Actually, the New Deal’s central dedication was to business recovery rather than social reform.Michael Parenti
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Marx and Keynes — The Limits of the Mixed Economy
Keynesianism and the Crisis of Capitalism
What is Keynesianism?
Keynesianism is a bourgeois economic school of thought that views the capitalist economy as the sum of all expenditures, divided into four sectors: consumption, government spending, business investment, and net exports. An economic downturn is seen as one of those sectors refusing to spend, and the fix is seen as having another sector increase spending. To prevent crises, the government can adjust a variety of economic levers like lowering interest rates to incentivize spending, or intervene directly with fiscal spending. Keynesians would characterize the current crisis as a decline in production combined with “declines in corporate investment and autonomous consumption” and with the export sector unable to pick up the slack, government stimulus becomes the remedy.
The intention of these measures is not primarily to help working people, but to save businesses first and foremost. As Keynes said in 1931, “If our object is to remedy unemployment it is obvious that we must first of all make business more profitable.” Although the recent stimulus checks are a lifeline to workers to buy necessities and pay rent, even if they fall short, that is not their primary purpose to the ruling class. The administration issued stimulus checks so that working people can return this money to corporations through spending. But at the very same time, state governments with massive shortfalls are preparing to make massive cuts to social spending. Stimulus measures will be temporary and the ruling class will look for every way they can find to offload the costs of this crisis onto the backs of the working class.
British economist John Maynard Keynes first developed his theoretical framework during the Great Depression. Given that prevailing orthodox economic theories at the time were unable to explain the crisis or point to policy solutions, the ruling class pragmatically turned to Keynesianism for a way out. Roosevelt, who campaigned in 1932 on budget cuts, was forced to reverse gear and start the New Deal in 1933 to provide much-needed employment, albeit at poverty wages, to millions of workers. Beginning in 1934, the capitalists were also confronted with a historic strike wave that led millions of industrial workers to unionize. To protect their system from the workers’ movement, the ruling class made concessions.
However the New Deal failed to deliver a sustained economic recovery and the country slipped into recession again in 1937-1938. It took state-directed war production and the massive destruction of capital in WWII to create new fields for profitable investment and allow capitalism to recover.
In the long run, Keynesianism can’t provide a solution to the crisis. Pumping trillions into the economy won’t do away with the glutted markets that discourage investment. The $2.2 trillion fiscal stimulus has temporarily calmed financial markets, but bourgeois economists have now dropped the completely unrealistic talk of a rapid v-shaped recovery.
Japan’s recent experience with three decades of Keynesian policies is a further demonstration of its inability to solve serious capitalist crises. At the start of the ‘90s the Japanese economy crashed and the government responded with public works projects, lowered interest rates, and other Keynesian measures that have lasted to this day except for a period of austerity in the early 2000s. At the cost of accumulating the highest debt-to-GDP ratio in the world, Japan’s Keynesian measures have eked out an average of 1% annual real GDP growth over the last three decades, interspersed with short recessions. Current Prime Minister Abe has been implementing his own right-wing Keynesianism called “Abenomics” which mixes deregulation and anti-labor laws with payouts to corporations. All this completely failed to restore sustained growth, and has instead shifted workers toward precarious, part-time or gig work. Deep social crisis or renewed class struggle, which Keynesian social and infrastructure spending have helped to avert, could reignite under Abe’s right-wing reforms.