John Maynard Keynes proposed an economic theory that government could act to moderate the business cycle, reducing booms to boomlets and busts to bustlets. He also said that government deficit spending to stimulate the economy could lift a nation out of recession or depression. In theory, he was correct, as was Karl Marx. In practice, his theories have wrought more destruction than can readily be imagined.
First, Keynesian deficit spending did not fix or solve or even mitigate the Great Depression. All the hyperactivity of Roosevelt’s advisors during the 30’s did almost nothing to improve the plight of the Nation. This goes against socialist orthodoxy. These theories of economics, and attempts to implement them, were coincident with the early years of the USSR and the Stalinist claims of fantastical successes under that system. If the Soviet government could do such a magnificent job of managing their economy, why couldn’t Western governments duplicate that success? Of course, in retrospect, all the Soviet successes were utterly fabricated, and at enormous human cost.
So Keynes and FDR did not fix the Great Depression. We spent like drunken sailors, and after several years of this, we tried weaning the economy off the government teat in 1936. And of course the economy fell right back into Depression. Nothing had been fixed, at which point nobody knew what to do, so we tried doing everything. By 1939 the situation was so dire that Secretary of the Treasury Morgenthau made his famous speech, “"We are spending more money than we have ever spent before, and it does not work. After eight years we have just as much unemployment as when we started, and an enormous debt to boot.”
What did finally get the United States out of the Great Depression was two consecutive events. The first was World War II which would have financially destroyed the nation were it not for the second, which was the utter worldwide desolation in the aftermath of WWII. WWII deficit spending built the industrial plant that we then used to rebuild the rest of the world. Because the Greatest Generation was doing this, having grown up during the Depression and having fought and won WWII, prudence and thrift and personal responsibility were foremost. We had an intact social fabric, WWII being the last war fought equally by rich and poor. And that social fabric, warp and weft, was that the rich paid their taxes, and the poor didn’t demand a right to expensive government benefits.
So today’s Americans inherited a legacy that we have completely failed to live up to, which brings this to the rest of Keynes’ real world performance.
Government deficit spending can work to unclog an otherwise functional economy. If it’s a minor or temporary disruption, the government can borrow and spend to get the gears turning again. But in case of a fundamental malfunction, such as what we now have, government deficit spending is a positively dangerous approach. But first, let’s finish dispelling the myth that government deficit spending can jumpstart(1) a dysfunctional economy.
(1) worst metaphor ever
At the height of Depression-era deficit spending, the deficit never exceeded 3.5% of GDP. And that didn’t work. So today’s academic and governing elite insist that we simply have to spend more to make this scheme work. Well, guess what? We have been, we’ve been running deficits above 10% of GDP for the past three years and it isn’t even close to working! And remember, in the aftermath of WWII we had supernatural prosperity because the rest of the world lay in smoking ruins. If Secretary of the Treasury Geithner had more honest bones in his body, he would dust off Morgenthau’s speech and use that at his next major speaking engagement.
In this environment, the only prudent course is for the government to put their accounts in order, quit generating debt, and solidify the nation’s credit and currency. That might not work, either, but at least we’ll be drowning in less debt, and we might have a credit rating and currency that are strong enough to give the nation a negotiating position that doesn’t involve holding “hat in hand”.
Very quickly, the problem with our economy today is that the jobs are gone. They aren’t “gone overseas”, they are gone as in “they don’t exist any more”. We used to need lots of people to raise enough food to feed themselves and have a little left over to sell to city folks. Two hundred years ago, 80% of the people in America were farmers. Agriculture improved and now 2% of the population can feed themselves, plus the other 98%.
Without our realizing it, the same thing has happened in industry. People are no longer required to build automobiles, refrigerators, or iPads. The only reason there are jobs in China doing those things is because labor is so cheap. If the labor were any more expensive, the corporations would capitalize the final stages of Total industrial production automation. It can be done, and it will, if it comes to a choice between that, and bringing back a General Motors that employs 600,000 hourly union workers. All is not necessarily lost, but it is threatened.
The new jobs in America are going to be in design, a few jobs in production prototyping (typically, expensive complex stuff that costs a lot of money, but is pumped out in low volumes), and in content creation (writing, producing videos, etc). My greatest concern today is that the New Media entrepreneurs are showing themselves to be every bit as predatory and rapacious as the Robber Barons ever were. Think of websites that are based on user-contributed content that have made their founders/owners wildly, spectacularly, obscenely rich. And those founder/owners have kept all the money for themselves and equitably disbursed none of it to those who created the content(2) that generated the wealth for them. Of course, there was not a contract, but nobody has seen what this situation is until I just now. And these New Media entrepreneurs bask in their own righteousness, while young Americans volunteer for serfdom by contributing to someone else’s fortune at no benefit to themselves.
(2) The paid staff who built the website, or administer the website, or sell the advertising, don’t create that wealth, the content creators do.
Contributing for free is something that the elites can do, or the retired, or the community minded. But when a New Media mogul cashes in, then the “community minded” premise is out the window. So I strongly encourage anyone who’s still trying to make a living for themselves to get this clue: Never give something for free to someone who is going to sell it to someone else. If we need a Facebook, or Twitter, or HuffingtonPost as a new age town square, then do it the Linux way, or the Wikipedia way. Everyone contributes their best for the common good, and nobody takes the whole hog.
As for the celebrities and elites who contribute for free, you should be ashamed of yourselves. You have more than you will ever need, of course you don’t need to be paid for your contribution. Try growing a social conscience and think about the young, or not so young, freelance writer who’s trying to scrape out a living for themselves. Of course you understand that you are discounting the value of their work by giving away what you will never miss for free. When you go on Jay Leno, you don’t need the $500 or whatever it is, but you know it’s there to protect struggling actors. Open your eyes and stand for social and economic justice for struggling Americans. Use your celebrity for the benefit of the less well off by demanding a fee (and to assuage your conscience, donate it to a worthy fund).
So, I think I’ve done a dandy job of confusing the initial issue sufficiently. This is the future of America. We have this chance to get it right, there is little chance we’ll have another opportunity even as good as this one. All change is not improvement, but all improvement requires change. We can’t make the situation better by continuing with what hasn’t been working.
G’day all, and may God continue to bless America!