“It is not intelligent, it is not beautiful, it is not just, it is not virtuous – and it doesn’t even deliver the goods.” Thus spoke the most influential economist of the 20th century John Maynard Keynes on the inter-war economic system.
Keynes had been a great believer in traditional economics, that is, until the Great Depression. Then everything changed. In the following essay Keynes explains the flaws in free market economics, his plan for the future, and the pitfalls that must be avoided.
In his argument for an expanded dialogue on economics, Tony Judt frequently references Keynes. Judt opines that we must also discuss economics in terms of justice; rather than purely in the terms of a narrow minded accountant. In this sense, Keynes’s work is the perfect antidote to the multiplied bray of the free market loudspeaker.
I was brought up, like most Englishmen, to respect free trade not only as an economic doctrine which a rational and instructed person could not doubt, but almost as a part of the moral law. I regarded ordinary departures from it as being at the same time an imbecility and an outrage. I thought England’s unshakable free trade convictions, maintained for nearly a hundred years, to be both the explanation before man and the justification before Heaven of her economic supremacy. As lately as 1923 I was writing that free trade was based on fundamental “truths” which, stated with their due qualifications, no one can dispute who is capable of understanding the meaning of the words.
The upper 1 percent of Americans are now taking in nearly a quarter of the nation’s income every year. In terms of wealth rather than income, the top 1 percent control 40 percent. Their lot in life has improved considerably. Twenty-five years ago, the corresponding figures were 12 percent and 33 percent. One response might be to celebrate the ingenuity and drive that brought good fortune to these people, and to contend that a rising tide lifts all boats. That response would be misguided. While the top 1 percent have seen their incomes rise 18 percent over the past decade, those in the middle have actually seen their incomes fall. For men with only high-school degrees, the decline has been precipitous—12 percent in the last quarter-century alone. All the growth in recent decades—and more—has gone to those at the top. In terms of income equality, America lags behind any country in the old, ossified Europe that President George W. Bush used to deride. Among our closest counterparts are Russia with its oligarchs and Iran. While many of the old centers of inequality in Latin America, such as Brazil, have been striving in recent years, rather successfully, to improve the plight of the poor and reduce gaps in income, America has allowed inequality to grow. […]
The top 1 percent have the best houses, the best educations, the best doctors, and the best lifestyles, but there is one thing that money doesn’t seem to have bought: an understanding that their fate is bound up with how the other 99 percent live. Throughout history, this is something that the top 1 percent eventually do learn. Too late.
One of the reasons this state of affairs obtains, argues Ha-Joon Chang, is because of the chimera of a ‘free market.’
On May 2, 2011, US Treasury Secretary Timothy Geithner sent his third ultimatum to Congress noting that the US is set to reach its statutory debt limit of $14.3 trillion by May 16, and unless the ceiling was raised by August 2, the country could face default. ‘The economy is still in the early stages of recovery,’ he warned, ‘and financial markets here and around the world are watching the United States closely. Delaying action risks a loss of confidence and accompanying negative economic effects.’ These will have a ‘catastrophic economic impact’ and ‘broad range of government payments would have to be stopped, limited or delayed, including military salaries, Social Security and Medicare payments, interest on debt, unemployment benefits and tax refunds.’ It will also lead to ‘sharply higher interest rates and borrowing costs, declining home values and reduced retirement savings for Americans.’ Mostly ominously, it will ‘cause a financial crisis potentially more severe than the crisis from which we are only now starting to recover.’
The situation doubtless sounds dire, but there is something mildly ironic about a Treasury Secretary warning the government against losing the trust of an industry which he only recently rescued with an extraordinary cash transfusion of $4.1 trillion in public money. The real costs of the bailout are estimated by Bloomberg at $ 12.8 trillion. But it is easy to overlook the consistency in Geithner’s assessment: the US government was a hostage to the financial industry when it faced collapse, and it is a hostage to it when its own economic future turns increasingly uncertain. The doubling of US national debt between 2004 and 2011 is merely a symptom of the problem—two wars and the bailout have both paid a part—but at its root are the regulatory failures and conflict of interests which are embodied in the person of Timothy Geithner. For over two decades the US Treasury has functioned as a de facto arm of Wall Street, eschewing its regulatory function to act as a passive enabler. Little surprise then that three years after the crisis the institutions that caused the collapse continue to evade responsibility and the price is instead paid by the taxpayer in exorbitant, lost homes and depleting employment opportunities.
2:19 Israeli conscription and societal cohesion
2:43 Bomb releases to electric car batteries
3:13 Ben-Gurion and Shimon Peres as entrepreneurs
4:21 An international entitlement: preferential US market access
5:55 Are US entrepreneurs battle tested?
6:36 Start-up Nation’s exclusive focus on supply-side
7:20 US consumer market buys 40% of total Israeli exports
7:39 $10 billion in yearly trade surplus as aid to Israel Continue reading “Neoconomics 101: Conscription and War as Wealth”
Naomi Klein, Hernando de Soto and Joseph Stiglitz speaking on economic power at the Graduate Centre, CUNY, moderated by David Harvey. See speaker biographies over the fold. From the fora.tv series ‘Is capitalism dead‘? Run time is 62 minutes, with a ten minute preview.