Backgrounder on John Maynard Keynes

The General Theory and the Current Crisis: A Primer on Keynes’ Economics
The “Revolutionary” Who Wasn’t
By Alejandro Reuss
Dollars and Sense

Keynes is often described as a “revolutionary” thinker. In one sense, this is correct. Keynes was one of the most important economic thinkers of modern times, and his ideas were at the center of a major “paradigm shift” in economic theory and policy. He issued his masterwork, The General Theory of Employment, Interest, and Money (1936), at a critical juncture, in the middle of the Great Depression, when the orthodox views from which he had broken seemed at a loss to explain the crisis or a way out of it.

Keynes was not the first major economic theorist to understand that capitalist economies were prone to depressions (Marx had written on the subject nearly a century before), nor was he the only major economist of his generation to arrive at the basic insight that total demand could fall short of the level required to ensure full employment. (Some others, most notably the Polish economist Michal Kalecki, came to the same conclusions separately from, and even slightly earlier than, Keynes.) Keynes, however, was already a major figure in British economics and politics at a time when Britain was a much more important world power than today, so his ideas had a bigger impact in ruling circles than they would have coming from elsewhere, or from economists with a more radical views about the changes necessary to cure the problem.

As “revolutionary” a figure as Keynes was in the history of economic thought, he was, in another sense, a profoundly anti-revolutionary thinker. This is not to say that the changes he proposed, particularly in the role of government in capitalist economies, were trivial. He believed the problems of capitalism—especially the “arbitrary and inequitable” distribution of income and wealth and the “failure to provide full employment”—were very serious, and he did not think that these “outstanding faults” of capitalist economies would fix themselves. He thought that the state would have to play a major role in fixing them. However, as much as it was his goal to get rid of what he considered bad about capitalist societies, he also aimed to preserve what he considered good about them, which was a great deal.

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Unemployment and Inflation: Is This Just a Recession?

by Norman Markowitz

Unemployment rose in May, from 5 % to 5.5%, the largest one month jump in over twenty years. The national average for a gallon of gas reached four dollars today, with the upward spiral continuing. Those of us who visit supermarkets find that what are now advertised as "sale" prices for basic foodstuffs are above what the regular prices were a few months ago. And the Bush administration is still denying that a "recession exists" and the Republican presidential candidate, John McCain is talking about ending the federal gas tax, which, even if you discount the various middlemen hustling in to increase their profits, would only reduce gas prices as the moment, by around 15 to 18 cents a gallon. And this would not in any way affect the "market" speculation and manipulation of oil companies and various oil producing states (which would mean that gas that cost $3.80 a gallon this month would probably be up to $4 a gallon next month. Of course, McCain is addressing unemployment and wage stagnation by advocating new corporate tax cuts.

First, we should remember that the difference between "recessions" and "depressions" has always been artificial. At the beginning of the 1930s "depression" was a euphemism for what had previously been called "panics" and "crises," a soothing public relations term ("we are merely in a depression") until the term came to represent what was really happening, that is catastrophic mass unemployment, wage decline, and general decline in living standards. By the late 1930s, the term "recession" came into general use as an alternative to "depression" with economists developing the view that unemployment and other vital economic statistics had to be declining for a set period of time for the economy to be first in "recession" and then in "depression."

Even by those standards, as Jared Bernstein, a labor oriented economist noted, "we simply have never had five months of net job losses without being in a recession."

Even economists who work for pro business and Wall Street firms are making the point that the combination of huge gas prices and a very bad "labor market" for workers is creating general public pessimism and fear as reported in opinion analysis that is significantly greater than in the last two recessions.

And there are many "traditional" dimensions to the present crisis. One 1.5 million unemployed face a cutoff in their unemployment insurance benefits, which progressives in Congress appear ready to extend for another thirteen week, but which may face a presidential veto, since Bush administration spokesmen are contending that benefits have never been extended with the unemployment rate "so low." Unemployment among African Americans jumped to 9.7%, more than twice the jump in the general unemployment rate, and unemployment among people ages 16-19 rose by 3.3 %, from 15.4 to 18.7%. Of course, the "discouraged workers" or longterm unemployed are not counted any more (the official story is that they are "no longer looking for work" since they have failed to find it, a Catch 22 moment if ever there was one).

Also, economists are making the point that many companies, after years of job reduction through attrition, simply can't "shrink payrolls" much anymore. Instead they are cutting hours of employees and of course cutting their wages in the process.

What no one is really saying is that all of this is reminiscent of the "great depression," when unemployment shot up and the majority of the employed faced significant wage reductions. When the "stagflation" crises of the 1970s hit, as no one is saying, about one fourth of the
labor movement was unionized, personal consumer debt was much smaller than today, the U.S. was far less dependent on oil imports, and was still the leading creditor nation on earth. Today, the number of workers in unions as a percentage of the work force is less than half of what it was in the 1970s and less than a third of its peak in the early post WWII period. The national debt is more than ten times what it was in the 1970s, consumer debt has a crippling effect on the economy, and the U.S. is of course the world's largest oil importer.

Not only is the U.S. in a significant recession but it wil also l take transforming economic policies to address this crisis and keep it from become the "great depression" of the early 21st century.

It will take first of all a national administration which joins with the trade union movement to promote the organizing of the unorganized; a national administration which develops a national policy and agency to relieve the consumer debt crisis just as the New Deal government
established the FDIC, the Commodity Credit Corporation, and other programs to relieve the bank crisis. It will take a national energy policy that begins to both develop rapidly alternative energy sources and also public transportation policies. And it will take at the very least a revival of progressive tax policies. Senator Obama is coming forward with alternative energy proposals. He has also advocated eliminating the Bush tax cuts on the wealthy (although he is still a long way from a progressive tax program). He has also advocated a longterm "green jobs" creation policy, in which the government would through its investments help to produce millions of new environmentally positive jobs.

Senator Obama is moving in the right direction, and is keeping, as Franklin Roosevelt did, his options open. McCain of course is knocking his head against the dead end that is the Bush administration and thirty years of reactionary polices. Progressives as they support the Obama candidacy should actively encourage him to move forward and become bolder in his policy planning, since it will require bold progressive polices to address what is clearly becoming the largest general economic crisis in decades, perhaps of the whole post WWII era.