Later On

A blog written for those whose interests more or less match mine.

Maybe Marx saw causes more clearly than Keynes

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Very interesting column by Ismael Hossein-Zadeh in The Asia Times Online,  pointed out by my friend Jack in Amsterdam. As Jack says, Marx’s analysis seems spot-on, but it doesn’t follow that his prescriptions will work: as with any idea, it must be tried, and in this case, it didn’t pan out. But if the analysis is right, we need a better prescription. The article begins:

Many liberal economists envisioned a new dawn of Keynesianism in the 2008 financial meltdown. Nearly six years later, it is clear that the much-hoped-for Keynesian prescriptions are completely ignored. Why? Keynesian economists’ answer: “neoliberal ideology,” which they trace back to President Reagan.

This study argues, by contrast, that the transition from Keynesian to neoliberal economics has much deeper roots than pure ideology; that the transition started long before Reagan was elected President; that the Keynesian reliance on the ability of the government to re-regulate and revive the economy through policies of demand management rests on a hopeful perception that the state can control capitalism; and that, contrary to such wishful

perceptions, public policies are more than simply administrative or technical matters of choice – more importantly, they are class policies.

The study further argues that the Marxian theory of unemployment, based on his theory of the reserve army of labor, provides a much robust explanation of the protracted high levels of unemployment than the Keynesian view, which attributes the plague of unemployment to the “misguided policies of neoliberalism.” Likewise, the Marxian theory of subsistence or near-poverty wages provides a more cogent account of how or why such poverty levels of wages, as well as a generalized predominance of misery, can go hand-in-hand with high levels of profits and concentrated wealth than the Keynesian perceptions, which view high levels of employment and wages as necessary conditions for an expansionary economic cycle. [1]

Deeper than ‘Neoliberal ideology’
The questioning and the gradual abandonment of the Keynesian demand management strategies took place not simply because of purely ideological proclivities of “right-wing” Republicans or the personal preferences of Ronald Reagan, as many liberal and radical economists argue, but because of actual structural changes in economic or market conditions, both nationally and internationally. New Deal- Social Democratic policies were pursued in the aftermath of the Great Depression as long as the politically-awakened workers and other grassroots, as well as the favorable economic conditions of the time, rendered such policies effective. Those favorable conditions included the need to invest in and rebuild the devastated post-war economies around the world, the nearly unlimited demand for US manufactures, both at home and abroad, and the lack of competition for both US capital and labor.

These propitious circumstances, along with the pressure from below, allowed US workers to demand respectable wages and benefits while at the same time enjoying higher rates of employment. The high wages and the strong demand then served as a delightful stimulus that precipitated the long expansionary cycle of the immediate post-war period in the manner of a virtuous circle.

By the late 1960s and early 1970s, however, both US capital and labor were no longer unrivaled in global markets. Furthermore, during the long cycle of the immediate post-war expansion US manufacturers had invested so much in fixed capital, or capacity building, that by the late 1960s their profit rates had begun to decline as the enormous amounts of the so-called “sunk costs,” mainly in the form of plant and equipment, had become too high. [2]

More than anything else, it was these important changes in the actual conditions of production, and the concomitant realignment of global markets, which occasioned the gradual reservations and the ultimate abandonment of the Keynesian economics. Contrary to the repeated claims of the liberal/Keynesian partisans, it was not Ronald Reagan’s ideas or schemes that lay behind the plans of dismantling the New Deal reforms; rather, it was the globalization, first, of capital and, then, of labor that rendered Keynesian-type economic policies no longer attractive to capitalist profitability, and brought forth Ronald Reagan and neoliberal austerity economics. [3] . . .

Continue reading.

And Jack offers this news story as an illustrative example of the situation we’re now in.

Written by LeisureGuy

31 August 2014 at 7:17 am

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