aug 13, 2011

i'm breaking with keynes, but it's not because i think he was wrong, although i've never been in absolute agreement in the first place, nor am i adopting austrian or marxist economic theory. what i think is that the world has changed and that keynes' theory is no longer realistic. i don't have an answer, but let me provide a more realistic example of what happens to stimulus money:

joe, who has been unemployed for six months and is now deeply in debt, gets a job from the government digging ditches. he takes his first pay check and gives half to the bank. he spends the other half buying necessities at walmart.

when he pays his rent, it goes to an offshore property holding company. when he buys gas, it goes to a foreign-owned cartel. when he pays his utilities, it goes to a trans-national corporation.

the end result is that the amount of money in circulation is not being increased. the shop keeper or the local mechanic don't have more money to spend because they're now all salaried employees of large corporations. they don't get wage increases from stimulus that's for sure! so, in actuality, nobody has more money to spend and the theory collapses. stimulus today is really just a handout to banks and big business. it's almost like another kind of corporate subsidy.

that doesn't mean keynes was wrong, it just means that his theory is only applicable within a society that is dominated by independent businesses, which is not our society.

if we want keynes' theory to work, we'll have to go back to independent contractors and a society where money changes hand person to person, not person to organization.

if we want to maintain a corporatist system of government and large, centralized manufacturing conglomerates then we need to find a different approach to getting money circulating again.

what we have right now are these banks and massive corporate institutions acting like giant money vacuums, sucking up every cent, acting as incredible blocks on circulation.

whatever solution we come up with is going to have be rooted in stopping these institutions from taking all of the money out of circulation and it's probably going to have to be radical: inflation adjusted pay rates, personal debt forgiveness, incredible corporate tax hikes, mandated charitable contributions, societal salary caps....

harsh truth, world: keynesian policy worked pretty well under capitalism. it doesn't work anymore because we don't have capitalism anymore.

....so, bring back capitalism or build an economic theory based on corporatism, which is neither market fundamentalist (austrian) nor socialist. they won't work in this system, either...

applying a theory for a capitalist system to a corporatist state is always going to fail.

it's not and never has been a question of which theory is "best", "right" or "correct". this is economics, not religion. the question is which theory is most applicable to the reality around us, and that's going to change as the systems change. it's dynamic...

to my knowledge, there isn't really a valid fascist economic theory, but we're quickly coming up on the choice between writing one and revolutionizing society to a system where a theory does exist.

i'm not denying the multiplier effect in theory if applied to a closed economy that is dominated by independent actors, but i don't think a local multiplier effect can apply in a global market defined by free trade agreements that is dominated by massive transnational corporations and nearly static pay rates, especially not in a market that produces nearly nothing. i also think the barriers to circulation are not rooted in government policy but in the private sector and that the more important goal is to reform corporate practices through government; de-regulation has been a part of the cause of this problem, and furthering it is not a solution to it.

i'm not swinging right, i'm just concluding that the world we live in bears almost no resemblance to the one that keynes lived in.

in fact, i'd even go so far as to state it bluntly: one of the consequences of the adoption of global free trade agreements is the collapse of keynesian economic theory, and that didn't really start happening until the 80s. if we're going to have global free trade, we're going to have to leave keynes behind.

the idea that walmart, gap and guess are going to put 90% of what they get back into the economy is absurd. the workers don't see a dime from increased demand, and what the companies do invest, they invest in asia. the result is just a trickling-up and out....