The perspective of this podcast series is this. The way in which the economy behaves—changes. However, the way ideologues think it ought to behave, stagnates and ossifies. Consequently, doctrinal tweaks are necessary, occasionally, to realign dysfunctional thinking with the way in which the world actually works.
Unbridled doctrinaire thinking on the ideological right, especially, has been a huge enabler of financial crises. In the run up to last decade’s Great Recession, outrageous ideology fueled speculative real estate deals, enabled by lax credit policies and derivative-laced financial frauds by the buckets-full. You may have found Michael Lewis’s film, The Big Short, as terrifying as it was illuminating.
Almost a century earlier, in the run up to the Great Depression, a Michael Lewis-type film might have focused, instead, on speculative Florida land deals, as notable contributors to that era’s bubble economy. It imploded, starting with the stock market crash on Black Friday, in the last week of October, 1929.
Economic carnage notwithstanding, perpetrators of failed ideologies seldom reverse course, to accept responsibility for their misguided actions and to disavow their self-interested, crisis-creating roles. Political theorist Antonio Gramsci offered a valuable insight about how to confront paradigm collapse—even capitalist paradigm collapse—when it occurs.
Because he opposed fascists, Gramsci died in one of their prisons, in 1937, a Marxist political victim of the government of il Duce—Benito Mussolini—leader of the Italian fascist state. Gramsci, among his various contributions, argued in order to measure a paradigm’s success—or failure—one should look first at its ending, not at its beginning. That is, rather than being co-opted to pledge allegiance to whatever a paradigm’s claims may be, instead, judge its successes or failures solely upon its outcomes—what it actually achieves.
If one was despondent about capitalism’s failures during the 1930’s, then Gransci would have advised practical reform, to replace brokenness with effectiveness. Thus, enter English economist J.M. Keynes. Probably he knew nothing of Gramsci, but the depression-era reforms he advocated, certainly supported Gramsci’s practical point of view.
Indeed, Keynes was not a radical, but a fixer and a reformer. His self-styled mission was to overhaul capitalism so it could do a better job of gaining standard of living improvements for the masses. Of course, in the United States it was President Franklin Roosevelt who implemented Keynesian-type ideas. This is how it worked.
As sinking financial markets set off waves of panicked selling and gold-hoarding, the Roosevelt Administration set up demand-stimulating programs such as the Works Progress Administration (WPA), and funded them through government bond sales. He argued, as the economy grew again, expanding GDP would fuel expanding tax receipts, enabling debt retirement. With households back to work, and purchasing again from businesses, eventually growth-creating investments returned to levels not seen since before the bubble economy’s collapse. With that, of course, living standards grew again and new labor force entrants were not only tolerated, but enthusiastically received.
Keynes was tasked with cleaning up the roadmap’s doctrinal errors that triggered the dysfunctional bubble economies of the 1920’s. Without that, including a new road map for how to dig out of future economic messes, capitalism’s unrectified problems would again hobble new generations of business people and government policy makers, schooled in the old ways.
Essentially, Keynes rejected Say’s Law. Practically, this meant the real world is not orderly in the sense of physicist Isaac Newtonian. Therefore, the amount households plan to save, may exceed the amount businesses plan to invest. Over-saving and under-consumption, of course, had been depression-era symptoms for collapsing demand, rising unemployment and tanking life-styles.
Consequently, government’s role in the standard paradigm patch since then, now has expanded to embrace economic security. This re-starts capitalism’s engines until normalcy returns, as it did in the 1950’s. That also was a time of significant revising, by the writers of university economics texts.
But wait. If Say’s Law is a doctrinal glitch, it is not the only one. Another exists, the so-called profit lacuna, which has become a huge contributor to American-style corporate capitalism’s many failures. How does it get fixed? Indeed, where is Keynes when we need him…again? Well, unfortunately, there was only one JM Keynes. But is it not possible to act successfully now, in a manner consistent with Keynes’ and with Gramsci’s world views? I certainly believe so.
Stay tuned. That fix is now within our gun sights, so to speak, and next on our agenda.
Jim Sawyer, in Boulder, CO.