A Critique of the Revival of Keynesian Counter-Recessionary Policies

In the modern history of capitalism, Keynesian counter-recessionary policies (broadly defined) have failed in two major ways. First, those policies have not consistently succeeded as means to end capitalism’s cyclical downturns. They failed, for example, to extract the US from the Great Depression of the 1930s. As this is written, their effectiveness in today’s global capitalist crisis is questionable. Second, the promise that has almost always accompanied each application of Keynesian policies everywhere – that it would also prevent future economic downturns – has never yet been kept.

The Keynesian policies have included varying mixtures of monetary (easing) and fiscal (expansionary) policies and market regulations (especially in finance). They have sometimes included controls on capital flows as well as subsidies, bailouts, and outright nationalizations of private enterprises. Different combinations of these components characterize Keynesian policies in different countries and at different historical moments.

The chief means that actually ended capitalism’s downturns have been declines in the following: productive laborers’ real wages, finished product inventories, means of production prices, and the associated costs of securing profits (managers and other non-productive workers’ wages and operating budgets, taxes, access to credit, rents, etc.). Once those declines sufficed to reach certain thresholds, capitalists could see profit possibilities and so resumed productive investment.

That generated more or less “recovery” via multiplier and accelerator effects particular to each place and time. In short, capitalism is a systematically unstable economic system whose cycles are basic features of its normal functioning. Keynesian policies have never basically altered that systemic instability.

Keynesian policies, we propose to argue, have largely provided quite secondary supports to the normal functioning of capitalist cycles. They marginally moderate the cycles’ amplitude and duration. They temporarily impose both costs and constraints on the profit-seeking activities of corporate boards of directors. In these ways, Keynesian policies successfully buy both political space and time for the capitalist cycle to run through its usual downward phase. In the current global capitalist crisis, massive Keynesian deficit spending as well as credit-market bailouts have generated huge increases in many capitalist countries’ national debts. Lenders eventually balk at further loans to the most over-indebted nations, demanding that they raise taxes and/or cut spending to qualify for more loans. If and when that proves politically impossible for lenders to impose on borrowing nations, multilateral agencies offer less onerous terms for loan assistance but with the same demand for austerity conditions. Those conditions – conveniently imposed by others and not the national government – all serve to drive down wages and other costs of bussiness and so once again set the stage for the usual capitalist cycle.

Besides their secondary role, Keynesian policies also serve an important diversionary function.

Governments appear to be working mightily to “overcome the economic crisis” by implementing those policies with great fanfare. They thereby distract publics from yet another repetition of the normal capitalist’s cyclical downturn. Exploding national debts, like other Keynesian policy programs constitute an elaborate diversionary political theater.

As capitalist crises deepen and last, politicians of most persuasions increasingly express concern, compassion, and/or anger about mass unemployment, home foreclosures, bankruptcies, poverty, etc. They engage in heavily publicized debates and legislative contests over the appropriate monetary, fiscal, regulatory, subsidy, bailout, capital control, and private-enterprise- take-over policies to be executed by the state. These theatrics usually absorb the political energies of many left and right forces that might otherwise, separately or together, make the capitalist system itself the object of opposition, struggle, and transformation. Left-tilting inflections of Keynesian policies often include, for example, direct state subsidies to or hirings of un/underemployed workers, controls over private investment flows, and enterprise nationalizations. Right-tilting inflectionsoften include, for example, restrictions on immigration, reduced taxes on small businesses, and spending on business-friendly infrastructure construction.

In the context of this argument, Figure 1 below supports the basic irrelevance of Keynesian policies to the basic contours of capitalist exploitation measured roughly by the relation between labor productivity and real wages [1]. First, it covers a long period of US economic history: before, during, and after Keynesian interventions occurred in their classic form in the 1930s. Figure 1 reveals trends for manufacturing, in both labor productivity and real wages, that show no systematic sensitivity to either the imposition or the negation of Keynesian policies over the last century. The complex overdeterminations of real wage and productivity movements were not much influenced by the rise and fall of Keynesian policy regimes nor by whether neo-liberal/neoclassical economics or Keynesian macro-economics prevailed in academic and policy-making circles.

The Keynesian Revival: a Marxian Critique