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The GOP and Keynes

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by Michael Hogue Cross-posted from Tikkun Daily. Last week's GOP debate evoked a range of responses in me, from disbelief to revulsion. It was not only the content, but also the form and style of the lineup, the glowing white teeth and slick hair, the token woman and token black man, the cartoonish smiles, the obviously strained civility and the embarrassing pandering of each to distinguish him or herself from the others. I was particularly horrified by the advance applause of the audience when Perry was asked what he thought of the fact that during his tenure as Governor, Texas had executed more people than any other state. Before Perry had a chance to answer, the audience erupted into wild applause! Perry then went on with great pride to explain his commitment to capital punishment. It was hard to stomach. I was also in a state of somewhat bemused disbelief as I heard Perry incoherently dodge the question put to him about climate change. When asked which scientists and theories he could draw upon to support his claims that the science was still out climate change, he very awkwardly avoided the question and camouflaged his ignorance with in the rhetoric of "sound" economic policy. But the most important issue, and I'd love to hear some others' thoughts about this, was provoked by Romney's assertion that there is now proof that "Keynesian" economics doesn't work. To support his claims Romney (and most other conservatives) argues that the limited effect of the Obama stimulus - the facts that the economy has not fully recovered and unemployment is still high - demonstrates the inadequacy of Keynesianism. Against this view, and probably along with most of you reading this blog, I side with those who say that Keynes hasn't really been tried recently since, out of a goodwill effort to build consensus and bridge partisan differences, Obama ended up with a stimulus that was too small. The results of this too small stimulus are economically tragic and politically disastrous: the tragedy is that there are still so many unemployed and so much economic suffering; the disaster is that now it looks like Keynesianism doesn't work. This issue around Keynes has everything to do with our polarized politics. Where one stands in relation to the radically opposed economic philosophies of John Maynard Keynes and Milton Friedman is probably the most important indicator currently of which party one belongs to and which news one consumes.

John Maynard Keynes / Wikimedia

Whether or not one knows the names or the details of the philosophical differences between Keynes and Friedman, our political discourse is divided by their different visions of the relation between government and the market, which are themselves rooted in very different moral sensibilities. Here's how I understand the economic policy differences (and I simplify radically here...I'm not an economist): While Keynes viewed economic issues through a concern with unemployment, Friedman focused on inflation; while Keynes argued for a government role in the market, through a combination of regulation and spending, Friedman argued that government should leave the market alone, that it will self-correct; Keynes was concerned with jobs and demand while Friedman was more concerned with the role of the Central Bank in controlling prices; Keynes argued that governments should spend in times of crisis in order to fuel recovery, while Friedman focused on monetary strategies (e.g. adjusting interest rates). Part of the problem with the popular reputation of Keynesianism, I think, is the counterintuitive principle that deficit spending by the government is the key to generating more government revenue. By spending more the government gets the economy moving again which leads to increased employment and demand and thus tax revenue. I suspect that many people find this principle counterintuitive because their analysis is based upon their experiences with personal household economic s: When we spend more than we bring in, well, then we need either to spend less or earn more; and if we can't earn more, since the jobs aren't available or there aren't enough hours in the day, then we're left with spending less. Reasoning from this experience many folks conclude that if there's a major deficit then we've got to spend less, there's no two ways about it. Eventually all will be made right as the market evens itself out. NOW, it may well be that if left to itself the market will eventually self-correct. BUT THAT'S NOT THE POINT. For even if it were to self-correct it would only do so EVENTUALLY and at GREAT HUMAN COST. And to me, that's the moral point of this whole thing. The economic objectives of Keynesians and those influenced by Friedman may be roughly the same - to sustain and grow the economy and to minimize the market cycles of bust and boom. And yet, while the objectives may be the same, the policy means to those objectives are completely different. Keynesianism is rooted in a political and economic ethic. According to this ethic, part of the government's purpose is to protect its citizens, sometimes from themselves; and in order to realize this purpose, governments may need quite regularly to intervene in markets in order to get the economy moving again and to diminish the inevitable short- and middle-term suffering that will be caused if markets are left to themselves. The completely different moral tenor of these two economic philosophies comes back to their starting points: where Keynes' interventionist theory begins with a concern with unemployment and thus develops with human value in mind, Friedman's free market theory begins from a monetary concern with inflation and develops with only an abstract form of value in mind. In a time of great suffering and of high unemployment it would seem that this moral difference should carry more weight. To read more pieces like this, sign up for Tikkun Daily’s free newsletter, sign up for Tikkun Magazine emails or visit us online. You can also like Tikkunon Facebook and follow us on Twitter.