In the long run, we're all dead
Far from being a socialist left-winger, Keynes ... was suspicious of the power of unions, inveighed against the perils of inflation, praised the virtue of profits. "The engine which drives Enterprise," he wrote, "is not Thrift but Profit." He condemned the Marxists as being "illogical and so dull" and saw himself as a doctor of capitalism... Communists, Marxists and the British Labor Party's radical fringe damned Keynes because he sought to strengthen a system that they wanted to overthrow. (Time Magazine. Dec.31, 1965)
We've talked about it before. Things are not so good. We've got two wars: one we were misled into in Iraq, and another slightly less problematical in Afghanistan. Then there's the embattled economy on our own shores.
According to the Department of Labor Bureau of Statistics, in October, 15.7 million Americans still were out of work -- more than the combined populations of Kansas, Nebraska, Colorado, and Missouri. Those who try but can't find full-time jobs or whose hours have been cut add 9 million more. And those jobs often pay less and have fewer benefits. More than a few have given up -- quit trying. The rate of job losses might have slowed, but the situation remains grim.
Home foreclosures are rising: More than 1 million families are behind on payments or already in foreclosure.
Americans are not spending. Many have little or nothing to spend. Some are too nervous. With a capitalist-consumerist system, that means trouble -- more jobs are lost, and the downward spiral grows and grows and grows. That happened in the Great Depression, and we're lucky it hasn't happened again. But it could.
Some citizens today not only vilify the new administration for problems it didn't create, but are uncomfortably like those preceding the Great Depression and immediately after. They don't get the need for increased government spending.
Most economists back then thought that in a depression or a serious recession, the government should cut spending to balance the budget, even raise taxes if necessary. Until the last year of his administration, Herbert Hoover did exactly that.
In 1929, before the crash, unemployment was just more than 3 percent. Two years later, in 1931, it had hit 16 percent -- with essentially the same effect as today. By 1933, unemployment had reached 25 percent. Finally, in desperation, Hoover spent a little more than tax revenues, but it was too late. Things got worse. There were bread lines. Revolution was in the air.
FDR had swallowed the Adam Smith "invisible hand" theory that government must reduce expenses, cut taxes and generally stay out of business. Roosevelt ran and won on a promise to end the deficit spending and balance the budget. That should solve the problem in the long run, the theory went.
John Maynard Keynes -- an eccentric and multi-talented Englishman -- saw it differently. In times of deep unemployment and recession, Keynes agreed government should cut taxes and interest rates. But government also should spend money to spur the economy and create jobs -- deficits be damned. As for the long run, Keynes famously said, "In the long run, we're all dead."
In 1934, Keynes came to the White House to advise Roosevelt. When Keynes left, FDR reportedly said, "I didn't understand a word that man was saying." What happened, however, was that in every year of his administration, Roosevelt did spend more than tax revenues produced.
Earlier, in 1933, he created Civilian Conservation Corps and 3.5 million government-paid jobs. Later, in 1942, they were absorbed into the military.
In 1935 came the Works Project Administration, which provided nearly 8 million jobs -- in construction and a wide variety of public works. Very few areas today do not have a bridge, a road, or a building built by WPA workers. Gross Domestic Product grew steadily from 1933 through 1937. It took a short dip in 1938 when FDR cut some New Deal programs, then again climbed steadily, fed by job-creating military (Keynesian) expenditures through World War II. The WPA remained until 1943 and was the largest employer in the country. Roosevelt had to admit he had been wrong about John Maynard Keynes.
Robert Reich, former U.S. Secretary of Labor and now a professor at Brandeis University, wrote: "In 1938, the Depression deepened. Reluctantly, F.D.R. embraced the only new idea he hadn't yet tried, that of the bewildering British 'mathematician.' As the president explained in a fireside chat, 'We suffer primarily from a failure of consumer demand because of a lack of buying power.' It was therefore up to the government to 'create an economic upturn' by making 'additions to the purchasing power of the nation.' " (Time Magazine, March 29, 1999)
Roosevelt finally got it, and we should, too. The critical discussion now should not be about the general strategy, but the specific targets of the government stimulus. We'd better get them right.
Bob Hooper is a fourth-generation western Kansan who writes from his home in Bogue.
celtic@ruraltel.net