David Brooks's column in the New York Times ("A Little Economic Realism," July 6, 2010) reveals that he shares with his neo-conservative contemporaries a commitment to the theology of capitalism, as opposed to its actual practice. Contrary to his beliefs, the "model" upon which the "demand-siders" rely is not based upon mathematical
elegance, but upon ample historical and empirical evidence.
The multiplier effect from government-created fiscal policies which embrace stimulus-spending can be measured and documented. Hence, for example, New Deal spending helped to mitigate the worst effects of the great depression. Nevertheless, it took World War II, as right-wing critics endlessly note, to end the Great Depression. The lesson, however, escapes neoconservatives: What World War II demonstrated was that government spending on a scale even more massive than the New Deal was needed to restore economic vitality. That, too, is the lesson of the most recent stimulus-packages proposed by the Obama administration: They have been too timid but, despite their modesty, further stimulus has been blocked by economic illiterates in the U.S. Senate.
Keynes' General Theory was a rigorous effort to explain the dynamics of a modern capitalist economy from a macro-economic perspective. The theory emphasized the importance of achieving equilibrium in the markets and the necessity of an ever-expanding, consumer-driven population of employed workers to stimulate the aggregate demand in advanced industrial, capitalist economies. When the consumption function was depressed, as during the Great Depression, Keynes recommended pump-priming by the government--the expenditure of public monies through monetary policy--in order to create conditions approximating full-employment.
Lamentably, for the small segment of the college-educated population who may have studied some economics during the last decades of the twentieth century and the first decade of the twenty-first century, most of the economists to whom they were exposed--such as Milton Friedman and the Chicago School of Economics--were micro-economists or monetarists whose economic theories sought to defend or to reinvigorate the classical liberal economic orthodoxy espoused by Adam Smith, David Ricardo, and later by Böhm-Barwerk and the nineteenth century Austrian School of Marginal Utilitarianism.
As a consequence, since short-term and near-horizon economic trends were
emphasized above all else, many American businesses lived and planned based
only upon quarter-to-quarter returns and were unable to anticipate or plan for the long-term.
After the 1960s, Keynesian economics fell into disfavor. This development helped to contribute to a myopic business climate. As a consequence, long-term investment and economic planning, both in the public and private sectors, were de-emphasized in favor of short-term gains and rewards which were ultimately self -defeating. Thus, for example, the continued outsourcing of jobs to the developing world undoubtedly lowers labor costs to corporations in the short term. Similarly, consumer preferences for inexpensive goods made in China and elsewhere, or for foreign automobiles, undoubtedly reduce the cost of consumption in the short-term.
The problem is long-term: as more and more American jobs have been exported to the third world and as personal debt increased, the middle class has begun to shrink. As the middle class becomes increasingly small and more adults descended into subsistence-level jobs and genteel poverty, the consumption function, upon which the American economy depended, began to shrink also. The loss of a manufacturing base and high-paying skilled jobs means that fewer opportunities for anything other than a menial existence would be available to the next generation of American adults, more than half of whom will not be college graduates.
Hence, the classical liberal paradigm of unfettered competition no longer explains economic reality. Unfettered competition based upon free market decisions in which goods and services are sold to the most willing buyers no longer creates individual opportunity for most Americans or an abundance of business opportunities. Rather, the insecurities of the marketplace persuade those who are successful to institutionalize their advantages. Monopolies and plutocracy are the result.
elegance, but upon ample historical and empirical evidence.
The multiplier effect from government-created fiscal policies which embrace stimulus-spending can be measured and documented. Hence, for example, New Deal spending helped to mitigate the worst effects of the great depression. Nevertheless, it took World War II, as right-wing critics endlessly note, to end the Great Depression. The lesson, however, escapes neoconservatives: What World War II demonstrated was that government spending on a scale even more massive than the New Deal was needed to restore economic vitality. That, too, is the lesson of the most recent stimulus-packages proposed by the Obama administration: They have been too timid but, despite their modesty, further stimulus has been blocked by economic illiterates in the U.S. Senate.
Keynes' General Theory was a rigorous effort to explain the dynamics of a modern capitalist economy from a macro-economic perspective. The theory emphasized the importance of achieving equilibrium in the markets and the necessity of an ever-expanding, consumer-driven population of employed workers to stimulate the aggregate demand in advanced industrial, capitalist economies. When the consumption function was depressed, as during the Great Depression, Keynes recommended pump-priming by the government--the expenditure of public monies through monetary policy--in order to create conditions approximating full-employment.
Lamentably, for the small segment of the college-educated population who may have studied some economics during the last decades of the twentieth century and the first decade of the twenty-first century, most of the economists to whom they were exposed--such as Milton Friedman and the Chicago School of Economics--were micro-economists or monetarists whose economic theories sought to defend or to reinvigorate the classical liberal economic orthodoxy espoused by Adam Smith, David Ricardo, and later by Böhm-Barwerk and the nineteenth century Austrian School of Marginal Utilitarianism.
As a consequence, since short-term and near-horizon economic trends were
emphasized above all else, many American businesses lived and planned based
only upon quarter-to-quarter returns and were unable to anticipate or plan for the long-term.
After the 1960s, Keynesian economics fell into disfavor. This development helped to contribute to a myopic business climate. As a consequence, long-term investment and economic planning, both in the public and private sectors, were de-emphasized in favor of short-term gains and rewards which were ultimately self -defeating. Thus, for example, the continued outsourcing of jobs to the developing world undoubtedly lowers labor costs to corporations in the short term. Similarly, consumer preferences for inexpensive goods made in China and elsewhere, or for foreign automobiles, undoubtedly reduce the cost of consumption in the short-term.
The problem is long-term: as more and more American jobs have been exported to the third world and as personal debt increased, the middle class has begun to shrink. As the middle class becomes increasingly small and more adults descended into subsistence-level jobs and genteel poverty, the consumption function, upon which the American economy depended, began to shrink also. The loss of a manufacturing base and high-paying skilled jobs means that fewer opportunities for anything other than a menial existence would be available to the next generation of American adults, more than half of whom will not be college graduates.
Hence, the classical liberal paradigm of unfettered competition no longer explains economic reality. Unfettered competition based upon free market decisions in which goods and services are sold to the most willing buyers no longer creates individual opportunity for most Americans or an abundance of business opportunities. Rather, the insecurities of the marketplace persuade those who are successful to institutionalize their advantages. Monopolies and plutocracy are the result.