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Carter on Keynes

Summary:
From Peter Radford The biography of Keynes by Zachary Carter ends on a decidedly wimpy note.  The concluding chapter is devoted to the financial crisis of 2008 and the subsequent half-hearted sort-0f-Keynesian policy response.  Whilst Carter seems fine with his condemnation of neoliberal policies and is clear about the abject failure of the notion that financial markets act in either a self-correcting or a rational manner, he then goes on to ask why Keynesianism has proven to be so politically weak: “But pointing the finger at neoliberalism raises uncomfortable questions for Keynes and his defenders.  Why has Keynesianism proven to be so politically weak, even among ostensibly liberal political parties and nations?  The Keynesian bargain of peace, equality, and prosperity ought to

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from Peter Radford

The biography of Keynes by Zachary Carter ends on a decidedly wimpy note.  The concluding chapter is devoted to the financial crisis of 2008 and the subsequent half-hearted sort-0f-Keynesian policy response.  Whilst Carter seems fine with his condemnation of neoliberal policies and is clear about the abject failure of the notion that financial markets act in either a self-correcting or a rational manner, he then goes on to ask why Keynesianism has proven to be so politically weak:

But pointing the finger at neoliberalism raises uncomfortable questions for Keynes and his defenders.  Why has Keynesianism proven to be so politically weak, even among ostensibly liberal political parties and nations?  The Keynesian bargain of peace, equality, and prosperity ought to be irresistible in a democracy.  It has instead been fleeting and fragile.  Keynes believed that democracies slipped into tyranny when they were denied economic sustenance.  Why, then, have so many democracies elected to deny themselves economic sustenance?”

Surely the answer is obvious.  Indeed, the answer is littered throughout the previous pages of Carter’s book.

Neoliberalism as it cohered in the second half of the twentieth century was essentially a reactionary effort to undermine democracy.  Carter himself aptly describes what emerged as a pseudo aristocratic mindset bent on protecting major asset owners, large corporations, and a singular version of personal liberty that allowed space for the co-option of government by those forces in the name of “liberty”, but which disallowed space for government action to protect the collective against those same forces.  In other words “liberty” was available to the powerful who owned the back channels into government and less so to those who relied on government to ameliorate the consequences of the activities of the powerful.

Democracy became a name that papered over a plutocratic reality rather than a fact.  The aristocratic counter-attack that gathered momentum in the 1970s and flourished in the decades since was designed precisely to deny the very sustenance that Carter wonders about.  The Keynesian vision, at least the version Carter describes, was firmly in the aristocratic cross hairs because it implied a focus on equality and a more generously shared prosperity.  It was also a grand philosophical vision, however naive, of a post-scarcity world rather than a technocratic focus on efficiency.  As such it ran counter to the essence of twentieth century corporate ideology with its relentless desire to assert the power of capital over that of labor.  Keynesian thought had to go.

Perhaps a more nuanced response to Carter is that Keynes tried to carve out a middle ground in a century where extremes were the norm.   Caught between the siren songs of fascism and Marxism and with early versions of capitalism apparently crumbling around him, Keynes was impelled to salvage a less extreme world.  This effort forced him to accept the real world around him which is why his economics is riven through with pragmatic acceptance of reality and eschews the fantasy worlds that others have preferred to theorize about.  It’s what makes him a more human and not a glittering prophet.

What comes across as a more vexatious problem is why it was that the economics profession was so eager to abandon this realism and infuse what became the commonly accepted, and thoroughly Americanized,  version of Keynesianism with odd bits of classical thought and misleading policy certainty kluged onto a sanitized Keynesian core.  There appear to be two main explanations:  one was the paranoia of Cold War America where even a faint whiff of collectivism was enough to destroy careers and gain the opprobrium of the elite and the media.  This alone forced many a good Keynes follower into the shadows.  Second was the ambition of people like Samuelson and Solow to re-build economics on a mathematical foundation.  This required re-configuring Keynes in ways that his ideas could not easily be confined.  The resultant version of Keynes, as we all know, is hardly Keynes at all.  Samuelson and his followers expunged the key elements of Keynes and slowly, through each new edition of their works, watered it down to accommodate the aristocratic counter attack.   So, ultimately when the aristocrats won the ideological war for the heart and direction of economics is was largely because the Keynesian side had shriveled into a technocratic shell more akin to a combination of maximizing mathematics and accounting rather than being a clear vision of society.

This is truly unfortunate because the loss of ideas concerning the role of radical uncertainty, complexity, and skepticism concerning equilibrium could all have helped move economics along a realistic path.  This is especially so given the enormous advances subsequently made outside of economics on all those fronts.

Naturally economics had to be battered into submission by the plutocratic elite in order to provide intellectual heft to its need for low wages, shareholder supremacy, unemployment, globalization, deregulation, and so on.  Getting it away from its Keynesian focus on all the attributes Carter lists, and turning it into a modest mathematical justification for all that the elite wished turned out to be less of a struggle than it ought to have been.

So, whereas Carter tries to be profound in asking why Keynesianism crumpled so easily, he is simply re-telling a well worn history.  Economics went wrong because it had to go wrong in order to eliminate a source of opposition to the plutocrats.  Keynesianism was allowed to continue to exist in academia only as long as it was tamed and de-fanged.  The irony is that as economics proclaimed itself as more scientific it was in fact becoming more political.

Re-inventing economics requires, by implication, being ready to recognize its political content.

But that’s not new either.

Peter Radford
Peter Radford is publisher of The Radford Free Press, worked as an analyst for banks over fifteen years and has degrees from the London School of Economics and Harvard Business School.

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