My diary "A Pundit's Guide to John Maynard Keynes" raised some intersting interaction last week. I thought I'd take a stab at principle #5, though perhaps a little more ambitiously, for the benefit of those pundits such as Amity Schlaes or George Will who talk a lot about Keynes without knowing very much.
A Pundit's Guide to John Maynard Keynes
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In times of low employment (high unemployment), the public sector and the private sector are complements, not substitutes.
To get at the core of this, we need to look at one of the most lethal, if least substantial, arguments against Demand Side economics. It is what I call the Cave Man Metaphor. I have read George Lakoff and understand his framing a little bit. This is not about that. It is about finding the metaphor that includes and explains all elements. And here is my attempt. The family farm.
The Cave Man may in some way appeal to that framing level, but it ends up implicitly explaining major elements of the economic experience by magic. Its alternative is not the nurturing parent, but the family farm.
The Cave Man metaphor goes something like:
I work hard and pay my bills and live within my means and take care of my family. Why can't the government? The other guy? The other country? Let them tighten their belts and work harder and leave me to my steady income. If we all did this, we'd all be better off.
In fact, unless you eat money or live in money or clothe yourself in money, this metaphor falls apart quickly. It actually falls apart before that -- because if, for example, you are buying a home, you are far more in debt than the government at any level.
But looking directly, we find half the world is missing from the Cave Man metaphor. There has to be this "out there" which provides the place to go and get the stuff. When applied to government, there is no "out there." For the society at large, there is only "in here." Plus, the stuff you get has to be a magical substance that can be translated into anything you need -- food, clothing, shelter, etc.
It IS possible to create a metaphor without magical money or an "out there," where everything is produced "in here." That is the family farm.
The Family Farm:
One can imagine growing one's own food, using timber to create housing, and even finding a source for clothing. No "out there" of indistinct, but no doubt heroic dimensions, nor any need for the magic stuff of money.
And here we don't need to simply abandon the metaphor with a self-righteous glower at our adversaries. We can follow it and allow it to inform our understanding.
Perhaps grandfather created the farm and built the tools and the basic structures. Grandmother stored away the commodities needed in winter and hard times. The grown children work the farm, and the children grow up to continue the cycle, particularly taking care of their parents.
Simple, self-reinforcing, fundamentally satisfying.
But what happens if there is too much rain in the spring and the ground becomes too wet to plant? Do the grown children lie around and wait for the ground to dry? Nobody ever lies around on a farm. No. During this time and other times when crops do not need tending, able hands are put to work to build and repair the barn, improve the roadways, perhaps install a pump or improve the drainage. All of which will pay off later in efficiency or improved living standards.
What they absolutely do not do is lie around. It is ever apparent that their own security and that of their family improves when they are productively employed.
If we advance the family farm through several generations, we can see what happens if a whole season is lost.
If after several generations, the family branches out and moves into several farms, it begins to specialize its efforts. Grandfather rents his plow and sells his barn in exchange for a chit that is good for part of the crop and a place to live in his old age. Those who are better at farming exchange markers with those who are better at building. Those who do not want to work so hard get fewer chits but more time in the sun.
But then if a whole season comes to be lost, grandfather receives no chits for the rent of his plow, the farmers create no markers to trade to the builders, and except that grandmother has saved enough and is willing to take these chits and markers, they all starve. Unless, for a promise to pay in the future, it is agreed that some chits can be produced without a substance behind them. Then there is no starvation. So long as people are willing to take the markers. But there are still idle farmers
What if the farmers who are idle go to work improving irrigation or roadways during the down time? For this, it is agreed that they may be paid in chits that will have future value when and if the crops come in. And the irrigation and roadways improve the prospects for those crops.
Now you have not only an internal consistent metaphor, but monetary and fiscal policy. And we see that fiscal policy, spending on stuff the society needs, is a better way than monetary policy. It can actually pay for itself. You can also see that this is very do-able with an enlightened control over the means of exchange.
But it is also true that with the enlargement and separation of the family, it becomes less apparent that everybody is in it together, and less clear that the greatest prosperity occurs when all are gainfully employed.
When all are given chits as a means of simply increasing their consumption and stimulating activity on a random basis, it may work well in terms of keeping those who can work gainfully employed and relatively richer over time, but it will not work so well in the long term, when gainful employment could be recaptured by increased efficiency in the roads and barns and so on. In a situation where the chits are given to those who can most convince the bankers, er, chit-makers, that they will get them back, the few who will benefit may or may not be producing what the society needs most.
If instead the markers are exchanged for productive employment as determined by the society's leaders, and are then recovered later in a universal levy on all the society, a tax if you will. It is pretty clear that all will benefit from the improvements, so if all pay, the system works well.
The family farm is a longer metaphor, but more interesting, and longer only because it takes into account all the elements. There are no magical realms in which the householder can slay dragons for the magical money which can be carried back to the cave and transformed into anything you need.
The government as supplement is the organizational structure that gets people into different occupations and provides for the public goods (such as roads, education, police, etc.) that are jointly enjoyed.
To me, it is simpler. I have trouble with magic money.