Bernanke and the Return of Keynes

by Norman Markowitz

When the chairperson of the Federal Reserve calls for a fiscal stimulus package, you know, as Bob Dylan famously sang, "The Times they are a changin." "Fiscal stimulus" approaches to fight business cycle downturns derive from the thinking of John Maynard Keynes, the British economist who, after WWI, contended that the capitalist system faced a "secular crisis" which called for state fiscal policies to sustain mass purchasing power in the economy in order to counteract stagnation that would produce decline.

Unlike Marx and Lenin, Keynes didn't see the crisis as structural, but he saw it as long-term and not simply "cyclical," as most ruling class theorists contended, to be waited out until the "market corrected itself"(traditional ruling class economists saw state intervention, particularly policies to provide jobs for the unemployed and protect workers wages, as leading to a withdrawal of private capital and making the overall situation worse). Keynes contended that state intervention was necessary to save capitalism both from long-term stagnation and decline and (he implied) from the political consequences of that, which might very will be socialist revolution to end capitalism. Keynesian theories and policies were adopted in many developed capitalist countries from the depression to the 1970s, with the New Deal in the U.S. playing a leading force in this development, informally during the depression and more formally after WWII though U.S. government influence in the world capitalist economy.

These policies were connected to general economic expansion and stabilization within the capitalist world through the early 1970s, but, just as U.S. capitalists had no love of the New Deal, except as an alternative to a socialist America, capitalists everywhere had no real love of economic policies which both regulated their predatory activities and, more importantly, supported minimum wages, public pensions, work programs for the unemployed, and other social and labor legislation as a way to sustain mass purchasing power. By the 1960s, Keynes and Keynesianism in its positive sense had been scrapped for the conservative monetary theories of economic Milton Friedman, Keynes great antagonist, who argued that the free market could be free again, unions, minimum wages, social legislation were all essentially handicap for economic growth, and that "compensatory fiscal policies" that had been the hallmark of Keynesian theory, especially "social investments" in health care, education, housing, transportation, jobs for the unemployed, could be replaced with central banks using what one might call "compensatory monetary policies," that is, controlling the flow of credit by raising or lowering prime interests rates to "fine tune" the economy.

We have lived with these policies and the devastation that they have caused since the 1980s We have a national debt ten times what it was when Ronald Reagan became president. Minimum wages have lagged way behind (they were frozen for 12 years under Reagan and Bush I). The percentage of workers in trade unions is substantially lower than it was when Reagan became president, as both union busting policies and the export of jobs have undermined it.

But capitalists don't really care about that. They do care that Merrill Lynch posted a $9.8 billion loss earlier this week. They do care that the giants of Wall Street, investment bankers and brokerage houses, are selling shares in themselves to deal with their losses and debts. They do care that the peoples crisis is becoming
their own.

So, after a couple of decades, Ben Bernanke announced that the Federal Reserve supports a Keynesian solution, a fiscal stimulus package. That may mean many things, including Wall Street's realization that they need the next Democratic president and Congress to go back to traditional liberal Democratic policies to bail them out (of course, if the "fiscal package" includes large increases in the minimum wage, a jobs program for the unemployed, and substantial re-regulation of capital and a revival of progressive tax policies they will be kicking and screaming). It may also mean that Bernanke realizes that the jig is up for the Republican right and since he will be around for the next administration, he had better make it clear that he is not, like his predecessor, in denial that the New Deal in the U.S ever happened.

The return of Keynes, if he is really returning, is a small step forward for the working class. Reviving what in the U.S. was "left Keynesianism," that is government support for strong unions, a strong public social security system to provide an decent living for retirees, national public transportation, housing, education and energy policies (both on the TVA principle and in the development of alternative energy programs) and repeal of both the Bush and Reagan regressive and reactionary tax policies and revival of progressive taxation would be a much bigger step.