Dont Call it a Comeback: Keynesianism, Crisis and Opportunity - Essay Example

In order to have full employment, on a global scale, with jobs that are reasonably secure and well-paid, should we follow the advice of libertarians/neoliberals, Keynesians/ liberals, or radicals/socialists? Don’t Call it a Comeback: Keynesianism, Crisis and Opportunity The financial crisis of the last years is the most dramatic since the stock market crash of 1929. The real estate market collapsed, banks that were “too big to fail” did, and the entire financial system was remade in a period of weeks. But by the time these events made headlines, the world’s working class and poor were already facing unemployment, rising food prices and eviction. The growth of un- and underemployment, the rising costs of daily life and foreclosures, along with the sudden implosion of Wall Street produced a political crisis for the hegemony of neoliberal ideology. The credibility of neoliberalism as the ruling ideology of contemporary capitalism was undermined by the US government’s response to Wall Street’s dramatic collapse. In the print media and television, journalists and politicians struggled to piece together explanations for the failure of the “free market” and the need of a large taxpayer bailout of the banking system Disgust at this hypocrisy led large numbers of people to question the wisdom of corporate rule and the sincerity of those calling for markets free of “government intervention.” (Griffiths 2008). While the current crisis has helped to discredit neoliberal ideology in general and neoliberal attitudes toward employment and unemployment in particular, political obstacles remain to serious debate around, much less, implementation of, Keynesian policies that might promote full employment. While Marxist critiques of the Keynesian route to full employment argue that equilibrium is inherently structurally unstable, in terms of historical examples, national economies and the global division of labor, Keynes theories and approach are nevertheless the most politically feasible route to government policy that will result in higher rates of employment and a reduction of inequality. Ultimately, historical examples of Keynesian policies—along with international examples of more radical alternatives—suggest a capitalist, but moderate, approach is the “least bad” alternative for workers, even though it may not result in permanent full employment. Keynesianism, particularly with regard to his push for full employment hasn’t always been viewed as an “alternative” to mainstream government policy and economic theory; Keynes remains one of the leading economic theorists taught in college economics and business courses. His theories emerged in a period not unlike the current crisis. Keynes seminal text, The General Theory of Employment, Interest and Money, was seen to be a crucial development in economic theory at a time during which once-seemingly-rational markets were producing massive unemployment and hunger, along with the obscene destruction of needed but unsalable commodities. This stagnation and massive idleness motivated Keynes’s thought. Classical, like the neoliberal ideology of today, conceived of employment in terms of Say’s “law of the market” —that “supply creates its own demand.” Keynes’s key insight was to defeat this “law by demonstrating that supply does not create its own demand, and instead advocating specific government policies (and deficit spending) to increase employment and thereby generate sufficient market demand (as opposed to simply need) for goods produced. (Yates, Mattick). Following the 1929 Great Depression, Keynes ideas became main stream. Full employment was seen as a policy goal for the US government. This was equally the case across much of Europe. For leaders in these countries, Keynesian economics were seen as a way of dealing with the collapsed credibility of classical economics, while at the same time staving off two other political and economic reactions to massive unemployment and economic crisis; the growth of Communism, inspired by the seemingly-successful revolution in Russia in the earlier part of the century, and the fascism taking hold in Germany and other European countries. Keynes—from the perspective of leaders in liberal democracies, and those in the business community—may not have been perfect, but he was an acceptable compromise in the face two unacceptable alternatives. The backlash against this compromise began in the 1970s. A “falling rate of profit” signaled, for business, a crisis in the Keynesian worldview, and required a new tact for restoring the basic engine of the economy. The “stagflation” of the 1970’s with growing inflation and unemployment, created the conditions for an ideological assault on Keynesian concepts like deficit spending, jobs programs and government investment. Instead a host of thing tanks and politicians argued that the economic pain regular people experienced at this time was because there too many restrictions had been placed on the market. These “government interventions, such as wages and hours laws, health and safety regulations and even government investment in education, housing and had led to results which directly contradicted those that liberal Keynesians had thought most likely. After decades of this pushback, Keynes original motivation—the problem of massive unemployment— is more salient than ever in today’s economy. As Yates argues in Naming the System¸ the record unemployment rates that have emerged both in the United States and globally during the current crisis—shocking as they are, particularly among African-American communities—are likely underestimated. In the United States, only those who are recorded as “actively” searching for employment in the last 3 months are considered unemployed, which means statistics do not count longer-term unemployed, but potentially employable workers. These can include women receiving WIC or people living on disability income, while Yates points out that large numbers of incarcerated men are also one “strategy” for handling the lack of employment opportunities available in today’s economy. This time, the crisis is viewed by many to be one of the free market, Wall Street and neoliberalism more generally. This has provided an opportunity for economists, politicians and the general public to reassess the alternatives to the traditional neoliberal explanations for unemployment, namely that unemployment is largely a matter of individual “choice” and “responsibility,” a function of too much government involvement (such as welfare, WIC, “failing” public schools, or “socialized” medicine), market regulation (like the provision in the US that employers must fund workers’ health care, or, possibly, the unfortunate and temporary consequence of progress. (For example, workers who lose jobs to “off shoring” and “outsourcing;” the traditional neoliberal explanation is that such workers need to “re-skill” to become competitive in the marketplace.) (Yates). The Marxist and Keynesian response to neoliberal and classical free-marketeerism in the labor market share some similarities. Both Marx and Keynes, identify the cause of unemployment in exactly the declining rate of profit and accumulation as began in the 1970’s. For Keynes and Keynesians, this is the result of diversion of capital from investment in the “real”: economy; in the case of the latest crisis, the real estate bubble drew away potentially-job creating investment. It is therefore through deficit spending and government investment in job-creation that unemployment can be solved and full employment or something close to it, can be reached. Marx, looking behind the lack of incentive, finds the reason for it in the social character of production as a production of capital. Keynes does not regard crisis and depression as necessary aspects of capital formation; they are such only under laissez-faire conditions, and then only in the sense that the economic equilibrium does not include full employment. For Marx, however, a continuous capital accumulation presupposes periods of crises and depression, for the crisis is the only “equilibrium mechanism” which operates in capitalism with regard to its development. It is in the depression period that the capital structure undergoes those necessary changes which restore lost profitability and enable further capital expansion (Mattick). For Marx—and Yates—unemployment is a deeper structural problem which is not resolved by government investment and deficit spending. Here the problem is not inability to invest productively, but the definition of productivity. To remain profitable, profits need to increase in relation to the total capital accumulated. This becomes increasingly difficult the more capital is accumulated. Marxists, like Yates, also argue that unemployment is, itself, a feature, not a bug, of capitalism. Unlike workers in older economic systems, wage workers are free or not to sell their labor on the market; it’s the threat of unemployment and poverty which compel them to do so, or compel them to do so for lower wages than they otherwise might. The crisis of the 1970’s bears both of these ideas out. Nevertheless, the Marxist critique of neoliberal (and classical) economic ideology and theory, while perhaps stronger than the Keynesian critique, falls short when it comes to policy and prescription. The revolution in Russia, via its transformation into the Soviet Empire was, perhaps, successful in terms of creating conditions for full employment. However, it failed in other key respects that are too important to ignore; first political and social freedom, and second, longevity. If one is to criticize Keynesian policy on the grounds that it is not sustainable over the long-term and fails to avoid the inherent crises of capitalism, one must not ignore the history of political and productivity crises in planned economies, nor the ultimate collapse of the largest such example, which occurred not long after the capitalist crisis of the 1970’s. Other movements and programs which have been framed in terms of radical alternatives to both neoliberalism and Keynesianism have failed, so far, to produce outcomes that differ very much from neoliberalism (at worst) or Keynesianism (at best). Michael Yates, in various parts of his oeuvre, signals towards the need for a radical alternative backed by a strong, democratic and socialist-oriented labor movement, as the leader in a social movement that can overthrow the existing political, social and economic order. These conditions were met in recent decades, first in South Africa, where the national trade union federation, the Congress of South African Trade Unions (COSATU) led a broad-based push to end apartheid and the attendant inequality apartheid capitalism had produced. In Brazil, the Workers Party (PT) helped to elect Lula as their representative, via social movement coalition between workers, peasants and radical intellectuals. Nevertheless, these two nations remain among the planets most unequal, with Gini coefficients of 67 and 56 respectively. South Africa’s unemployment rate is extremely high relative to the level of capital investment in the country with estimates that a third of the workforce is unemployed, not including the uncounted members of the reserve army such as those Yates notes in the American context. The successes in each of these countries in terms of government policies to alleviate poverty and unemployment—in the case of Brazil, successful investment in the health care system, and in the case of South Africa, some attempts toward government investment in housing and a new antiretroviral policy, have a remarkably Keynesian flavor. Meanwhile, South Africa simultaneously pursues policies that continue to adhere to neoliberal forms of accumulation, such as the privatization of water and electricity. An older example of previously Marxist attempts at economic planning, in China, has become something of a capitalist powerhouse, with many neoliberal economists predicting a shift in global economic power from the US to the East Asian economy. While Marxist thinkers and critics such as Yates may have a strong case against capitalism, in both its liberal and neoliberal forms, a critique does not necessarily lend itself to useful and immediate translation into government policy, as demonstrated in the countries in which nationwide discussion of more radical alternatives has taken place. And while a Keynesian approach, like that seen following WWII in Europe and the United States, may not be sustainable indefinitely—or without, as Yates notes—the global division of labor that helped produce the massive in countries like Brazil and South Africa in the first place, it is nevertheless the most practical alternative. The current crisis has opened up political space for more and more radical critiques of the established common sense, demonstrated in part first by the massive support for Obama and a vague program of “change” and next by the Tea Party and its confused anti-neoliberal neoliberalism. Political obstacles remain for either a Keynesian program or a more radical one; as Yates himself notes, many voters and workers already know something is wrong. Nevertheless, “socialism” remains a dirty word in US politics, while a “new New Deal” approach might have some resonance in a nation with a memory of the successes of Keynesianism and a strong nostalgia for the post-war period. References: Grifiths, K. et al. “Confronting Capitalism’s Crisis.” Left Turn. 2008. http://www.leftturn.org/confronting-capitalisms-crisis Accessed December 13, 2010. Keynes, J. The General Theory of Employment, Interest and Money. Mattick, Paul. “Marx and Keynes.”Western Socialist, (1955). Boston. http://www.marxists.org/archive/mattick-paul/1955/keynes.htm. Accessed December 13, 2010. Yates, Michael. Naming the System: Inequality:and Work in the Global Economy. (2003) New York: Monthly Review Press. Yates, Michael. “A Statistical Portrait of the US Working Class” Monthly Review. Volume 56, Number 11. http://www.monthlyreview.org/0405yates.htm. Accessed December 13, 2010. Read More