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The economics of faith

September 09, 2011|By ALLAN POWELL

While the object of writers is to present a point of view for consideration, there is a larger vision of stimulating rational and informed debate to clarify issues. This is especially important when we are dealing with such seminal thinkers as John M. Keynes.

Tom Firey ("We are all faithful Keynesians now”, Herald Mail, Aug. 17) is naïve to suppose that he can discredit Paul Krugman in one sentence and Keynesian thought in several paragraphs. Both Krugman and Keynes are too formidable to be downsized that easily.

I first became aware of Keynes in 1950 when I chanced to select this (at that time) little known economist as a topic for a required master’s research paper. It was only 16 years earlier that Keynes had written two letters to President Roosevelt suggesting several ideas about how to stimulate an ailing economy.

Firey uses the term “reckless” to describe all deficit spending projects. This, at minimum, is youthful inexperience. What is “reckless” spending to one is salvation from starving for another. The laborers building the stone walls that tamed the overflow from City Park to Antietam Creek and all of the other useful projects across this nation would be loath to call these improvements “reckless.”

The term “faith” was frequently used to characterize how one should describe the acceptance of any of Keynes’ ideas because they were not verifiable. However, this is true about much that is useful in the social sciences because “laws” in the social sciences do not carry the same certitude as the laws of the physical sciences. We would be better served by using the term “hope” when thinking about the ideas of J. M. Keynes. Rather than letting millions of unemployed laborers and their families starve or go on a public dole, President Roosevelt offered a shred of hope. This of course is of little interest to Republican and tea party folks who are employed and well-fed.

There is another essential point to consider which is neglected by anti-Keynesian critics. Almost all students of the Great Depression agree that it was World War II that provided the stimulus to lift our economy out of that very long crisis. Why is it that the political right fails to perceive that war is a government sponsored stimulus of gigantic proportions? This is, in effect, a war-induced Keynesian event. Stimulation is stimulation — whether by war or by peace and it does work.

Still another feature worthy of attention is the persistence and loyalty to “trickle down” economic theory. “Trickle down” economics is not preferred because it works, but because it defends and rationalizes the policies of those at the top of the economic pyramid.

It was Keynes who pointed out the need for a “trickle up” explanation of market behavior. When the laborer building the stone wall for the PWA took his meager funds to the store to purchase a can of peaches or a jar of pickles, the grocer would then need to refill his inventory by purchasing new stock from a wholesale dealer who would then need to buy from the cannery. The cannery would then need to buy more produce from the farmer.

When this cycle of the “propensity to consume” is repeated for every supplier in the construction of roads, bridges and dams there is a revitalization of industry and commerce. In all of these transactions a multiplier effect takes place on each dollar injected into the economy. Keynes estimated this to be about $3 for each dollar spent. Again, it was the hope that came with the stimulus as much as the money that restored confidence in the market.

Those who are too young to have experienced the daily weight of anxiety and despair that was so all pervasive when unemployment reached 25 percent might be a bit cautious about making unwarranted charges about attempts to alleviate the pain of those caught in a trap not of their own making. When the more fortunate counseled that in the long run things would become better, Roosevelt replied, “People do not eat in the long run, they eat every day.”

Finally, there is merit in a look at the use of the word “faith” that was said to be needed with the acceptance of Keynesian ideas. This recommendation is equally true with respect to the ideas of Adam Smith and his disciples. It takes a huge portion of faith to accept seriously such propositions as the perfection of the “free market,” “self correcting market forces” and eventual balances as if “guided by an invisible hand.” A market that has cycles of collapse on an average of every 20 years takes more faith to have confidence in than anything Keynes ever proposed.

An examination of all extant economies now in operation will show more economies that employ Keynesian proposals than those applicable to a free market. True, there may be more lip service than is actually practiced but the influence of Keynes’ ideas is massive because there is no creditable competitor. One can be sure of one thing: Every time there is a slowdown in “free” markets, there will be a rush for some form of Keynesian solution. This is because, while all economic theories require a portion of faith, they may not offer a measure of hope.

Allan Powell is professor emeritus of philosophy at Hagerstown Community College.

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