Monday, April 25, 2016
The Keynesian Devolution of America
There are, in progressive circles, many disciples of Keynesian economics, the theories of legendary British economist, John Maynard Keynes. Some see it as the necessary path to a Middle Class renaissance in Canada.
A somewhat contrary view is taken by another very progressive economist, James K. Galbraith, who, in his book "The Predator State" contends that the Keynesian horse has left the barn and America has entered an era of Keynesian Devolution. Galbraith uses this term to describe, "the transfer of the power to borrow and to fuel economic growth from the public to the private sector. It is from the Keynesian devolution, public borrowing privileges gone private, that the household emerged as the prime motor of American growth.
This is something quite new: an economy sustained by institutions providing, in the main, human services and drive, in the main, by the accumulation of personal and household debts and a corresponding rise in asset values. It is a system that can emerge only in a world where the country in question is released from one of the age-old obligations of all countries: the obligation to pay for the goods it consumes with the goods it produces, of like value. The growth of imports in such a system will exceed that of exports, barring the discovery of new natural resources to exploit. Therefore, for good or ill, the country will be obliged to issue and accumulate external debt - to borrow from overseas. That is the American case... And for the system to continue, two conditions must be met. First, there must be a willing holder of the resulting external national debt. Second, the system cannot be allowed to collapse from within. This means that attacks on it from those who see the opportunity to become very rich in the easiest possible ways, by preying on the public sector, cannot be allowed to get out of hand.
The history of the past three decades has often been written as a struggle between the spirit of Milton Friedman and the ghosts of Keynes and Franklin D. Roosevelt - between the market and the state. The Reagan revolution was successful primarily in forcing changes in the way people thought and spoke: it resurrected Adam Smith and Friedrich von Hayek, and established a new church of the free market... But with respect to the major New Deal institutions of middle-class social welfare policy, Reagan barely changed the facts on the ground. Social Security came through those years with its benefits mostly intact.Medicare and Medicaid continued to grow.
...Overall the New Deal survived Reagan quite intact, and the economy recovered - partly led by housing, partly by technology, partly by military spending. This was not because the conservatives around Reagan succeeded but because they had failed.
Those who describe themselves as political conservatives but who are mainly interested in power rather than in ideas drew the lesson. They adapted. They quietly dropped any serious adherence to their own past ideas. Rather than defeat the system, they decided to join it. And to turn it to their own purposes. Without saying a word.
And so Galbraith lays the foundation for the rise of the Predator State in which the system of free trade was re-jigged. Instead of increasing trade, creating more well-paid jobs it became a vehicle for outsourcing jobs, relocating production to low wage/few questions asked jurisdictions and transferring both economic and political power out of the middle class to the elites, in turn facilitating their "capture" of the political process at the direct expense of liberal democracy.
Today the bulk of global trade is no longer in products of trade - resources, end goods or services. Today it is primarily in money - currency, financial instruments, shares and bonds. This is what Galbraith means when he writes that they have taken trade and "turn[ed] it to their own purposes. Without saying a word."
Galbraith succinctly describes this in the opening paragraph of the next chapter of his book:
What did this new class - endowed with vast personal income, freed from the corporation, and otherwise left to the pursuit of its own social position - set out to do in political terms? The experience of the past decade permits a very simple summary explanation: they set out to take over the state and to run it - not for any ideological project but simply in the way that could bring to them, individually and as a group, the most money, the least disturbed power, and the greatest chance of rescue should something to wrong. That is, they set out to prey on the existing institutions of the American regulatory and welfare system.
Do you recall how billionaire Warren Buffet responded to denunciations of the Occupy movement as inciting "class warfare"? He replied that the protesters weren't waging class warfare. The class war had been waged years ago. It was over. His side, the elite, won it hands down. The Occupied people were arriving at a war they had already lost.