Wednesday, October 29, 2008

The Problem With Keynes

Brian Barder, my favourite unreconstructed Old Labourite, has made an impassioned plea - 'Come back, Keynes'.
I sympathise with him - but a purely Keynesian approach to the current financial crisis would, with the greatest respect to Brian, be unworkable.
The problem with a purely Keynesian approach would not be the accumulation of deficits; it would be those upon whom they were accumulated.
A vastly higher proportion of the population has vastly higher levels of personal indebtedness than their ancestors did. Instead of stimulating demand for goods, the monies they receive would be spent on servicing debts instead. The only winners would be the financial institutions that got us into the mess in the first place.
Even if we did succeed in stimulating demand, the 70 years that have passed since the publication of the 'General Theory' have seen the quite deliberate decimation and hollowing out of our industrial base. It is now so weak that the extraction of oil and gas, reaping the fruits of the earth, is considered to be manufacturing. Even if government could stimulate demand, the goods for which demand was being stimulated would have to be imported; for Man cannot live on ready-made sandwiches and curry paste alone.
Over the same period, of course, a vastly higher proportion of the population has been shoehorned into mediocre and unsuitable higher education programs like an obese woman's foot into an unsuitable shoe. They go out, they go out full of song, expecting that they're going to improve their social mobility; they come back, they come back full of tears, holding useless qualifications and up to their eyeballs in debt to the Student Loans Company - the vehicle by which John Major vented upon the nation's youth his rage and feelings of inadequacy for not having had a university education himself. A Keynesian solution requires that many be prepared to do dirty work for low pay; could the existence of such a workforce be guaranteed, unless, like the goods for which demand would be being stimulated, it is imported?


Blogger Martin Meenagh said...

There is an appalling human cost to deflation. But we find ourselves in a nasty dilemma, as a civilisation. Clearly, loading legal indebtedness fuelled by comically inflated paper onto people was having moral effects. Companies were inventing incredibly wasteful products that isolated people and allowed them to 'self-alienate' from others by replacing their capacity to reflect with pre-prepared and exciting diversions. Individuals were extending a 'no cost, no conequence' philosophy to their personal lives.

This was being dressed up with the evocation of shakily justifiable 'rights' and a militant atheism. This atheism could not replace the need for grounding, so authority was sought in cults, from the environment through therapy and narcississm to sexual identity.

Governments were systematically lying about the sources of their funding and the vitality of the market, which appeared unsupported.

A period of challenge, recession, and exposure to the cold is therefore something that may provoke a focus on fundamental things. But if it comes, it will not do so in isolation. Many many people in the machinery of reflection and communication--in academia and the media--now exist to tell people what their ids want to hear. Outside the bubble, very dark forces grip much tougher people who have not abandoned themselves, possibly because of their poverty, rather than any inner strength; the distinction makes no difference.

So, to avoid what happened to Rome in the West, or to Byzantium, or to China, or to any other state that has fallen, ever, the west can take the risk of deflation, pain and determined recovery, or go flailing into the dark. In any event, many rights and many of the more pleasant things of life might be lost. A recovery and a determined restoration may be possible, but hope--though essential if one is to avoid the sin of despair--may at the minute contain elements of fantasy.

Given these things, what we should do is hold to what we believe is right, and what we believe we can demonstrate the logic of objectively to others, and just go on.

You and I can't do anything about what is happening. We have no alternative.

29 October, 2008 09:51  

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