Economics

John Maynard Keynes Comes Out of Hiding in the UK

With the health crisis only beginning to hint at its possible long-term consequences, economic doctrines in the West are already undergoing a seismic shift.
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John Maynard Keynes, Keynesianism, Keynesian, Adam Smith, economic theory, UK economy, UK economy coronavirus, coronavirus pandemic, economics news, British news

Regent Street, London, UK © Willy Barton

March 18, 2020 15:46 EDT
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The Guardian’s columnist Will Hutton, a declared Keynesian, has expressed his astonishment at the Tory government suddenly abandoning its economic orthodoxy as the appropriate response to the coronavirus pandemic. His readers certainly remember the “Cameron-Osborne austerity” of only a few years ago, when Conservative economists, as they have done for decades, insisted that austerity was the only viable solution for the UK economy. Anything else would be considered irresponsible madness or fiscal folly.

In 2010, Tory politicians unanimously insisted on putting their iron-clad rule into practice by cutting public spending, in some cases more than 40%. To appease public opinion, they consistently expressed their regret at having to take such measures, but it was the pill the nation would have to swallow to cure the disease, though they never really bothered to define the nature of the sickness.


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Now that there is an identified disease to deal with, the same economic thinkers and political operators have taken the opposite position. Hutton maintains that Boris Johnson’s government has converted to the economic credo his party spent decades denying. Hutton writes: “Chancellor Rishi Sunak repudiated the entire discourse and accepted core Keynesian propositions. He delivered the biggest fiscal boost for nearly 30 years, coordinating it with an interest-rate reduction by the Bank of England — exactly the Keynesian stimulus a flagging economy needed.”

Here is today’s 3D definition:

Keynesianism:

A respected economic theory that recognizes how governments manage economies, which an entire class of politicians refuses to recognize, consistently with their belief that governments should not manage the economy but be managed by the economy’s unrestricted private forces

Contextual Note

Hutton senses that the sudden Tory conversion to Keynesianism may not be totally sincere. Clearly the Tories are unlikely to suddenly begin celebrating the economic philosophy of John Maynard Keynes in their public discourse. But they do appear to believe that a Keynesian approach to managing the UK economy may now be necessary. The politicians appear to be ready to accept the practice even if they remain intent on denying the theory.

The coronavirus already appears to be producing a sea-change regarding economic thinking in Europe. Just last week, we witnessed French President Emmanuel Macron’s newly declared allegiance to the welfare state, accompanied by a direct critique of free markets. After pronouncing a nationwide sequestration of the citizenry in France, the French government has pledged to offer direct financial support to all French enterprises facing the prospect of months of reduced if not inexistent activity.

The French finance minister, Bruno Le Maire, a pillar of the political right, has now evoked the eventuality of aping the 1981 policies of the socialist Francois Mitterrand by nationalizing major industries. Claiming he will not hesitate to use every means at his disposal to protect France’s large firms, according to Le Figaro, Le Maire dared to announce that he was willing to “employ the term ‘nationalization’ if necessary.”

In such circumstances, the British government’s position, as it faces the complicating prospect of Brexit as well, may seem to be part of a global trend. Keynes appears to be back in the saddle, though some would say he never really left the stable but simply mounted another steed. In 2009, the late Chalmers Johnson, a political scientist who had spent some of his career as a consultant to the CIA, described the new form of Keynesianism that had taken root in the US and prospered even under the militantly anti-Keynesian president, Ronald Reagan.

Tom Engelhardt cites Johnson’s observations published 10 years ago, reminding TomDispatch readers that Johnson was “convinced that we had long passed from a republic to an empire and were on the downward slide, helped along by what he called a ‘military Keynesianism’ run amok.”

Historical Note

The difference between the Keynesianism famously put into practice by US President Franklin Roosevelt in the 1930s and the Keynesianism that Will Hutton sees as possibly reemerging in the wake of the coronavirus pandemic lies in the fact that the military version we have been living with for 70 years not only increasingly neglected the needs of civil society — as if they were irrelevant — but became the motor on which the rest of Western economies became dependent. As Chalmers Johnson explained in 2008, it spawned the military-industrial complex that US President Dwight Eisenhower warned about upon leaving office in 1961. That kind of Keynesianism has not only been growing ever since, but in some sense it has devoured the national economy in the US, with similar effects in other developed nations.

To give an idea of the disproportion this created, Johnson reported that by “1990, the value of the weapons, equipment, and factories devoted to the Department of Defense was 83% of the value of all plants and equipment in American manufacturing.” And that was before the massive transfer of information technology manufacturing to China and other countries with low wages that has accelerated over the past 30 years.

The post-World War II United States became a nation addicted to its military economy. It lost touch with the supposed purpose of an economy built around responding to its citizens’ needs. Wars in remote parts of the globe are now justified not only by the pretext of the US military being a “force for good,” out to defend the ideals of democracy and justice, or even by the more cynical pretext of defending and promoting American business interests abroad. Wars and crippling sanctions — which are just as destructive but are presented as “peaceful measures” — become a required element of foreign policy. Military and military-supported economic aggression keep the state-run economy ticking over. Chalmers Johnson’s “military Keynesianism” consumes the majority of the state’s resources, leaving no room for the constructive role of traditional Keynesianism.

The logical counterpart of dependence on a military economy will inevitably be a policy of austerity concerning social needs. Austerity, accompanied by the transfer of public assets to private interests, became a quasi-religious doctrine for the regimes of Reagan in the US and Margaret Thatcher in the UK during the 1980s. Promoted by the IMF and the World Bank, austerity acquired the status of a global credo, to which governments across the globe were required to pledge allegiance. That credo amazingly remained unaffected by the crisis of financialized capitalism in 2008. 

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The belief in austerity as the foundation of economic orthodoxy reached its height in 2010, when things once again began to look reasonably calm after the turmoil of the 2007-08 financial crisis. That is when Mark Ritson, a columnist and associate professor of marketing, declared: “The Age of Austerity is upon us. No crisis. No disaster. Just a long, drab era of economy and..well.. bitterness.” In the article, Ritson explained that the word “austerity” derives from the Greek word for “bitter.” Ironically, 2010 was also the year in which the Greeks discovered they would be forced to swallow a bottle of those bitter pills in the name of “sane economics.”

The coronavirus pandemic may mark a turning point in history, or at least in the history of economic belief systems. A radical change in economic thinking may prove to be the only way today’s political institutions in the West can remain sustainable. That is what appears to be happening in Europe, though the quasi-religious commitment to traditional free market economic ideology in the US will probably last longer. The era of military Keynesianism should have taught economists that markets simply are no longer free in the way that, say, a village market in 15th century Europe may have been free. Markets are managed by those who control the resources. And it is no longer democratically-elected governments themselves that control the resources. As President Eisenhower said, it is a “complex,” which may be taken as a synonym for oligarchy.

Many observers, at least in the past decade, have expected that the forecast catastrophes associated with climate change would be the critical element that triggers a political awakening about the supposedly inviolable “laws of the economy” that have dominated political decision-making for the past 40 years. But climate disasters and their effects — such as California’s and Australia’s massive fires — can easily be written off as local phenomena and explained away by specific variables, even when their frequency and intensity increases.

In contrast, the coronavirus, with its global reach, has now shown that there is no room for debate. Adam Smith may have had something else in mind when he mentioned the “invisible hand” that controls the economy. The new coronavirus known as COVID-19 is literally an invisible hand that is now exposing bankrupt ideas about society and the economy. The economic laws we have been instructed to believe in no longer protect the societies that promote them. A virus has exposed them as unrealistic, insufficient and in dangerous contradiction with social reality.

The global assault of the coronavirus — unlike the Cold War or the global war on terror, which could be attributed to evil groups of people — resembles the catastrophes imagined by H.G. Wells (the “War of the Worlds” in 1897) and then by the screenwriters of an endless series of Hollywood movies, in which aliens attack and threaten with extinction the entire earth (always governed from the White House in Washington, DC). This global dimension of COVID-19 may turn out to be the factor that convinces political establishments on every continent that their idea of a stable economic order resulting from the unrestrained forces of free markets may, at its core, be unsustainable.

Something else is required. Can the solutions be inspired by Keynesian models from the past, as politicians such as Senator Bernie Sanders and Representative Alexandria Ocasio-Cortez seem to think by invoking Franklin D. Roosevelt’s New Deal and transforming it into a Green New Deal? Or will they have to come from some different train of thought altogether?

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The most fundamental question will be this: How do any of the proposed solutions relate to the idea of democracy? The Chinese appear to be managing their economy and their crises more flexibly with an authoritarian regime. Will that or a more humanized, cleverly-marketed Western version of authoritarianism provide a new model for sustainability? That may be what President Donald Trump imagines, but it contradicts the entire ethos of US democracy.

What citizens of the industrial West should be asking themselves now that the free market fantasy idealized by generations of economic patriots has failed so miserably is a different, more fundamental question: Whatever the specific contours of the formal political system we end up tweaking or adopting, is it possible in the 21st century to imagine a global as well as national economy “of the people, by the people and for the people”?

*[In the age of Oscar Wilde and Mark Twain, another American wit, the journalist Ambrose Bierce, produced a series of satirical definitions of commonly used terms, throwing light on their hidden meanings in real discourse. Bierce eventually collected and published them as a book, The Devil’s Dictionary, in 1911. We have shamelessly appropriated his title in the interest of continuing his wholesome pedagogical effort to enlighten generations of readers of the news.]

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