Since the Global Financial Crisis, Americans have been trying to rethink our political economy. The meltdown seemed to expose the previous thirty years — the so-called “Great Moderation” — as something of a mirage, an illusion that masked growing inequality, financialization, and slower growth. As we all try to figure out what to do about this situation, Reviving Growth Keynesianism is a project to try and organize some of these conversations. As a way of laying out some of our priors and convictions, this post introduces RGK by asking: “what’s in a name?” Why “RGK”?
First, we want to emphasize that there is in fact a long American tradition of linking distribution to growth and stabilization. From Adam Smith, who inspired the Founding Fathers and thought that the thirteen colonies were rich because of their equal distribution of land, to Thomas Paine who wanted to remedy any inequality in land holdings that might exist with a universal basic income, to the Homestead Acts and the Grange, all the way up to the New Dealers we take as our inspiration, America has been a place where many see equality as a value that stabilizes and strengthens our economy. It has often been Europeans, mired in the fallout of aristocratic decadence, who have seen our character most clearly — whether it’s Tocqueville in his famous Democracy in America, or Thomas Piketty, who admires our nation for being the first to champion the progressive income tax, one thing that stands out when you look at the U.S. from foreign eyes is just how passionate we are as a people for a democratic distribution of wealth.
Of course, America is a pluralist nation, so it’s not an unambiguous legacy; there have been many other traditions in our history, some we’re not proud of. But it has always been a part of us that equality, stability, and growth go together. That’s why New Dealer Marriner Eccles — the man who refounded the Federal Reserve almost single-handedly during the Great Depression, and after whom the current Fed building in D.C. is named — said this:
As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth … to provide men with buying power. … Instead of achieving that kind of distribution, a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth. … The other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped.Beckoning Frontiers (1951)
In other words: when inequality reaches aristocratic heights, the economy becomes brittle and weak. You need broadly distributed purchasing power to power a modern mass production system. Or as Chester Bowles, the adman who ran the Office of Price Administration during World War II put it:
Good morals and good ethics have, of course, been the same throughout the ages, though in every age men fell far short of living up to them. And it has always been true that those communities in which the strong extended a helping hand to their weaker neighbors have been economically stronger and healthier for it. But in recent generations has it become true that the smooth functioning of our economy for the benefit of all of us actually requires the practice of the best of our moral teachings. Today our economy simply cannot operate effectively on any other basis.Tomorrow Without Fear
Second, we use the word “Keynesian” as an identifier because it points to a broader social vision above and beyond a narrow technical analysis. As the conversation we’re trying to organize advances, the question will be how to lend it coherence. How do you actually get a sense of togetherness out of being concerned with aggregate demand? Every great movement needs a common set of symbols, texts, and heroic characters — in short, a shared sense of history — to get traction. At its worst and least interesting, talking about origins or founders descends into pedantry and Bible thumping; but at its best, exegesis and debates over meaning and interpretation can stimulate depth, reflection, and community. For us, Keynes is the most powerful combination of technique and poetry out there. How many of his maxims are “conventional wisdom” (itself a coinage of that other great mid-century Keynesian, John Kenneth Galbraith):
- The social object of skilled investment should be to defeat the dark forces of time and ignorance which envelope our future.
- But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task, if in tempestuous seasons they can only tell us that when the storm is long past, the ocean is flat again.
- The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas. Not, indeed, immediately, but after a certain interval; for in the field of economic and political philosophy there are not many who are influenced by new theories after they are twenty-five or thirty years of age, so that the ideas which civil servants and politicians and even agitators apply to current events are not likely to be the newest. But, soon or late, it is ideas, not vested interests, which are dangerous for good or evil.
- Words ought to be a little wild — for they are the assault of thoughts upon the unthinking. But when the seats of power and authority have been attained, there should be no more poetic license.
Our favorite, it shouldn’t surprise you, is this one: “A study of the history of opinion is a necessary preliminary to the emancipation of the mind.”
Third, growth. Keynes’s magnum opus was written in the midst of the Great Depression, and was especially focused on the question of how to return an economy in recession to full employment—the state where everyone who wants a job can find one. Keynes himself did not touch directly on the related question of economic growth—how to expand the total amount that can be produced when everyone who wants one has a job. However, the experience of World War II, when total US output increased by over 70% in just 4 years, made it clear that the United States had the industrial capacity to produce much more than even the most optimistic economists had realized. All that had been missing was demand—someone with both the money and the desire to buy things. When that materialized in the form of unlimited armaments purchases from the federal government, the economy grew at rates never equaled in US history.
Based on this experience, after the war many writers began advocating a form of growth Keynesianism that differed subtly from the cyclical Keynesianism of the Depression. These writers realized that strong and increasing demand was important not just for fighting recessions, but also for promoting economic growth over time. During World War II, the federal government had been the primary source of this demand. But in the 1940s and 50s a consensus quickly emerged that individual consumers were the most promising source of widespread and stable demand during peacetime. In order to be effective consumers, though, the people who have unmet needs require high enough incomes to buy their necessities. In practice, because the wealthy typically have more money than they can possibly spend, consumer-driven demand requires an equitable distribution of income. Thus the fundamental logic of Growth Keynesianism: An egalitarian income distribution gives more consumers the ability to buy the things they need, which keeps employment high and encourages further economic growth. This logic is almost the antithesis of the supply side logic dominant today, which treats investors, not consumers, as the ultimate source of prosperity. Yet Growth Keynesianism was widely accepted during the 1940s, 50s, and 60s, the era that has come to be known as the Golden Age of Capitalism.
Going forward, we are going to recruit and recirculate some of the best writing from that era, and use it to frame the ongoing discussions about American political economy. We’ll be doing this through blogs, and also some podcasts. We’re also going to try to develop some theses about the limits of the midcentury moment — “reviving” means bringing back to life, not pretending like the death never happened. We know the 20th century is over and there’s no going back. We also know that the Golden Age wasn’t so golden for everyone. But it’s often the case in intellectual history that going forward and going backward aren’t clearly distinguishable — the Renaissance that birthed the modern world was an attempt to return to the ancients, and the Founding Fathers who pushed us into the future did so in Roman costumes and with Roman phrases. Our wager is that by inspecting the achievements and limits of that midcentury Keynesianism we can get a better understanding of what we want our own, young Keynesianism to be today.