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Iím So Bored by the Keynesians
Source Louis Proyect
Date 12/06/07/13:22

Counterpunch June 05, 2012
One Wrong Does Not Make Enough Right
Iím So Bored by the Keynesians

by JONATHAN M. FELDMAN

Iíve been listening to various Keynesian arguments lately and I
find them boring. In the United States, United Kingdom and
Sweden, the Keynesians are critiquing the utter stupidity of the
austerity agenda which is half a loaf in the battle for sanity.
Yet, the problems are so much deeper than the Keynesians
acknowledge that one begins to get half agitated when half relieved.

Letís start with some basic facts. Itís certainly true that
paying off deficits, just circulates money in the hands of
financiers, private foreign bond holders or foreign governments
where we get no guarantee of a meaningful resulting stimulus.
Thatís the ďnot wrongĒ behind Keynesian logic. At the same
time, if you donít create wealth, you lack the means of paying off
substantial amounts of debt. In theory then, one expects a
stimulus to create wealth. Yet, we know that this is not
sufficiently true, which means that the Keynesians arenít telling
us something.

What is left out of the picture is the following. First, many
jobs have been lost to automation. All things being equal
automation can add to profit but if you are automated out of a
job, you lose. What jobs do you apply for when you have lost in
this way? Obviously, if you work in a firm that takes the profits
from automation and retains and retrains you, you will do better
in the ďNew Economy.Ē A Keynesian stimulus does not necessarily
address this fundamental problem of downward mobility or economic
disposability.

Second, some Keynesians have a naive and totally homogeneous view
of the firm, differentiating between small and large businesses,
but not between domestically-anchored and transnational firms.
We learned from the last stimulus that some portion of the money
spent on windmills, mass transit goods and the like leaked out of
the United States and went into the hands of foreign corporations
supplying such goods. Therefore, the government spending money is
not enough to produce the necessary employment gains. Or, thereís
an opportunity cost to simply stimulating without creating or
extending domestic production platforms. Some Keynesians will say
we canít wait for that magic industrial policy in the sky. Yet,
there are more fundamental problems.

Third, some Keynesians believe that demand creates its own supply.
They think if the government spends enough money, then
businesses will grow organically in response. Thatís partially
true, but hardly true for many parts of the more upstream and
sophisticated parts of the economy. During the Great Depression
we had a crisis of insufficient demand. Now, we have a crisis of
insufficient demand and insufficient domestic supply. They
donít understand in countries like the US and UK, the domestic
supply of hundreds of categories of goods and services have a
created comparative disadvantage because of years of
under-investment and failed government suppport. Or, if they
understand this (and the need for industrial policy), they donít
understand how to pay for it other than borrowing. Iíll return to
that later.

Finally, the advantages of a stimulus that simply puts service
workers to work rather than reindustrializing is overrated by the
Keynesians. It certainly is better to pay for a teacherís salary
rather than having that teacher collect unemployment. The
teacher can do something productive, rather than sit at home
sending out resumes to jobs where hundreds are chasing the same
position. The teacherís presence in theory guarantees a higher
teacher to student ratio, raising the productivity of the future
student/worker. Yet, some jobs are more or less productive in
providing the ability to produce the wealth and tax revenues which
pay for even more teachersí salaries.

According to various Marxists, there is a distinction made between
ďproductiveĒ and ďunproductiveĒ labor. This distinction can lead
to any number of controversies, but we know that taxing all of the
salaries in a school yields potentially less revenue than taxing
the output of a windfarm, wind mill factory, or other such
productive industrial service or goods producer. One reason is
that the productive impact of efficient energy (in mitigating
pollution costs, in lowering the costs of alternatives in nuclear
disasters, in making downstream businesses more effective) might
outweigh the contributions of teachers in economic terms. Of
course, if a teacher promotes inventors and creative planners, as
oppose to churning out Donald Rumsfelds and Dick Cheneys, the
economic benefits can be even greater given how such apparatchiks
helped waste trillions of tax payer dollars. Yet, all things
being equal, the productive gains of manufacturing outweigh
services. Moreover, as Jon Rynn, author of Manufacturing Green
Prosperity, argues, you canít easily trade services for services,
or expansion of manufacturing is necessary for elimininating trade
deficits. If all this seems a bit abstract, consider this. In
U.S. states like Michigan suffering from massive
deindustrialization, teacher layoffs have reached epidemic levels.

Some Keynesians like Paul Krugman have more nuanced arguments that
encompass greater regulation, support for the Occupy movement and
various other proposals. Yet, whatís left usually left out of the
picture are basic realities. These include: (a) the bloated
military spending levels that represent an opportunity cost on a
stimulus to civilian firms or the financing of a civilian
reindustrialization system; (b) the aforementioned distinction
between domestically anchored firms and the transnational
corporations; (c) the need for old-fashioned coordination and
planning or a development state which promotes industrial
modernization and competiveness; and (d) the advantages of a more
democratic economy so that we develop firms that are not only
domestically-anchored but also begin to act as lobbyists for
needed change.

The idea that a large consortia of smaller firms could be turned
into a large virtual cooperative firm that then lobbies the state
for more structural reforms is beyond the imaginations of many an
economist or political scientist for that matter. While Ireland
did worse than Iceland because it chose the austerity path,
Iceland is hardly South Korea in terms of growth potential. South
Korea has a development state that supports manufacturing and
industrial competence. It doesnít only spend more on Green New
Deal investments than other states. If fact, it can spend more
because it produces more, so here is where supply creates its own
demand.

The macroeconomic myopia of many a Keynesian stems from the
intellectual legacies of the Cold War, the atomization of the
social sciences, post-modernism, and corporate financing of higher
education. The Great Depression also apparently discredited more
radical institutional economists who could not compete with the
logic of simply increasing demand in a depressed economy. Yet, we
now live in an economy where institutional realities limit our
ability to supply in response to even increased demand. And,
where will we get the political capital to even increase demand in
the way and extent necessary without building new institutions
that multiply citizensí political capital?

Jonathan M. Feldman, based at Stockholm University, is a principal
organizer in www.globalteachin.com, a network of localities
concerned with institutional solutions to the economic, energy and
ecological crises.

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