Democrats and the Death of Keynesian Economics

By Michael Corcoran
Via Truthout

Obama’s dead-on-arrival jobs bill, which followed trillions in spending cuts that were made during the debt ceiling controversy, remind us that politicians have stopped seriously trying to save the economy through job creation and government spending. The protests on Wall Street show that the public recognizes that change will only come when the people take matters into their own hands.

It is quite remarkable, given the nature of the recent debate over economic policy inWashington, that a Wikipedia articles exists today called, “2008-2009 Keynesianresurgence.” Today, both political parties have had an obsession with “austerity measures” for at least last year or so – which includes putting Medicare and SocialSecurity on the chopping block. Barack Obama’s weak job bill, which was dead on arrival, only further demonstrates how twisted priorities are in Washington. So, it is actually hard to believe that, in the aftermath of the near-collapse of the economy in 2008, Maynard Keynes, who advocated government intervention in the economy to increase demand during downturns, was making a comeback.

But for a brief moment in time, this was indeed the case. After the 2008 bailout of Bear Stearns, Martin Wolf, an economics writer for the Financial Times and normally a staunch supporter of free-market globalization, wrote: “Remember March 14 2008: it was the day the dream of global free market capitalism died.” In the same article, he quoted Joseph Ackerman, the chief executive of Deutsche Bank, saying: “I no longer believe in the market’s self-healing power.” In an October 10 article, The Washington Post – in all seriousness – suggested that the current economic crises meant the “The End Of American Capitalism” as we know it. The cover of Time magazine in February 2009, said, “We are all Socialists Now,” referencing the need for government intervention to save us from the ills of capitalism. “Whether we want to admit it or not,” the article observed, “the America of 2009 is moving toward a modern European state.”

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As frightening and tragic as the economic crisis of 2008 was, having these widely held doctrinal assumptions about the power of the so-called “free market” spun on their head did provide some hope. Maybe there could be some sort of shift toward a more humane mixed economy that reined in the horrific excesses of contemporary capitalism. The country was optimistic; a new president had just been elected and his chief of staff Rahm Emanuel, famously said that he “never wanted a serious crisis to go to waste.” The Nation magazine even called for a “New New Deal.”

What followed, unfortunately, was a very underwhelming flirtation with Keynesian policies (such as the too-small stimulus bill in 2009), which was then swiftly overwhelmed with bipartisan discussions about how to gut government spending and create on austerity movement. This occurred despite the fact that the need for Keynesian economic policies are just as great now, in the face of crippling unemployment, as they were in 2008-09.

Somewhere shortly after being elected, it seems, Obama and Democrats closed the book on Keynes and opened one on Herbert Hoover – who famously helped spawn the Great Depression with austerity measures in the 1920s. “This is truly a tragedy,” wrote The New York Times’ Paul Krugman, responding to an Obama speech in July 2011, in which he reiterated classic right-wing talking points about the need for cutting spending. “The great progressive hope is falling all over himself to endorse right-wing economic fallacies.” Indeed, the language of austerity has been dominant among both parties in Washington for a year, as has also been the case in the mainstream media. The Keynesian Resurgence, referenced above, is completely dead in the nation’s capital. The crisis Rahm Emanuel so wanted to take advantage of has indeed gone to waste. Read story at Truthout

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