Cross posted from Pruning Shears.
Ismael Hossein-zadeh has an essay this week about how Marxism is better than Keynesianism at explaining the current terrible economic picture, and has better prescriptions for fixing it as well. To me the article is a great example of both the strengths and (greater) weaknesses of Marxist critique.
Marxist critique is strongest in describing the nature of capitalism and the environment it seeks to create. Capitalism seems to gravitate toward a permanent “reserve army of labor” – lots of out of work people who would love to have a job. Having a pool of idle but willing unemployed puts pressure on those who do have jobs. It puts downward pressure on wages, discourages organizing, and gives maximum leverage to the employer.
So far, so good. That dynamic should be front and center in any discussion on how to improve things. Asserting the right of collective bargaining and finding ways to support it is crucial. Getting all those people on the sidelines back into the game is vital. The article also has some interesting material on how the globalization of capital and labor are challenges that Keynes did not seem to anticipate, and that his theory does not adequately address.
Hossein-zadeh’s critique starts to go astray with what he calls structural or systemic causes of unemployment, with Keynesianism producing a perpetual cat-and-mouse game. Stimulus spending gets an economy out of an economic downturn. When the economy is humming again the stimulus is pared back, which leaves the field open for capitalist exploitation, which then brings about an economic downturn. Repeat forever. In this telling Keynesianism is the cause of downturns, because that cycle could be done away with forever by not ending the stimulus. That seems at best uncharitable, since Keynesianism doesn’t claim to abolish the business cycle. It merely describes the tools to use during down times.
But Hossein-zadeh really goes far afield when he conflates Keynesians’ prescriptions with their expectations:
The Keynesian view that the government can fine-tune the economy through fiscal and monetary policies to maintain continuous growth is based on the idea that capitalism can be controlled or manipulated by the state and managed by professional economists from government departments in the interest of all. The effectiveness of the Keynesian model is, therefore, based largely on a hope, or illusion; since in reality the power relation between the state and the market/capitalism is usually the other way around. Contrary to the Keynesian perception, economic policy making is more than simply an administrative or technical matter of choice; more importantly, it is a deeply socio-political matter that is organically intertwined with the class nature of the state and the policy making apparatus.
It’s fair to describe the Keynesian approach as administrative or technical – magneto trouble and all that – but I haven’t gotten the impression that Keynesians, Paul Krugman foremost among them, are under any illusion that policymakers are compelled to embrace Keynesianism. There certainly seems to be a great deal of frustration about the nature of the public debate. The austerity narrative continues to be ascendant in spite of the overwhelming evidence of the harm it has caused. Keynesian policy, particularly the 2009 stimulus package, has been vindicated (and Krugman wrote at the time that it was actually not large enough) – yet it still seems to be regarded as disreputable in the capitol.
So of course Keynesians are frustrated, but not because they thought Washington was required to implement Keynesian policies and had not. They are frustrated because they see the current problem as a technocratic one with a known solution – but austerity budgeting continues to rule the day, even in the face of overwhelming evidence that it has failed. The carburetor is broken; fix it. Krugman sees a moral or ethical dimension as well: the refusal to fix it has inflicted a great deal of unnecessary misery. But Keynesianism ultimately just says, if this is your problem, here’s the solution.