Great story in the Nation by Thomas Geoghegan, called What Would Keynes Do? outlines a problem in the U.S. economy that not enough people -- either conservatives or liberals or moderates and flip-floppers -- are worrying about right now: the trade deficit.
If we consult his writing, the scripture left by Keynes himself, we might be surprised to find that it would be a lot more than "prime the pump"—i.e., just run up the federal debt. For Keynes, the problem would be not just getting people into stores, or even getting employers to hire but getting our plutocracy to invest. It's not just our jobless rate but our huge trade deficit that would appall him. He'd be aghast to see the United States bogged down in so much debt to the rest of the world.
I know: that's not what people think. "Wait, wasn't Keynes the one trying to get us into debt?" Yes, but not that kind of debt—in fact, as his biographer writes, Keynes personally hated debt. Especially in a recession, he hated to see a country with a trade debt, or trade deficit, which arises when a country's imports exceed exports. Indeed, when the trade deficit is as jaw-dropping as the US trade deficit is now, it is harder to use Keynesian deficit spending to push employment back up. Keynes, unlike some of his disciples today, was quick to see this problem.
The fundamental problem is this -- yes, you need stimulative spending to get people back to work. And, no, austerity and budget tightening is NOT the answer at this time, particularly when the credit of the U.S. is solid and, let's be honest, interest is ridiculously cheap. If you turned the low-cost borrowed money that the U.S. has access to right now into real infrastructure in this country then you'd be doing everyone a favor. Budget-hawks are wrong.
BUT, so are all-out Stimulants. Why? Because the "multiplier effect" of stimulus spending doesn't work as well when you have an economy built on TRADE deficits, because the dollars end up going overseas too soon. If you take the stimulus dollars you received for work done on a highway or a Medicare payment for services rendered -- and then immediately walk into a Wal-Mart and buy a bunch of Chinese-made goods -- there's very little multiplier effect or benefit to the overall economy. (Some, but not a lot.)
Keynes believed that practical leaders would always see the supreme importance of keeping the country out of external debt—indeed, he seemed to see this as the first duty of the state. For Keynes, in his later years, it was the economic analogue to defending one's country. Avoiding an external debt was an act of patriotism and national self-preservation in a sense that even reducing unemployment was not. It's "fighting for freedom," in Skidelsky's phrase. Keynes would not believe how Obama, the Tea Party, the Democrats, the Republicans—our leaders—pay so little attention to our whopping trade deficit, as if it had nothing at all to do with our slump.
So what's the answer? It gets a little complicated, and you can read the story yourself if you're interested. But the crux of it is this -- we need to make it harder (and less profitable) for the top 1% in this country to make money without investing in anything -- like plants, improvements and infrastructure in *this* country.
Keynes would point out that the rise in the US trade deficit—which became serious in the 1980s—coincided exactly with the astonishing deregulation of the financial sector. We knocked down usury laws. We allowed the first end runs around the Glass-Steagall laws.
In order words, we have to get people with money to invest in this country. Geoghegan offers a few solutions, such as the public assumption of healthcare costs, because it would lower the cost of healthcare and, hence, workers in this country. He also suggests tax breaks on real investment and usury laws that limit the interest rates that lenders can charge. Most of all, he wants the "rich" to stop loaning money and start investing it. Discourage debt financing and encourage equity.
He also points to Germany as a model, where there's universal healthcare and a different corporate structure -- one that generally includes labor representatives on the boards of their companies. Those companies are doing rather well in the recession and Germany is a net-export nation.
I have one more idea to add to his... what if, at the same time we're tweaking the system toward a bit more equity (and a bit less "free money" for those who already have it), we also created a campaign that made it *patriotic* to invest in this country again?
In other words, when did it become just a liberal idea to want to buy something Made in the U.S.A.? Or to Buy Local? When did selfishness and "doin' for me and mine" become a virtue?
What if we decided that the Cult of Selfishness isn't the only ideal left in this country, and that, instead, we would Shop Locally and look constantly for that Made in the U.S.A. label -- even if the product cost a little more? Then -- along with some of these other smart ideas -- you'd start to see that multiplier take affect again, and stimulus spending would work that much better.
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