall of the Bubble Economy, (2009)
    Campbell, Duane.  Choosing Democracy: a practical guide to multicultural education. (2010)
    Justin Fox,  The Myth of the Rational Market: a History of Risk, Reward, and Delusion on Wall Street. (2009)
    Jeff Faux, The Global Class War: How America’s Bipartisan Elite Lost Our Future- and What It Will Take to Win It Back. ( 2006)
    William Grieder,  The Soul of Capitalism: Opening Paths to a Moral Economy. (2003).
    David Harvey, The Enigma of Capital and the Crisis of Capitalism.  (2010)
    Paul Krugman,  The Return of Depression Economics and the Crisis of 2008.  (2009)

  •  More on Keynes (0+ / 0-)

    Here is a post on wrestling with Keynes in relationship to California.
    Some of the above post came from here.

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