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« Permanent Supportive Housing 101 (Part 1) | Main | Out My Front Door »


Keynesian Spending vs. Economic Collapse

By Bob Hooper
November 14, 2009

BOGUE, Kan. - In good times, we Americans sing "Hallelujah, praise the Lord" and buy stuff. Sometimes we need it. If we don't, well, it looks so soooo cool on TV. No cash? No problem, we got plastic. God will come through on principal and interest later.

For decades, consumer spending was a critical 70 percent of our "robust" economy. Then the deregulated, under-regulated financial sector predictably collapsed. Speculators (including banks) who thought they had money really didn't. Neither had they credit. The whirlpool began.

Businesses are in business to sell goods or services. If they sell more, they hire more workers, or pay them better. But if businesses sell less, not only does the boss earn less, she cuts jobs, or hours, or benefits-- or wages. Those who earn less (or nothing) spend less. Result? Still more businesses sell less, cut jobs...or hours...or wages...or benefits. And so the whirlpool spins faster and wider, sucking down more and more employers and employees.

If we truly want to resurrect our consumerist economy, we have to buy lots of stuff again. But today Americans have lost jobs or work part time. They struggle to pay bills. They've lost health insurance. Those with jobs and 401Ks saw their retirement portfolios drop by half. Wall Street has now on fresh lipstick, but by now we know beauty is skin deep.

Retirees saw CD rates fall to less than inflation. Old geezers aren't buying anything they can live without. And don't bet Great Depression survivors aren't sticking tens and twenties in the mattress.

The top 1 percent of Americans have more money than the bottom 95 percent of us put together -- the greatest redistribution of wealth upward since just before the Great Depression. The rich could buy more. but what would they do with it all? Their garages will only hold fifty or so Porsches, their tummies only so much caviar and single-malt scotch. Besides, re-distributing any wealth is counter to their religious principles. (In fairness, some less-connected cats skinnied up when their businesses bellied up.)

Well, John Maynard Keynes (pronounced "kanes") had an idea that got us out of the Great Depression. Since you and I go to jail for printing money, Keynes figured our government ought to do that. The money should be used to create jobs. Workers should make stuff or do things that people really needed, like build bridges and roads, and communication systems.

And then those jobs would put some of that newly printed money into people's pockets, and those people who had extra money might buy more stuff. And then businesses who sold the stuff might hire people to make more stuff. It would help most if they bought stuff made by their friends and neighbors at home rather than slave-labor in foreign lands -- although even that could help a wee bit through U.S. marketing profits.

That's domestic Keynesianism. Another variety is military Keynesian-ism. (Think Iraq, Afghanistan) Instead of building bridges at home, deficit dollars are spent blowing up bridges abroad. Defense contractors get big contracts. Some spread money around at home hiring people to make stuff that goes bang. If it works really well, U.S. corporations get to rebuild the bridges we blew up and sometimes even pay taxes on their profits. Some brave kids (mostly not the sons or daughters of the privileged classes) get killed or lose a leg or two, but that's war. Foreigners get killed, too, but that doesn't hurt our economy. It works better for tough-minded people like Dick Cheney remaining at a respectful distance.

The best of all worlds, of course, is never to get in a pickle in the first place. Citizens and countries should live within their means, not be greedy and hog all the money. But the human animal is often: (a) pretty stupid, or, (b) pretty greedy or some combination thereof. Thus, wealth often gets continually redistributed to the powerful and greedy few, while the un-powerful many prefer stuff to smarts.

A gaggle of wild-eyed Americans predict a Hitlery - Stalinly - Islamofascist - Castrolitic - Maoistic - atheistic - Ayatollish (breath here) toilet-bowlish Hell foretold in the Book of Revelation, reported by Fox News, and spread like swine flu on the internet. Joseph McCarthy, they say, "must rise from the grave where he has slept since 1957 to begin anew the witch hunt." Deficit spending plays into their paranoia.

Well, as they say, skit happens, and we all play a role. Nobody has a bigger or more important role than a government truly of the people, by the people, and most importantly, FOR the people. It's been a long time since we've had a government like that. Liberal Michael Moore calls it capitalist greed; Libertarian Ron Paul calls it corporatism. They're talking about the same thing. And, in my opinion, that's why we're in the skit.

Let's hope deficit spending works to kick start the economy. If it doesn't, the skit hits the fan and becomes a full-blown tragedy.


Comments (4)

Peter Tramel Author Profile Page:

As usual a fantastic, thought-provoking blog! What worries me about all this is that I agree with Paul Krugmann: if we're going to try Keynesianism, and I agree that we should, then we must really try it, rather than some Obama-esque, bipartisan compromise between those who want to try it and those who don't. Deficit spending that gets us only half-way out of the hole does no good whatsoever. It's like trying to climb out of a well: make it almost, but not quite, to the top, and you wind up falling as far back in as if you never tried to get out.

Bob Hooper Author Profile Page:

Absolutely agreed, Peter. Joseph Stiglitz would join us, I think: "The Triumphant Return of John Maynard Keynes." You've probably read read Krugman's NYT essay "How Did Economists Get It So Wrong?" I continue to be saddened that so many Americans fail to ask the Socratic question: who and what is this government you fear? If it is not one of, by, and for the people--who is it of, by, and for? Is it then government that is the problem, or who it is that's government?

Pamela Jean Author Profile Page:

Bob, I think that sounds like a great beginning to your next post!

gulf-a-zoid Author Profile Page:

I think what you meant to say is that "the top 1% of the richest Americans pay more federal income tax than the bottom 95%(The New York Times)." You need to read your sources a little more carefully before you start throwing percentages around.

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