Thomas Geoghegan goes back and re-reads Keynes to see what policy prescriptions he'd offer today. He comes up with some answers to how to get the country out of recession that go well beyond the one everyone knows (increase federal spending to “prime the pump” and get consumers spending and businesses hiring again).
(The article is at The Nation and can be accessed here via free sign-up. You can read the whole piece without sign-up here via RCP, but probably only temporarily.)
First, he says, the U.S. has to deal with its massive trade deficit. (The country’s imports exceeded its exports by $680.9 billion in July.) The trade deficit makes it much more difficult to use deficit spending to restore employment. Keynes thought no country should ever run any kind of trade deficit. He preached “national self-sufficiency.” He considered a trade surplus in and of itself a stimulus. A large trade deficit, on the other hand, he said, will eventually produce "a state of persistent depression.”
And that is just the surface trade deficit. Underneath that, there is a still bigger deficit, with US corporations outsourcing so many jobs.... During the 2000s...while US multinationals have fired 2.9 million workers here, they have hired 2.4 million abroad. Some of these workers make parts to be shipped here, but when the parts are assembled into the gizmos or widgets that we sell abroad, we count them as “exports.”
In the 1930s, when the US was still on the gold standard, the trade deficit was paid for in gold. Today it's paid by giving up domestic industry - it's paid for in jobs.
More...
To Keynes, avoiding a trade deficit, especially one as humongous as the U.S. now has, would be an act of patriotism and of national self-preservation.
The right, the Tea Party, the Concord Coalition, Mr. Bowles and Mr. Simpson, Peter Peterson—they want to bring down the federal deficit. The left, our side, generally wants to go deeper into debt and get to full employment. Then we’ll bring down the federal deficit. Then we’ll have full employment and all will be well.
But until we bring down the trade deficit and fix our balance of payments, there is no way out of debt....
Why? The answer if clear if you think about the idea of the value of the government paying for even useless work in a recession/depression in order to get things moving again.
As Keynes would put it, rather than do nothing in a slump, it would be better for the Fed to bury bank notes in bottles and pay Americans to dig them up. Not only do we goose employment but there is a multiplier effect.
But Keynes did not say we should put bank notes in bottles and bury them in China and have Chinese workers dig them up. Why not? Well, it doesn’t do us any good. It does not employ any US workers. And of course, there would be no “multiplier.”...if we hire Americans to dig up the bottles with bank notes, they have cash to spend. In 1936 they might go to spend it at the corner bar. The bar hires more wait staff. They go out and buy more groceries. Someone buys an extra truck and truck driver...
But it’s not 1936. It’s 2011. Now after digging up the bottles, Americans will go to Target and Walmart and spend on bags of kitty litter made by child labor in China. And what’s going to happen to the multiplier when the Obama bucks we spend end up over there? In Chapter 10 of The General Theory Keynes writes, “In an open system with foreign trade relations some part of the multiplier…will accrue to the benefit of employment in foreign countries.”...But that’s OK if they buy back from us. If there is a balance of trade, it’s OK. But they aren’t buying back from us.
Tariffs, he says, are not the answer. There are too many real benefits to trade to put up barriers to it. So what policies would he advocate?
The answer, he says, is to get the rich to invest.
What? They don't already invest enough?
No, they don't. In the deregulated financial sector, what appear to be investments are in fact just loans - transactions in corporate debt - as opposed to investment in the production of real durable assets made by labor that can be shipped and sold abroad.
[E]ven after Dodd-Frank, look at the colossal returns to the financial sector—i.e., to commercial and investment banks. For Keynes the key to getting the rich to invest in labor on the construction of durable assets was to hold down the windfall returns from loans, buyouts and financial speculation...
Keynes would point out that the rise in the US trade deficit—which became serious in the 1980s—coincided exactly with the astonishing deregulation of the financial sector....
So how to get the rich to stop speculating in paper assets and investing in real ones, productive ones, right here at home again?
Geoghegan thinks Keynes would look to the most successful social democracy in the world right now, Germany, with their big trade surplus.
First, they have a whole different type of corporation—with workers making up half the directors on the board. And workers have privileged positions in the firms, real power and responsibility. It doesn’t guarantee that corporations invest, but it’s a big help to have workers in director chairs sitting in the boardrooms.
In addition, the Germans have government-sponsored banks, like the Sparkassen, that lend to businesses. We have the Federal Reserve printing money like crazy, but the banks sit on it and don’t lend it out...
Next, he thinks Keynes would try to discourage financial speculation by ending tax breaks that reward things like leveraged buyouts. He'd also impose a financial transactions tax.
He would also try to improve national competitiveness. This is usually done by cutting wages. That's not what Keynes would do though, says Geoghegan.
[S]uppose the government could dramatically cut nonwage labor costs by assuming the cost of health insurance? If our government could deliver just one Keynesian “shock” to make us more competitive, it would be single payer national healthcare. At least right now, we should expand Medicare coverage (lower the eligibility age) and adopt a public option, so that the government can have more bargaining leverage to beat down by decree the stupefying prices we pay to get well in an ever more concentrated healthcare sector.
He certainly wouldn't recommend cutting Medicare coverage the way President Obama is contemplating. It's one of the worst things he could do if he wants to make American workers more competitive with foreign workers, who have much cheaper healthcare costs (either because it's subsidized by their government or because they have a lower standard of living).
If President Obama is ready to try some actual "bold persistent experimentation" to break the hold of the Great Recession, there's a cornucopia of progressive options there just ready and waiting for him to get behind.