Beyond Keynesianism

[marmar]

from Dollars & Sense:



Beyond Keynesianism
Irving Fisher’s Depression-era debt-deflation theory, then and now.

By James M. Cypher


According to dominant economic ideas, massive government interventions beginning in 2007—by way of Keynesian fiscal stimulus programs of the Bush and Obama administrations, the TARP program (the Wall Street bailout), and unprecedented interventions by the Federal Reserve—should have reset the economy. But because these interventions have not addressed the economy’s huge structural issues, the economy continues to stall. Structural changes have brought an end to the era when wage increases were tightly linked to productivity increases from the end of World War II through the early 1970s. Since then, in a new era of deregulation, globalization, and de-unionization, labor productivity has nearly doubled, but real hourly wages for non-supervisory workers—over 80% of the workforce—have stagnated or fallen slightly for over 30 years. This has left the working class without any viable strategy as jobs were offshored and outsourced. Instead, women flooded into the workforce, workers sought second jobs, money was pumped into 401(k)s in the hope that stock market plays could make up for declining labor opportunities, household debt reached record levels, and the dream of windfall gains from house-flipping became a major focus for millions of working-class and middle-class families. From 2007 onward, the unprecedented interventions of the Bush and Obama administrations were designed to meet the immediate needs of elite financial institutions, leaving largely unaddressed the sorry plight of the dwindling middle and working classes, now marginalized in the new era of neoliberalism.

The stimulus and rescue programs did prevent an even greater avalanche of interlocking bankruptcies from reverberating via Wall Street to Main Street and back again—as occurred for years during the Great Depression of the 1930s. Yet as of the end of 2010, the general state of the U.S. economy looks bleak. With the economy losing over 443,000 jobs from June through September and unemployment rising again in November to an official rate of 9.8%, attention shifted toward further stimulus. By September, with most of his original $787 billion stimulus plan now spent, President Obama at first urged $50 billion for new infrastructure projects. There is a bit of buzz about a “manufacturing strategy”—a belated attempt to address the long-term collapse of the manufacturing sector from nearly 30% of the economy in 1953 to only 11% in 2009. Here, Obama has offered only increased funding for the Export-Import Bank in order to meet his goal of doubling U.S. exports by 2015. And then, in December 2010 came a “second stimulus” package largely limited to extensions of existing tax breaks—nearly 25% of which will go to the richest 1% of income recipients. Additional stimulus will come only from a $110 billion one-year drop in Social Security taxes and—according to White House estimates—roughly $50 billion in new investments due a variety of tax breaks for corporations and small business. But, the same legislation eliminated the “Make Work Pay” provision, which had been worth roughly $55 billion in tax cuts. Thus, for all the fanfare, the net new stimulus from this bill will be no more than $105 billion. In short, the administration proffers small and unimaginative policies as the economy stagnates and weakens.

Still, the interventions have served the purpose of putting a squishy floor underneath the collapsing edifice. All available evidence tends to support the Obama administration’s claim that its fiscal interventions have saved or created some 2.7 million jobs. But these numbers constitute a counterfactual that is hard to demonstrate to the general public: the job growth owing to the stimulus has taken place in a broader context of massive job cuts—roughly 8 million jobs lost—since the downturn began. Economists Alan Blinder and Marc Zandi estimate that had it not been for a range of extremely active monetary and fiscal interventions beginning in the closing months of 2008, GDP in 2010 would have been 10.5% lower and an additional 8.5 million Americans would be out of work. Nonetheless, the public mostly rejects the assertions of Obama’s economic spokespersons, either because most Americans have never learned of Keynesian economics or because they have been stampeded by a well-greased juggernaut financed by people like Pete Peterson, the Koch brothers, and the many others who would like to return the U.S. political economy to the good old days of 19th-century Social Darwinism.

.....(snip).....

Since 2008 the government has prioritized policies to push the profit rate up, thereby benefiting the top 5 million (3.7%) of all households, those with incomes above $250,000, while shrugging off the plight of the working and middle classes and the structural problems that have created the current impasse. Millions in these classes are now caught in a Fisher-style debt trap, with their incomes flat or falling and their debt-to-income ratios remaining extremely high. For most families, wealth continues to shrink: housing values lost an additional $1.7 trillion in 2010, with the largest proportional declines being felt in working-class neighborhoods. Aside from some largely symbolic gestures, neither the Bush nor the Obama administration’s stimulus efforts have addressed the drag effect that Fisher highlighted. This has stalemated the stimulus programs and the easy-money efforts of the Fed, leaving the majority in the United States in a condition of crushing economic precariousness. ..........(more)

The complete piece is at: http://www.dollarsandsense.org/archives/2011/0111cypher.html

[OHdem10]

1. "Nevertheless, the public mostly rejects the assertions of Obama's

spokespersons, either because most Americans have never
learned Keynesian Economics; or because they have been
stampeded by a well-greased juggernaut financed by people
like Pete Peterson or the The Koch Brothers and the many
others who would like to return the U.S. Political Economy
to the good old days of Social Darwinism."

You know Banana Republic America.

[AdHocSolver]

2. The only action that will save the U.S. economy is to return manufacturing of most goods to the U.S.

Keynes' solution of providing economic stimulus to the economy in the 1930's through government spending worked because most goods purchased by Americans back then were made in the U.S. by other Americans. Money circulated within the U.S. economy providing jobs.

Today, most everything we can buy is made in foreign countries, so that stimulus money that is spent goes offshore to countries like China.

Trade policies must be put in place to make it more profitable to manufacture the goods that we purchase here in America to keep the money that we spend within our own economy.

The current U.S. trade imbalance is already too large to enable this country to increase exports sufficiently to reduce the trade deficit. Moreover, as long as current trade policies enable greater profits from manufacturing in low wage countries, corporations will continue to offshore production to maximize profits. Without changing trade policies (like NAFTA), the U.S. economy can never improve.

All the proposed solutions, other than bringing manufacturing back to the U.S., are pure snake oil.

[midnight]

3. Neoliberalism shifts risk from govt. and corporations to individual....

"Neoliberalism describes a market-driven<1> approach to economic and social policy based on neoclassical theories of economics that stresses the efficiency of private enterprise, liberalized trade and relatively open markets, and therefore seeks to maximize the role of the private sector in determining the political and economic priorities of the state.
The term "neoliberalism" has also come into wide use in cultural studies to describe an internationally prevailing ideological paradigm that leads to social, cultural, and political practices and policies that use the language of markets, efficiency, consumer choice, transactional thinking and individual autonomy to shift risk from governments and corporations onto individuals and to extend this kind of market logic into the realm of social and affective relationships.<2>"http://en.wikipedia.org/wiki/Neoliberalism


The individual has been stuck with the debt, and the corporations with the winnings... Probably a reason this country is stuck in the ditch...

[defendandprotect]

4. K/R

[txlibdem]

5. Such a diversity of opinion. Here's a Left Wing take on it.

The problem with America isn't that its people are lazy. It is not that we lack motivation. We don't lack education or skills. The problem is that the blood suckers in the elite have siphoned off all the wealth and left the rest of us with the bills and the pain. This has been going on for centuries. The ruling class live lives of luxury. The peasants? Let them eat cake...

The people of America need to realize that they have been lied to from birth and that there is no pot of gold at the end of the rainbow, there is no American Dream for the working man and woman in America.

One thing needs to change for us to realize our potential as the greatest, most successful society on the planet: we need to end Capitalism immediately. We need to end the use of money and the accumulation of wealth. None of these things have brought anything but misery to us. Why do we cling to them so?

End Capitalism. It's rotted flesh is long past time for a proper burial.