Posted 9 years ago on Oct. 23, 2012, 7:34 p.m. EST by notaneoliberal
This content is user submitted and not an official statement
AUGUST 2, 2009 BY: MIKE CHAPMAN;The central theme of Keynesian economics was that aggregate demand drives the economy. This has never been "discredited". To the contrary, it has not only been proven correct, it is taught in colleges and universities today. In stark contrast, the monetarist theories of Milton "disaster-capitalist" Friedman have been discredited. Also discredited, are the supply-side economics of Arthur Laffer—which were a thinly-veiled guise to reduce taxes on the rich. (In contrast to Laffer, some historic supply-side advocates, such as former Reagan appointee Paul Craig Roberts, do make valid economic points. In fact, most of Roberts' recent economics writings are right on target.)
It's sickening to hear Right-wingers label every economic policy as Keynesian, despite them actually being pseudo supply-side, "trickle-down" policies. Giving $24 trillion to the Wall Street Cosa Nostra — among the richest members of our society—is not Keynesian. It's "trickle-down" economics on steroids.
Equally annoying are media attacks on the relatively small $700 billion-worth of true Keynesian public spending— while hearing a proportionately little criticism of the $23.7 TRILLION of "trickle down" handouts to Wall Street welfare queens.
These continuing harangues about "Keynesianism" warrant further discussion.
The foundations of Keynesian macroeconomics are derived from simple common sense. (This author worked out the concept of aggregate demand independently on his own—years before even taking a Macroeconomics course, and years before having read a word of Keynesian economics.) The Keynesian concept of aggregate demand can be derived using common sense by itself. Logic alone provides the greatest support of Keynesian macroeconomics and aggregate demand theory.
Government spending to "prime-the-pump" was but a subset of Keynesian theory. Keynes believed aggregate demand drove the economy, and suggested government spending to prop up aggregate demand when private demand faultered. And though Keynes did advocate government spending to prop up aggregate demand, it was only under limited circumstances. Increased government spending was to be a temporary measure to address a temporary problem. It was never the central theme of Keynesian macroeconomics.
Keynes' proposed public spending was intended only to "prime-the-pump" to re-start the economy—like using starter fluid to start a car. It was never designed to sustain our economic engine indefinitely—like gasoline does in a car.
Also overlooked by today's corporate media shills, was Keynes's recognition that for pump-priming to work, aggregate demand could not "leak" out of the economy into import demand. In fact, Keynes recommended that Great Britain change its trade policies from unrestricted free trade to moderate protectionism during the Great Depression. He knew that if government pump-priming went mostly into import purchases, it wouldn't stimulate British domestic production. It became clear that unless newly-created demand was contained within a country's borders, it would not stimulate domestic production in that country.
The concept of outward demand leakage into foreign import demand seems to have been ignored by our government. Unrestricted free trade and outsourcing—and the ensuing job losses—have been the result.
To put "leakage" in proper perspective, it must be viewed in reference to the economic landscape back in the 1930's. Keynes' pump-priming proposals came at a time when the US trade deficit was minuscule in comparison with today. This means there was little "leakage" of US aggregate demand into imports during that time, and thus little need to control such leakage. (i.e., via tariffs or embargoes).
Such is not the case today. At the present time, US aggregate demand is leaking out into import purchases. Though this is actively damaging our economy, it also provides a potential source of "new" aggregate demand—the recapture and conversion of import demand back into domestic demand.
Since demand IS leaking out of the economy today (at the rate of about $700 billion/year), "plugging" that leak would provide a huge source of additional domestic demand. And plugging the leak wouldn't cost taxpayers a dime. To the contrary, "plugging the leak" by levying tariffs would RAISE Federal revenue. With $1.7 trillion of non-energy related imports, the US has an abundant amount of imports to levy tariffs on, and abundant import demand that could be re-channeled into domestic demand.
The point is that we could easily raise domestic production demand by putting TARIFFS on imports—while increasing Federal revenue at the same time. We could even spend the increased Federal revenue back into the economy, raising domestic demand still further.
NO increase in public spending should occur until we already have "leakage"-plugging tariffs in place. The benefits of any taxpayer-funded stimulus should go only to the American taxpayers who fund it, not to foreign producers who compete for our domestic market, and steal jobs from American taxpayers through unfair trade practices.
Though Keynes is maligned by the plutocrats and banksters who control our government—and deliberately misinterpreted about the role of government pump-priming—he is still right about aggregate demand and about the need to prevent outward leakage of aggregate demand into import demand.