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KEYNESIANISM VERSUS AUSTERITY ECONOMICS

October 17, 2016

KEYNESIANISM VERSUS AUSTERITY ECONOMICS

Since it appears that (barring a miracle) the presidential election is over, with this essay I am now returning to a discussion of my usual theme of policy choices involved at the intersection of economics and government. I reserve the right to return to the idiocies of the Trump campaign if felt necessary.

My followers will recall that I have repeatedly called for a return to Keynesianism as so successfully practiced after WW II to bring us out of our current economic malaise marked by tepid demand which is in turn caused by chronic wage and wealth inequality, all as chronicled in some detail by such eminent economists as Piketty and Stiglitz, among others. Policymakers both here and abroad (notably in the EU)  have ignored the proven tactic of spending and investing more heavily during times of economic  downturn and, as we shall see, the chickens are coming home to roost big time. Median wages adjusted for inflation remain stagnant with the inevitable result that aggregate demand is falling even further, all of which causes economic growth to continue to crater in our underperforming economy, an economy barely escaping the consecutive quarters of no growth which define recession, and all with no policy relief in sight, as though there is no alternative to austerity in both mature and emerging economies.

It doesn’t have to be this way. Those who complain about the debt are the same people who resist paying their fair share of taxes to reduce it and the same people who say “we can’t afford it” to every initiative that is proposed that would be of some help to the rest of us.  This status quo view is profitable to investors (witness the Dow) and the Fed’s emphasis on inflation control is in consonance with bondholders’ abhorrence of rising interest rates, but what about the millions of American workers who are literally donating wages they should be receiving to Wall Street investors and bondholders, the millions of us who are living amidst crumbling infrastructure while victims of sky-high tuition costs, monopoly pricing and increasing costs for food, rent and other necessities?

Why aren’t we investing in our people rather than Wall Street?  One of the reasons is that our people don’t have money for campaign contributions to give to those in the Congress to influence economic policies such as those recommended by my favorite economist, (Sir) John Maynard Keynes. FDR and other presidents, some Republican, were Keynesians. Unlike Coolidge and Hoover, they were not content to sit around a sinking ship of state and wait for “the market” to straighten things out. They grabbed the bull by the horns and put into place Keynesian solutions to solve the nation’s ills. Result?  Booming economies with near to full employment, aggregate demand that went through the roof and fair taxation that gave us the revenues we needed to reduce our debt and engage in initiatives such as investing in our peoples’ education both academic and vocational, among other such excellent public investments. However, in deference to the health of the bottom lines of Wall Street and corporate interests we have currently decided via adoption of austerity economics and forbearance of essential needs to pay (in addition to the donation of our wages) into the bottom lines of Wall Street and corporate interests. Why, when we have a proven alternative that would bring prosperity to all? Why?

I referred earlier in this essay that the chickens are coming home. The following quote is the first paragraph from a piece published yesterday by the Economic Policy Institute which lays out one of the many consequences of adoption of austerity economics. It should enrage every citizen.

The Quote: “With the September employment data in hand, we can look at the number of teachers who are starting work or going back to school this year. The  number of teachers and education staff fell dramatically during the Great Recession and has failed to get anywhere near its prerecession level, let alone the level that would be required to keep up with an expanding student population. In addition to losses from the Great Recession, the pursuit of austerity at all levels of government has meant that public education jobs are still 214,000 less than they were eight years ago. Over the last year, the number of teachers rose by 37,700. While this is clearly a positive sign, if we include the number of jobs that should have been created just to keep up with enrollment, we are currently experiencing a 372,000 job shortfall in public education. The costs of a significant teacher gap are measurable: larger class sizes, fewer teacher aides, fewer extracurricular activities, and changes to the curricula. Shortsighted austerity measures at all levels of government hit children in today’s classrooms.”

I find structural dumbing down of innocent students as a feature of austerity economics particularly egregious and an affront to reason since such students are tomorrow’s repository for innovation and invention, among other good and valid reasons to support public education, and especially since it is unnecessary with the adoption of Keynesian economics which would provide the wherewithal to seek out and find lurking Einsteins otherwise relegated to second shift at the 7-11, a loss to the individuals and to all of us who are to be deprived of their contributions to society. We are penny wise and pound foolish when we sacrifice social good for further enrichment of the already rich, and any system which fosters such an arrangement should be changed to one that does not. In short, it is clear as can be to me that we should discard austerity economics for Keynesian economics, and that the sooner we make this changeover the better.   GERALD     E

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