The Senator that told us "The Banks own the Place" -- now has another dire warning for us to consider ...
Durbin: Debt Deal Will Be The Death Of Keynesian Economics
Elise Foley, Huffingtonpost -- 7/31/11
The Republicans are killing Keynesian economics with their attempt to cut spending as the economy rebounds from a recession, Senate Majority Whip Dick Durbin (D-Ill.) said in a floor speech on Sunday.
"I would say ... that symbolically, that agreement is moving us to the point where we are having the final interment of John Maynard Keynes," he said, referring to the British economist. [...]
Keynes argued that aggregate demand was not always enough to spur full employment and that outside structures, such as governments, could influence the economy to create jobs and regulate business cycles. His thinking influenced later New Deal spending by President Franklin Delano Roosevelt.
Durbin said the economy is too weak for major cuts in spending, a view that is shared by many economists.
Why should you care?
Well "Spending Cuts" are exactly the "wrong medicine" to give an economy, stalled in recession.
It's like throwing water on a dwindling campfire ...
If you're trying to heat things up, you'd be well advised to try some more kindling, instead.
SO, what is Keynesian Economics exactly, for those of us who skipped those Econ Electives. Here's the Cliff notes version. PS. it's been largely Keynes theories, that has keep the American Economy steadily growing since the 40s when he proposed the concepts (probably after watching what worked for FDR, in the 30s):
Keynesian Economics in a Nutshell
-- Keynes stated that if Investment exceeds Saving, there will be inflation. If Saving exceeds Investment there will be recession. One implication of this is that, in the midst of an economic depression, the correct course of action should be to encourage spending and discourage saving. This runs contrary to the prevailing wisdom, which says that thrift is required in hard times. In Keynes's words, "For the engine which drives Enterprise is not Thrift, but Profit."
-- Keynes took issue with Say's Law -- one of the economic "givens" of his era. Say's Law states that supply creates demand. Keynes believed the opposite to be true -- output is determined by demand.
-- Keynes argued that full employment could not always be reached by making wages sufficiently low. [...] unemployment is caused if people don't spend enough money.
-- In recessions the aggregate demand of economies falls. In other words, businesses and people tighten their belts and spend less money. Lower spending results in demand falling further and a vicious circle ensues of job losses and further falls in spending. Keynes's solution to the problem was that governments should borrow money and boost demand by pushing the money into the economy. Once the economy recovered, and was expanding again, governments should pay back the loans.
[...]
Or in other words, in plain everyday English ... our Economy is like a 3-legged stool.
One leg is the workers/consumers -- saving and buying things.
One leg is the business/corporations -- hiring and making and selling stuff.
One leg is the Government -- funding this or that worthy and/or necessary service or project.
Normally you need all three, functioning well to have a strong and growing Economy.
Each of these legs can also be thought of as "the engines" (or cylinders) that make a productive economy go. Make the plane fly.
Well what happens to an Economy, when the following spending conditions take hold:
1) the workers/consumers engine -- are too afraid of losing their jobs, to buy little else than necessities?
and
2) the business/corporations engine -- are so enamored with profits, that giving them Tax Break, only encourages them to set up even more of their operations overseas.
Well obviously, something is broken. The stool is out of whack. The engine only sputters along in fits and starts. If you don't have Triple-A, you could be stuck for a while, on the side of the road, or worse.
This is where, according to Keynes, that Government must step in, and provide the "kick start" that no one else seems capable of, at the moment:
3) the Government funds or invests in projects, that will put people back to work. To provide incentives that encourage Businesses to hire again. That force them to hire local again -- if they want the local funding.
That is a proper function of Government, to be the Spark Plug of last resort, according to Keynes. The America Jobs Acts is designed around many of these Demand Side, no-nonsense Keynesian principles.
If your Economy has "too little" natural demand for goods and services, then providing the fuel, providing the push, that gets the vehicle rolling again, is the sane and rational thing to do.
That's all fine and good -- except for the Republicans; since "sane and rational" has not been in their road-side emergency kit lately. These days, the GOP is much more aligned with Norquist, than they are with Keynes. They have an agenda. They can't be bothered with any "Good Samaritan" detours ... nah-uh They got no time for jump starts, for the unemployed!
And given all the Clips out there in YouTube land, that keep repeating the message that Keynesian Economics is Wrong -- I'd say there are some well-funded Think Tanks out there with a vested interest in ending Keynesian Demand Side economic remedies, as we have classically known them. (This is what Dick Durbin was talking about.)
The GOP would rather return to the days of, and the theories of ...
... economist Jean-Baptiste Say (1767-1832) stating that there can be no demand without supply. A central element of Say's Law is that recession does not occur because of failure in demand or lack of money.
[...]
He also wrote:
It is not the abundance of money but the abundance of other products in general that facilitates sales... Money performs no more than the role of a conduit in this double exchange. When the exchanges have been completed, it will be found that one has paid for products with products.
Say argued against claims that business was suffering because people did not have enough money and more money should be printed. Say argued that the power to purchase could only be increased by more production.
aka. Supply side, Trickle down, ... or as George H Bush called it, Voodoo Economics (at least until he got elected, that is.)
Supply side policies -- good for those Job Creators, with their endless Tax Breaks and Loopholes -- not so good for the Job Hunters, without an extra Twenty to spare, most times, to buy into of Say's product-engine theory.
All this, kind of boils down to this:
Is Economic Demand created from the Bottom up, or from the Top Down?
By making Workers feel secure, or by making the Job Exporters feel secure?
Or maybe by investing in stuff the country needs anyways -- like Local Infrastructure Projects? Projects that create Jobs, Jobs that CAN'T be outsourced. Projects we will HAVE TO do sooner or later.
All the Tax Breaks in the world will do little to "create demand" -- and in turn "create the jobs" to fill that demand -- if ordinary consumers are too worried {or too broke} to go out and Buy those Products, sitting on all those Supply-side shelves.
This is where the Govt classically steps in, to prime the pump, to add the kindling, to be "the Employer" of last resort. FDR did it. Eisenhower did it. JFK did it. Jimmy Carter did it. Obama is trying to do it, once again, with the latest American Jobs Bill. We should support that back-to-work effort, where we can.
The GOP will cry "Balanced Budget" and "No New Spending" -- but ask any smart CEO, if Businesses want to grow, often they NEED TO borrow money, to jump start that growth. It's usually called investing in your company's future. So why is this forbidden, if you're a Country? Shouldn't a Country allowed to invest in a better future for its citizens? Shouldn't Countries be allowed to grow?
Sane and rationale Government spending can break the vicious downward spiral -- when both businesses and consumers, have become too vapor-locked, to ignite a strong enough spark. And keep it going, until all systems are go, again. Until the plane, can be put back on auto-pilot.
At least according to John Maynard Keynes that is. At least until the Supply-Side Billionaire Think-Tanks can manage to extinguish the last of his very practical Economic remedies. The remedies that gave us a strong Middle Class. The Economic Theories that kept America humming along, at least until the Supply-siders started dousing the campfire, about the time Reagan fired the Air Traffic controllers, along with about a hundred other engine-fouling Supply-side policies.
Long live Keynes! ............. ( Keynes Who? they want you to say. )
Hopefully now, you can say, well let me tell you about this 3-legged stool ...