With that in mind, I have been reading up on John Maynard Keynes. I am currently working through his Magnum opus, The General Theory of Employment, Interest and Money, which was published in 1936 during the Great Depression. It is often difficult reading, but it is well worth the effort. And in order to understand how Keynesian economics can be successfully applied to correct today's economic woes I have read and reread both economist Paul Davidson's The Keynes Solution: The Path to Global Economic Prosperity as well as 's Keynes: The Return of the Master.

You may by now be asking yourself why I would dust off these tomes in search of answers to contemporary economic problems.  The answer is simple: Because Keynesian economic principles explain many of the fallacies of laissez-faire capitalism while offering an alternative way to help a market economy to function in a more robust and healthy manner. In short, Keynes proposed an alternate style of capitalism, one instilled with healthy doses of realism, self-discipline and fairness. It is also a potent weapon to blunt Christian Tea Party laissez-faire economics. As we will explore in an upcoming related post, Keynes' belief in "living a reasonable life" strongly echoes Monsignor John A. Ryan's Distributive Justice goals..

But before we can apply Keynes's solutions as "a refudiation" of Tea Party economic policies, we must first understand what is in need of refudiating.

Hayek's Ghost

What most Tea Partiers advocate is a form of Austrian School flavored libertarian economics, epitomized by the life and work of the movement's new hero,, economist F.A. Hayek (1889-1992). Hayek is often remembered for his 1944 book Road to Serfdom, a defense of laissez-faire and dire warning about where New Deal liberalism and British Labour would lead - dictatorship; an outcome already refudiated by history.

But the Austrian-born economist is also known for his theory of spontaneous order, defined by the Online Library of Liberty as "...an order which emerges as result of the voluntary activities of individuals and not one which is created by a government, is a key idea in the classical liberal and free market tradition." As one modern Keynesian put it, "In other words, government economic policy is the problem, the free market is the solution."

This is very much the essence of Classical and its progeny, libertarian economic thought.  Its mantra is that government efforts to jump-start stagnate economies can only throw off the equilibrium or natural order of business. Unlike Keynes who believed that it was government's role to ensure enough demand so that wages - and thus, the standard of living - do not decrease, today's laissez-faire advocates subscribe to Say's Law; the belief that supply creates demand.

"Let the system take care of itself and damn the human consequences." It echoes the harsh advice Secretary of the Treasury Andrew Mellon gave President Hoover at the outset of the Great Depression, "Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate." The belief being that when available jobs pay less, workers will be required to take less pay. This "equilibrium" will the supposedly restore boom times. It is in this callous way markets "correct themselves."

Calvinist Libertarianism

But boom times for whom? Keynes pointed out in chapter 19, page 262 of The General Theory:

What will be the effect of this redistribution on the propensity to consume for the community as a whole? The transfer from wage-earners to other factors is likely to diminish the propensity to consume. The effect of the transfer from entrepreneurs to rentiers [a rentier is a person who lives on income from property or investments.] is more open to doubt. But if rentiers represent on the whole the richer section of the community and those whose standard of life is least flexible, then the effect of this also will be unfavourable.

Beyond that, such laissez-faire dogma calls for a world where there are no labor contracts; one where workers must docilely accept lower wages. That is why we hear conservative economists such as Amity Schlaes make the bogus claim that FDR's support for unionization supposedly prolonged the Great Depression.

Laissez-faire is nothing less than an economic form of Calvinism, replete with its belief in predestination. It is a theory that preaches that the past is a shadow of the future and that government has no role in addressing future economic uncertainty. And if government does attempt to address unseen contingencies, it will only aggravate things a delay a return to prosperity? Why? Because laissez-faire advocates believe that economics operates pursuant to an ergodic axiom - that the outcomes are predetermined.

The inherent absurdity of this proposition is not lost on Keynesian economist Paul Davidson:

The assumption that the economy is governed by an ergodic stochastic process means that the future path of the economy is already predetermined and can not be changed by human action today. Astronomers insist that the future path of the planets around the sun and the moon around the earth has been predetermined since the moment of the Big Bang beginning of the universe. Nothing humans can do can change the predetermined path of these heavenly bodies. This "Big Bang" astronomy theory means that the  "hard science" of astronomy relies on the ergodic axiom.  Consequently by using past measurements of the speed and direction of heavenly bodies, astronomical scientists can accurately predict the time (usually within seconds) of when the next solar eclipse will be observable on the earth.

Assuming that this hard science astronomy is applicable to the heavenly bodies of our universe, then it should be obvious that the United States Congress can not pass legislation that will actually prevent future solar eclipses from occurring even if the legislation is designed to obtain more sunshine to improve agriculture crop production. In a similar vein, if, as [Paul] Samuelson claims, economics is a "hard science" based on the ergodic axiom, then Congress can neither pass a law preventing the next eclipse nor pass a law to prevent the preprogrammed next systemic financial crisis. The result is a belief in a laissez-faire non government intervention policy as the only correct policy.

And why is this theory so appealing to advocates of laissez-faire? Again, Paul Davidson explains:

Thus, for example, it is often argued that the government creates unemployment in the private sector when it passes legislation that all workers are entitled to at least  minimum wage that cannot be lowered even if unemployed workers are willing to work for less rather than starve. Similarly if government passes legislation that protects and encourages unionization, the effect will be to push wages up so high that profit opportunities will be ultimately eliminated and unemployment of workers assured. Thus, it follows from classical theory, that  the market, and not the government should decide what wage rate should be the minimum that workers should receive. Consistency therefore would require arguing that government should never constrain the pay of top management but rather should leave it to the market to determine the value of CEOs. Is it not surprising that these CEO's then hire these classical economists as consultants?

This is what Tea Party advocates such as Dick Armey and Matt Kibbe mean when they demand "Give us liberty!". It is liberty for a select, fortunate few; the freedom from having profit distributed based upon merit, contribution or special skills but instead via unchecked power.

Such casino capitalism (Keynes's term) has been at the foundation of GOP politics for the last thirty years. As the editor of the journal U.S. Catholic Bryan Cones  observed of Hudson:

Can we just be honest here? Deal Hudson is a Republican. He thinks everyone should be a Republican, and he thinks if you're a Catholic, you should be a Republican because the only issues you should ever cast a vote on are abortion and gay marriage (as if the GOP is really pure in practice on either of those issues).

Thus, it is a no-brainer for Hudson the GOP insider to serve up über-orthodox Catholic agenda with some hot Tea Party rhetoric.

In the next installment Keynes's principles will be examined as a means to refute the Religious Right.

Related Posts:
Catholic Right: Are the Neo-Cons Out and the Tea-Partiers In?