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Forum Post: Economic Democracy, Not Austerity or Keynesian "Growth" By Richard Wolff

Posted 8 years ago on May 11, 2012, 10:30 p.m. EST by PeterKropotkin (1050) from Oakland, CA
This content is user submitted and not an official statement

Recent defeats of Dutch, Greek and French governing parties show rising opposition to their austerity policies. Across Europe and North America, similar oppositions mount. Bailing out large financial and other corporations with borrowed money has been the almost universal government plan for coping with global capitalist crisis. The result - rising government deficits and debts - was followed by "austerity policies" to reduce those deficits and debts. After suffering a crisis and then bailouts that bypassed them to favor major corporations, people now face austerity cutbacks of government jobs and services to offset the bailouts' costs. As opposition mounts, will it seek Keynesian "growth" or go beyond capitalism to economic democracy?

Keynesianism (expansionary state economic intervention) never was capitalists' preferred policy for capitalism's recurring recessions and depressions. Their Plan A was government borrowing to bail out major financial and other corporations followed by "austerity policies." Austerity repays the costs of bailouts by siphoning money away from (cutting) government jobs and services. Only when anti-capitalist movements threaten from below, as in the 1930s, do anxious capitalists abandon Plan A and shift to Plan B - eventually formalized as Keynesianism. Via government spending, Keynesian policies claim credit for jobs and income "growth" and aim to keep political control away from anti-capitalist forces. Keynesianism's dependence on radicals' pressure from below explains its strength in the 1930s versus its weakness today.

Capitalists prefer austerity for many reasons. Because universal suffrage allows politics to undo capitalism's consequences such as unequal wealth, income and power distributions, capitalists worry about how far universal suffrage will go. Majorities may, during crises, reject bailouts and austerity. The Greek and French just did. They may then demand Keynesian "growth" via government jobs and income and wealth redistribution. Or they may demand transition beyond capitalism to democratize their economies by socializing means of production, planning the economy and transforming enterprises into self-directed worker collectives. No wonder that conservative mainstream economics (so-called "neoclassical economics") celebrates capitalism as a self-healing system requiring no government intervention.

Keynesianism also frustrates crisis mechanisms that discipline workers to capitalists' advantage. Rising unemployment makes worried jobholders accept reduced wages, benefits and job security: good news for employers. As falling wages reduce costs for surviving capitalists, they anticipate rising profit opportunities. They will then invest, renewing growth and prosperity. That's how most capitalists prefer to "let the market work through" economic crises. In contrast, Keynesian government spending lessens unemployment and thus slows or prevents falling wages, benefits etc. It also usually requires increased state borrowing, money supply and/or taxes on capitalists and the rich. They oppose such tax increases, balk at lending to ever-more-indebted governments and worry about inflationary risks posed by money supply increases. "Austerity policies" (capitalists' Plan A) aim to pay for bailouts while reducing government deficits. They may also include some state charity for the worst victims of crisis. Republicans and Democrats (or, in Europe, conservatives and social democrats) squabble over how much charity to provide alongside the austerity they impose. Keynesianism is capitalists' Plan B when radicalized and organized workers demand systematic entitlement, not charity, and threaten capitalism itself. In the US during the 1930s, successful mass unionization by the Congress of Industrial Organizations and mass radicalization by socialist and communist parties built social movements with strong anti-capitalist components. In response, President Franklin Delano Roosevelt (FDR) offered a deal. Instead of austerity, he would provide unprecedented government services to people (today perhaps called a "growth" plan). He would establish the Social Security and unemployment compensation systems and create and fill over 12 million federal jobs for the unemployed. Despite three times today's level of unemployment and a worse federal budget crisis, FDR funded greatly expanded government public services. Obama plans to reduce Social Security and never mentions a federal hiring program. Capitalism then faced a powerful threat from below; today it does not (yet). FDR funded his deal by taxing corporations and the rich and partly by borrowing from them (the lesser evil for them). Many of them agreed because they, too, feared the anti-capitalist opposition. FDR persuaded most of the left, in exchange for expanded state services and jobs, to downplay anti-capitalism. Many abandoned "socialism" as a goal; some redefined it to be what FDR proposed. FDR's deal built an alliance that won four consecutive presidential elections. Keynesianism - the formalized theory and policies drawn from John Maynard Keynes' work in 1930s Britain - developed after FDR's deal. It prompted a revised understanding of the Great Depression. Attention shifted away from how anti-capitalist and working-class pressure from below reoriented FDR's policies. Instead, smart economists and astute politicians were depicted using Keynes' "brilliant new economics" to moderate, manage and exit capitalist crises.

After 1945, corporations and the rich still supported Keynesian government spending (they feared depression's return), but they got reduced taxes for themselves. They also got some shift in government expenditures from social services to more capitalist-friendly defense and infrastructural improvements. Keynesians also mostly joined neoclassical economists in dismissing Marx's anti-capitalist economics. Capitalism's crises, they insisted, were well understood and managed (by Keynesianism). They were mere temporary blips punctuating capitalism's prosperous growth. Anti-capitalism was theoretically outmoded and politically suspect in cold war times. Keynesian economics was, for enthusiasts, superior to the mainstream orthodoxy that had always endorsed austerity policies for crises. Keynesianism became the new orthodoxy from the 1930s to the 1970s. Then, a capitalist boom returned dominance to neoclassical economics (renamed neoliberalism). Even after the 2007 crisis hit, Keynesians (e.g., Paul Krugman) have so far failed to regain policy-making dominance

The "great" debate between neoclassical and Keynesian economists is neither great nor much of a debate. Both sides endorse, celebrate and defend capitalism. Their "debate" - between Plans B and A, more or less government intervention to sustain capitalism - periodically revives as a substitute for seriously engaging with critical economic theories, anti-capitalist social movements and their demands for economic democracy. The debate between austerity and growth policies is a sideshow for the main event: capitalism's weakening battles with its own contradictions and with looming demands for transition beyond capitalism to economic democracy




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[-] 2 points by anonbankster (16) 8 years ago

The last thirty years of financialization of the world economy through neoliberalism must end if economic power and growth is to return for the vast majority of the 99 Percent. But overthrowing governments is not the answer since economics detates government policies. If you want policies to change, you have to shift the economy and that means by shifting your purchasing power. Wall Street only responds to shifts in the market and if the market moves away from Wall Street, then that capital has to be reallocated to other ventures. Economic democracy would be that shift if it was at a massive scale as large enough to shift capital and markets. No amount of government regulation will accomplish this, it has to come from the 99 Percent who have the financial power to make this happen. Entrepeunership and small business has traditionally been the way that most economies have recovered from recessions and this one should be no different. Most Americans want to be their own boss and the lack of well paying jobs for the masses from Corporate America has created the perfect timing to to start advocating for this idea. It's an idea who's time has come. Argentina did this in 2001 and now Greece is starting to do this. Now is the time and nothing creates change no better than a crisis!

[-] 2 points by beautifulworld (23227) 8 years ago

In Germany they are using job sharing as a way to alleviate unemployment. Here in the States they are firing people while others do the work of 2 and 3 people. Makes no sense. Here's something from NPR about it.


[-] 3 points by shadz66 (19985) 8 years ago

'Job Sharing', which the Germans call "kurzarbeit", is a phenomenon which is increasingly occurring through out Europe. The reality (as any European who has travelled in The US knows) is that there is a huge amount of work that needs to be done on US Infrastucture but Government's priorities seem to be focussed elsewhere :

ad iudicium ...

[-] 0 points by beautifulworld (23227) 8 years ago

Are you talking of war? Yes, of course you are. The gov't views that as much more important than getting Americans back to work in ways that would help all of us have a brighter future.

[-] 3 points by shadz66 (19985) 8 years ago

War ? Yes ! And Empire and hundreds of bases and over 250,000 - 300,000 troops stationed overseas because US Corporate Global Hegemony is being purchased by Drone Warfare abroad and Depression and Austerity at home.

multum in parvo ...

[-] 2 points by francismjenkins (3713) 8 years ago

Coming soon to a theater near you ... drone warfare "at home" :(

[-] 1 points by shadz66 (19985) 8 years ago

Unfortunately you have a good point and I shudder as I append :

caveat ...

[-] 1 points by niphtrique (323) from Sneek, FR 8 years ago

I work 27 hours a week. Just enough to make ends meet.

[-] 1 points by beautifulworld (23227) 8 years ago

Job sharing could work. We don't all need as much stuff as we think.

[-] 1 points by niphtrique (323) from Sneek, FR 8 years ago

Most jobs are quite senseless because they produce nothing. If you could eliminate them, everybody may need to work 20-30 a week hours to feed a family. You could do with even less if you need less stuff.

I have thought about how it could be done and how it will work out:


I think most people do not like to hear this because it is not great to learn that you are performing a useless job. My job will also be eliminated if this happens but that is the price of freedom.

[-] 1 points by beautifulworld (23227) 8 years ago

Thanks for the link. I don't have time to read it right now, but I perused it and it looks interesting. We definitely need to search for new ways to make the economy and the way labor is valued work for everyone, not just the wealthy and corporations.

[-] 1 points by gestopomillyy (1695) 8 years ago

a good idea for the coming future depression but it wont help get the people back to work. only save the ones that have managed to keep a job so far.

[-] -1 points by beautifulworld (23227) 8 years ago

That's a real downer to think about.

[-] 1 points by webb5 (36) 8 years ago

The ultimate power the banks have to create money as debt has put us in the position we are in now.
C. H. Douglas understood this very well as he knew it caused unnecessary scarcity. His answer to this was Social Credit.

Those interested in how it can be used against the banks can look further into the description of Social Credit. The links below will be of help



[-] 1 points by niphtrique (323) from Sneek, FR 8 years ago

More people are working on the same goal. Social credit is still a marginal phenomenon. The problem is that people can theorise as they please while markets do as they please.

Real change can only be realised by observing markets and create a better solution in terms of efficiency. I have found something that will work (and can bring down the current system):

"Natural Money Bomb: the way to finish off the usury banks"


I have posted it here before but probably nobody believes that it will work. But it has proven to work so it is not rational to assume that it does not work.


[-] 2 points by MattLHolck (16833) from San Diego, CA 8 years ago

too confusing and complex

(perhaps intentionally ?)

write it on an index card

like a super hero

[-] 1 points by niphtrique (323) from Sneek, FR 8 years ago

Thank you for your reply. It may explain why people do not see the potential.

The attention span of most people is very short. The scheme is not difficult to understand, but it takes some time and re-reading to get it if you are not familiar with this idea.

I have done my best to explain it in simple terms. I will try to find ways to make it even more simple.

Do you have any suggestions?

[-] 1 points by MattLHolck (16833) from San Diego, CA 8 years ago

rewriting not rereading

[-] 1 points by niphtrique (323) from Sneek, FR 8 years ago

I will look into it but at a certain point I cannot simplify it more.

Then I have no other option than to stick with the people that do read it and get the point.

Even if they are only a few it does not matter. It only matters if it works or not.

And only a few people are needed to work on this.

[-] 1 points by webb5 (36) 8 years ago

I think what you are talking about is a complementary currency or local currency http://en.wikipedia.org/wiki/Local_currency

Another example of this is the LETS http://en.wikipedia.org/wiki/Local_exchange_trading_system

This is a great idea and may be the only way we can get real monetary reform started from the actions of local communities. Having said that Social Credit is what we should be heading for as an end result. A country needs a system that works for all the country.

[-] 1 points by niphtrique (323) from Sneek, FR 8 years ago

I try to concentrate on what I think will work well and not what I think how it should be. I had my own opinions but they are irrelevant. Social credit can only exist if it will work and this can be verified by doing experiments.

Natural money is a complementary currency or local currency and I focussed on the reasons why some were a spectacular success while others were not. I guess that I have found that out by now.

[-] 1 points by MattLHolck (16833) from San Diego, CA 8 years ago

some one was talking of social credit her before

I believe it was ??Brad


I can't find those file momentarily

[-] 2 points by fooligan (30) 7 months ago

here is a very good, if a bit long, explanation ;-) The “Cook Plan”

What I am modestly calling the “Cook Plan” is simply to pay each resident of the U.S. a dividend, by means of vouchers for the necessities of life, in the amount of $1,000 per month per capita starting immediately as our fair share of the resources of the Earth and the bounty of the modern industrial economy. The money would then be deposited in a new network of community savings banks to capitalize lending for consumers, small businesses, and family farming.

I am calling it the “Cook Plan” because I have been advocating such measures for almost two years, every since I published my first article on the subject in April 2007 entitled: “An Emergency Program of Monetary Reform for the United States .” (See Global Research at http://www.globalresearch.ca/index.php?context=va&aid=5494)

The dividend would total about $3.6 trillion, which, not by coincidence, is the amount of new debt U.S. residents must incur each year from banks simply to exist. That borrowing, of course, is on top of borrowing in past years, because most people do not entirely pay off old loans before taking out new ones. Debt in this country in recent years has been cumulative, with interest constantly compounding. The annual dividend I have proposed would bring a halt to this “grip of death,” as it has been termed by British author Michael Rowbotham in his book: The Grip of Death: A Study of Modern Money, Debt Slavery, and Destructive Economics.

Because we have all been brainwashed to believe that the only sources of government funding are through taxes or the national debt, it is difficult to believe that a dividend of $3.6 trillion could be paid to residents by other means. In fact it could, and it would not even require a fund to be set up like the Alaska Permanent Fund that is replenished by resource revenues. According to Social Credit theory, the dividend fund could be created sui generis; i.e., it could be created out of “nothing.”

And why not? John Maynard Keynes pointed out, and everyone realizes today, that the banking system does just this in creating money “out of thin air.” It’s what many people refer to as “printing money,” which the Federal Reserve is doing on a massive scale in bailing out the financial system. The banks that belong to the Federal Reserve use the purchase of Treasury debt as collateral, but the money itself is simply issued as credit. The trouble is we end up paying interest on it, which is why the interest on the national debt in the fiscal year 2009 budget totals more than $500 billion.




demand elections be national and state holidays

[-] 1 points by webb5 (36) 8 years ago

Yes, that sounds like Social Credit to me. The Cook Plan is an excellent idea. Your website is a wealth of information, well done!

Slowly but surly the people are getting the message.

[-] 1 points by webb5 (36) 8 years ago

A Scottish engineer Major C. H. Douglas wrote a book on Economic Democracy. In it he mentions a solution to the economic shortfall, the gap between production and the purchasing power of the consumer. While technological advancement tends to increase unemployment along with productivity, Douglas suggests that our perspective will determine whether this problem is a "catastrophe" or a "magnificent achievement":

Douglas collected data from over a hundred large British businesses and found that in every case, except that of companies heading for bankruptcy, the sums paid out in salaries, wages and dividends were always less than the total costs of goods and services produced each week: the workers were not paid enough to buy back what they had made. He published his observations and conclusions in an article in the English Review where he suggested: "That we are living under a system of accountancy which renders the delivery of the nation's goods and services to itself a technical impossibility." The reason, Douglas concluded, was that the economic system was organized to maximize profits for those with economic power by creating unnecessary scarcity. Between 1916 and 1920, he developed his economic ideas, publishing two books in 1920, Economic Democracy and Credit-Power and Democracy, followed in 1924 by Social Credit.

"The so-called unemployment problem is really a problem of leisure. The problem really is a problem, first of the distribution of purchasing power to those who are not required, and will decreasingly be required, in the industrial system, and secondly, of ensuring that the total purchasing distributed shall always be enough to pay for the goods and services for sale."

Freeing workers from this system by bringing purchasing power in line with production became the basis of Douglas's reform ideas that became known as Social Credit. There were two main elements to Douglas's reform program: a National Dividend to distribute money (debt free credit) equally to all citizens, over and above their earnings, to help bridge the gap between purchasing power and prices; also a price adjustment mechanism, called the Just Price, which would forestall any possibility of inflation. The Just Price would effectively reduce retail prices by a percentage that reflected the physical efficiency of the production system. Douglas observed that the cost of production is consumption; meaning the exact physical cost of production is the total resources consumed in the production process. As the physical efficiency of production increases the Just Price mechanism will reduce the price of products for the consumer. The consumers will be able to purchase as much of what the producers produce that they want and automatically control what continues to be produced by their consumption of it. Individual freedom, primary economic freedom, was the central goal of Douglas's reform

[-] 1 points by shadz66 (19985) 8 years ago

Thanx for this excellent and highly recommended read. fiat lux ...

[-] 1 points by beautifulworld (23227) 8 years ago

Great last sentence. Thanks for posting this.

[-] -3 points by Rush123 (3) 8 years ago

Just wait and in 6 months France will be even worse than it is now. You cannot send you're way out of an economic crisis they they are experiencing.