Five Things I Wish ‘Keynesians’ Would Stop Saying

This post was written by Richard on February 23, 2012
Posted Under: Economy,Uncategorized

John Maynard Keynes (1883-1946) was an economic theorist whose views on money and unemployment became some of the most influential of the twentieth century, shaping government politice worldwide. Seeming to forget how badly that century went in its latter half as much as the first, scores of leftists have now been turning to various versions of Keynes theories as a one-size fits all catch phrase for what ever economic policy they want the government to pursue. Proponents include the New Economics Foundation, the Trade Union Congress, Counterfire, UkUncut and many other voices liberally beaitifed by the Guardian‘s typography.

The ideas of the grand Eton and Cambridge educated statesman are being used like leftist magic dust, in which any austerity measure can be batted away with the response that ‘Keynesian’ ideas prove that the government could increase unemployment by not cutting public services. This is, as I hope I can show a bit below, untrue on a number of levels. It’s not what Keynes said, it wouldn’t work, and I don’t think the left should want it to either – ultimately.

1. All problems can be solved by investment

Keynes was not a transhistorical writer, summing up decades of careful investigation so that we, the forunate inheritors, could apply his maxims to any given situation. He was, rather, a pragmatist. His theories were forged in the India Office before the Great War, and from that moment changed with the needs of his dear government. When people say that we need Keynesian investment, I assume they mean of the kind which boostered the British economy after the World War – an investment which was not levied through high taxation of the rich, but instead made on the back of the greatest loan from the USA the UK has ever had (negotiated by Keynes), and which vastly increased the deficit and the debt. So ‘increasing investment’ means ‘borrow more from richer governmemts’.

2. We need more Keynesian policy

This is exactly what the UK government is trying to do at the moment. The frantic sloughing off of labour and labour regulations – in other words, slashing wages and sacking people – is a method to increase profits. This is classic business strategy: when faced with a crisis, who get rid of your workforce and invest in machines instead, because they make surplus value more efficiently. By slashing public sector employment and encouraging the private sector to do the same, Cameron and co are trying to (1) increase national and business profits, and (2) prove to the world that the UK is a great place to invest their bonds in. Bonds = debt. The government is trying to increase its debts so that it has the money to invest in grand infrastructural projects. The Olympics are our version of 3rd Reich motorways.

3. Increased wages will make the UK economy grow

The trickle down effect has its mirror image in this beautiful neo-Keynesian mirage, the trickle up – in which it is imagined that so long as money is distributed from corpoations to their employees, then the money will immediately be poured into a circulation of consumption which will boost business and equal generalised national growth. This ignores the global dimension of the economic crash. Given the global insecurity of jobs, thanks to the tactics of businesses *everywhere* in response to a fall in profits, any extra money put into the sphere of the consumer is likely to stay there as savings rather than active consumption of products. This idle money can of course then be used by banks to fund a round of lending – but the lending will foremost go into the excellent rates being offered by desparate bond markets, not petty personal consumers. Second, any excess wages will be put into buying cheap products from wherever they derive – which is highly unlikely to be Britain just yet. Increasing wages here, if those monies did magically find their way back out into the sphere of consumption, would leave the country and boost another’s – though still probably insignificantly.

4. The state should enforce sustainable capitalism

This sounds weird when phrased as above, but it really is the argument that gets made. The new Keynesians phrase it like this: ‘the organisations of the workings class, or mass social movements a la UkUncut, need to push for growth in the economy in order to alleviate the poverty of normal people. Economic growth based on investment by this mass state capitalism (i.e. state control of industry and strong regulation of the financial sector, plus high taxation) will create a form of capitalism which put economic power back into the hands of the majority, and an environment without the risks of economic crisis, the disastrious effects of which we are currently witnessing.’ On an economic level, this misses an inherent structural fact of capitalism: it needs crises in order to survive. Capitalist crises are a method of rejuvenation, in which labour costs are slashed, new machines are bought, and the the classes (ruling and working) are recomposed. Crisis is part of the life cycle of the capitalist beast. Capitalism which is made more stable (i.e. with longer periods without crises) simple brings on harder, longer periods of crisis. The historical proof for this is quite simply the mid 1970s, the period in which the great Keynesian boom period turned out to have had nothing to do with Keynes, but instead was the elongation of american productive growth through industry built on the back of imperialist war, racist labour policy and interest from war loans. The crash came, and lasted for half a decade. This crash will last longer (we’re already five years in remember).

5. Growth is good for the working class

And here’s the moral peak of the new Keynes mountain, where the bureaucrats of the future throw their hands up and praise the monetary policy king. Economic growth, they cry, is the saviour of working people. It will provide jobs and with those, wages – and with wages, a higher standard of living. Underneath, many of the Labour party hacks understand that high standards of living are not the same as freedom, so I won’t make that critique here. However, they should understand that more jobs, once the effect of the crisis management has pulled through, will mean more bad jobs. This government is Keynesian. It wants to provide lots of jobs for working people – long, hard, badly paid jobs. Economic growth will arrive, but at a cost – perhaps on the back of a cheap war with Iran, perhaps through a reintroduction of racist immigration policy (mass cheap labour). If the working class benefits, it will only be because another mass of people have been delicately ignored. Economic growth can only happen through the massive extraction of labour from people; this is a far leap away from freedom or strength.

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Reader Comments


Excellent post. Have been getting annoyed for some time with the omni-presence of St. Keynes the counter-cyclical. Aside from anything Keynesianism didn’t even really address the major problems of the interwar period – when, contrary to the cultural memory, most unemployment was structural not cyclical.

I would quibble a bit with your final point. Yes work under capitalism is unfreedom. However the degree of unfreedom experienced in the work place can be effected by the extent to which there is unemployment and hence a reserve army of labour, although obviously a reduction in unemployment is not in itself sufficient to ameliorate the tyranny of the boss in the work place. It should also be said that, however awful a lot of work is, the opportunity to do it may give people more control over their own lives (and hence a bit more compromised liberty) in the time that they are not working. Something not to be sniffed.

But the major point is that the economy will not, in any way, recover for the working class without very deliberate democratic restruting – regardless of spending and tax.

Written By Reuben on February 23rd, 2012 @ 3:26 pm

Hmm I was considering writing about Keynesianism in relation to the current economic situation and political consensus and so on recently, but at the moment I don’t feel quite qualified to really grapple with it. I would say I disagree with some of the things you’ve said here though… To address your points in turn:

1. You’re entirely right, investment requires money from somewhere, which at the moment is going to mean borrowing, which is going to mean greater levels of debt. However, if Keynes is right, that’s not a problem, because the debt generates the growth to pay for itself in the long term, and the UK isn’t currently in dire straits preventing it from taking on more debt for the sake of public investment, unlike Greece for instance. This is only a criticism if in fact you have other reasons to think that the debt won’t pay for itself.

2. Though I am far from an expert, my understanding is that the government’s austerity programme is far from Keynesian on any understanding of the theory.
“Cameron and co are trying to … [snip] … to invest in grand infrastructural projects.” I think this is a complete misrepresentation of the tory rationale – in fact, it strikes me that you’re looking very hard for Keynesianism because you’ve decided in advance that is what you will/should find.
The tory logic is fundamentally neoliberal, and this is opposed to Keynesianism on any sensible reading – permanently shrink the state, focus on channelling the flow of money in the right directions, rely on private sector entrepreneurialism to profit our way out of deficit budgets in the long term, etc. I think for them the Olympic emphasis is on attracting business and tourism from abroad, not on providing jobs and contracts within the national economy as such.
Obviously, both theories are concerned with providing jobs and increasing growth and so on in the long term, but they do so in completely different ways, and based on completely different assumptions about the economy.

3. I’m with you and I’m not. On the one hand you raise some interesting points about how the global division of labour may make Keynesian strategies less effective than they once were (and I think the same goes on the production side of things to some extent also, even though you’ve only addressed the consumption side of the problems). I think it’s a bit extreme to suggest that most of the money spent will end up elsewhere, though.
You know how little of the cost of a product actually ends up in the pocket of the original producer – the majority of it will be divided into a portion of profit that stays here, a portion of executive and managerial pay that stays here, a portion of haulage costs (most of which probably stays here), a portion of shop-floor wages that stays here, a portion of advertising and marketing that stays here, and so on. I think you’re overstating the problems here by a long shot.
As for whether the ‘trickle up’ is a mirage, I don’t really understand why you think it is. It’s based on the idea that those on lower incomes have a higher marginal propensity to consume, which as far as I can see is a fairly solid assumption. Also, what with lots of people unable to pay their bills, heat their homes, or whatever, I think the MPC is likely to be reasonably high at the moment, and we wouldn’t see the kind of hoarding that you’re predicting, though I couldn’t say for sure.

4. “Capitalist crises are a method of rejuvenation, in which labour costs are slashed, new machines are bought, and the the classes (ruling and working) are recomposed.” I think you’re posing it in quite a teleological way there, which I find dodgy – I don’t think that the capitalist class consciously and purposefully induce crises in order to better discipline the working class and profit in the long-term.
Forgive me if that’s not what you intended to imply, but I have heard it put quite literally in those terms, as if the capitalists all got together and decided to crash the stock market one day with a view to the profits they could make 15 years later… That just sounds absurd to me, for various reasons.
I do think you’re right that all hitherto existing capitalist societies have had business cycles, and thus periodic booms and busts. I would agree that it’s more or less an intrinsic feature implicit within the basic market mechanisms and incentives in play. I’m not sure that all forms of capitalism would necessarily have to have these features, but I can certainly see the argument that whatever happens, we’re not going to get a form that does away with business cycles for at least a very long time, if ever, so it’s a somewhat academic question.

5. “monetary policy king” – that should read ‘fiscal policy’, surely?
“This government is Keynsian. It wants to provide lots of jobs for working people – long, hard, badly paid jobs” Again, I think that’s completely wrong. The government is not Keynesian by any stretch of the imagination and I don’t think it helps anyone to make rhetorical claims like that.
The issue is precisely that the government doesn’t want to “provide lots of jobs” – not even long, hard, badly paid ones. What it wants is for other people (the private sector) to provide lots of jobs; in fact, it’s actually reducing the number of jobs it provides quite substantially in the hope that someone else will pick up more than the slack they let go. Whether or not they’re right, they’re certainly not Keynesian.
“If the working class benefits, it will only be because another mass of people have been delicately ignored. Economic growth can only happen through the massive extraction of labour from people” Are you suggesting that it would be impossible to claw back any more surplus value than the working class already receives? It is true that people need to work in order to create growth, but that’s just an economic fact of life – a natural fact, not a social fact. It’s something that would be true in any economic system. That doesn’t mean that any gains made by the working class would be at the expense of people worse off than them – the whole point of the surplus-value explanation of profit is that labour can create more than enough value to sustain itself, allowing accumulation. The short-term challenge for the working class is to win back a greater amount of that surplus value they generate.

PS: It’s ‘Keynesian’, not Keynsian, for future reference. :)

Written By Anne Archist on February 23rd, 2012 @ 4:27 pm

“Keynsianism” contains many traditions, on that you are right. You could if you wish add Ronald Reagan’s pursuit of a classic ‘military keynesian’ response to the business slump to your charge sheet. Keynes was not a socialist, yes he sought to save rather than end capitalism. But there are a variety of left keynesian positions, which remain the possible centre of an anti neo-liberal coalition which can win (eg using debt to respond to the business cycle, the priority of fighting unemployment over preserving the interests of bondholders, the right of the state to intervene, the bias towards redistribution towards the poorest as a means of restoring consumption and growth etc.)

You’re simply wrong about the origins of the post-1945 recovery, in which the home market’s capacity to absorb its own recovered and expanded industrial product, based on higher wages and welfarist subsidies based on redistributed taxation, was central.

Written By Richard on February 23rd, 2012 @ 7:18 pm

Hang on, is that last comment a response to Anne’s comment or to the article itself? It looks like it’s objecting to arguments made in the article, but the comment was apparently made by Richard as well, which doesn’t make sense.

Either way, I entirely agree with Anne’s comment. I’m happy to admit my knowledge of Keynes is pretty limited but much of this just doesn’t stack up. In addition to the points he made, I’d add that the economic crisis of the 70s didn’t prove that the merits of Keynesianism were an illusion, for two reasons: First, I don’t think you’ll find many economists who say that Keynesianism is a long-term driver of economic growth; the claim as I understand it is that it simply reverses the self-reinforcing effect of recessions (ie in recessions if government does nothing then demand goes down so GDP shrinks and unemployment goes up, so demand goes down, so unemployment goes up more and GDP shrinks more etc…whereas if governments are Keynesian they boost spending temporarily to increase demand, so unemployment goes down and GDP goes up, and the cycle is reversed). The only thing thought to drive sustained economic growth is increases in Total Factor Productivity – technological developments, basically. Second, the 1970s economic crisis was triggered by the oil price shock of 1973, which was itself a political decision by OPEC countries in response to US policy towards Israel during the Yom Kippur War (as such making it less than obvious how capitalism is to blame for it). Now, an economic slowdown triggered by high oil prices doesn’t respond well to Keynesianism, because high oil prices will both reduce output and raise prices (by making it more expensive to produce stuff, and hence more expensive for consumers to buy), which is what caused stagflation, but as far as I can tell it doesn’t respond to much else either, apart from the price of energy coming down for one reason or another (which it did after a while).

Written By Owen on February 23rd, 2012 @ 10:39 pm
another Richard

Owen, I should have used “another Richard” when I commented above under Anne/Archist, as I am not Richard Brody..

Written By another Richard on February 23rd, 2012 @ 11:34 pm

Ah, all becomes clear – I think it was the fact that your first comment was highlighted in blue which confused me – normally the site only does that for the author of the post. Probably a bug.

Written By Owen on February 24th, 2012 @ 8:15 am
Joshua Mellors

Just to clarify when you say ‘Keynesianism’ am I right to presume that you’re talking about the bastardised Keynesianism of postwar government policy (IS/LM, ‘government investment’, etc.), rather than what Keynes himself actually said?

Written By Joshua Mellors on February 24th, 2012 @ 10:59 am
Will Brambley

The main thing I wish ‘Keynesians’ would stop doing is calling themselves ‘Keynesians’. What does that mean? One of the key things about Keynes is that he came up with a huge quantity of theories. People call themselves Keynesians and expect everyone else to know which of these theories it means they agree with.

In my view the most important theory Keynes came up with is that demand can be deficient, and therefore it is possible that increasing government spending and running a deficit during recessions can be beneficial. This is simply correct, and all but the most hardline market-loving nutjobs admits that. However this doesn’t imply deficit spending during recessions is always good, or that all forms of it are, just that it’s possible for it to be beneficial. Keynes never advocated a general policy of always spending huge amounts during recessions, regardless of the size of the national debt, the state of the economy, or what it’s spent on. As the great pragmatist that he was, he would have considered stimuli on a case-by-case basis. Yet which ‘Keynesians’ mean that when they self-identify with him?

Written By Will Brambley on February 24th, 2012 @ 11:36 am

I’m afraid this article strikes me as deeply confused and unconvincing – much of the criticism has been well made by Anne and (other) Richard, and there is an overwhelming sense that you’re looking for Keynesianism in practice where none exists. I would add though that the statement that any surplus money will simply be invested in “the excellent rates being offered by desparate bond markets” marks a deep unfamiliarity with what the bond markets – and hence, what neo-Liberals tell us are the most important factor in structuring a nation’s economic policy – have come to look like in the last year or two. While there are certainly spiraling rates of return on Greek or Italian government debt, due to the very real risk of those bonds being declared worthless in the coming months, you actually have to pay to keep your money in, for example, German government bonds, because over a ten year period it’s probably a safer place for it than anywhere else. Such are the actual concerns of bond investors. If you’re looking for speculation, the elephant in the room is the steady upwards trajectory of equities over the last three months, which seems to fly in the face of wariness in the bond markets.

Written By Tom on February 24th, 2012 @ 1:46 pm

Having just read my post back, while I stick by the points, I haven’t got a fucking clue what I was thinking with the tone – I think I’ve been reading too many supercilious right-wing newspapers and they’ve started to addle my faculties. So yeah, scratch that shit.

Written By Tom on February 24th, 2012 @ 2:01 pm

okay, response time.

- “I don’t think you’ll find many economists who say that Keynesianism is a long-term driver of economic growth”. Yes you do. You’re right about the simply theory of unemployment, one which ignores the necessity (and effects) of a reserve army of labour. But Keynes also had monetary theories which are separate from his employment ones.

- The oil crisis was no doubt part of the 1970s recession. But so was the exhaustion of labour supply, the overcapacity of the main branches of industry, the demobilisation of military spending following the defeat in Vietnam and the increasing export industries from Japan and Germany. The idea that it was simply a political crisis is wrong and damaging.

- The debt will either pay for itself and in the long term we will return to high employment, but as I covered, that employment has to come at a cost to labour conditions as well. This also means not regulating the financial sector (something the new Keynesians also call for). If the debt doesn’t pay for itself, it will be because the government is sucked into the same black hole that Greece has gone in – something which actually is on the cards, particularly with the possibility of the Euro being shored up through French bank capitalisation over the next few months. If the Euro maintains strength, there’s always the possibility that the pound loses out. That can go either way, I know.

- Is neo-liberal logic that far from aspects of Keynesian theory? The difference is really about state and corporate actors, but given the changing nature of the state over the past decades, Regan-Keynesianism (i.e. military spending) doesn’t seem contradictory. Think if WWII finances themselves: private companies still ran industry, even while the state was the main financer and consumer. Keynes’ management of how you finance tanks was the same as Regan’s.

- “the Olympic emphasis is on attracting business and tourism from abroad, not on providing jobs and contracts within the national economy as such.” I think you’re wrong. Listen to their propaganda.

- how much money stays in british circulation changes from sector to sector. The net picture is clear though: there are plenty of European and US companies with fully integrated business structures which allow the money to stay within those corporations and then their parent countries. The case is different in the States and Germany, for instance. As for the marginal propensity, you identify rightly that we differ about how that’s effected by debt. My feeling is that the real problem is not so much about working consumers but industrial ones: plant and factory need to be consumer as well, and that’s not through wage increase. Growth means real, plant growth – you have to show that people will build new factories (or the equivalent). This also speaks to Richard Drayton’s point. “Home market” does not mean just buying coats and cars. There had to be the export of machinery to new markets. Surely there is a correlation between decolonisation/liberalisation and increased markets for British export.

- As for crisis, this is about the tendency for the rate of variable capital to outrun the rate of fixed capital. When profits fall (as they have a tendency to), variable capital is sacrificed. This is a mechanism built into the structure of commodity production. If it’s not there, it ain’t capitalism.
- You’re right that surplus can always be clawed back more or less, but the phrase “allowing accumulation” is exactly what I mean by ignoring another mass of people. Accumulation is not the process of amassing idle money; it’s a process of colonialism and enclosure (cf Luxemburg).

Tom – cheers for the corrective on bond markets and equities. Equities are indeed more relevant.

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