Keynesianism as an inadequate substitute for social democracy

Boring partisan fights. Republicans are not perverse Keynsian, they are just Keynsians, very normal Keynsians. They only look not so Keynsian compared to some very extremist Democrats . They did agree on over 12 % defict after all. Bush already started the stimulus program. His go shopping remark after September 11 also looks very Keynsian.

They got some other crazy idears in addition that make them not very concerned about deficits in good times, so far thats right. The prefered crisis response is Keynsian anyway. BushII good time deficits were not that dramatic as such. They only became dramatic in combination with low private sector saveing rates, wastefull spending, bad financial regulation etc. One just as to look as far as Germany to watch a similar irresponsible runup of debt done by both major parties that looks far less scary with limited warfare and stable private sector saveing rates.

Is ‘hix’ an attempt to spell ‘Hicks’ perhaps? I look forward to Valyoo and Capatil.

…German-style social democracy works better than US style Keynesianism….

Henry,

In what sense does it work better? Both economies have performed pretty well since 1950 or so, which is when the Age of Keynes really began (according to Hicks). But they have faced very different challenges: the Vietnam war, the collapse of the Bretton Woods system, energy and financial crises, German reunification etc. These affected the US and Germany very differently. The US is big enough to implement Keynesian ideas without much regard to the effects on the BOP, but Germany isn’t.

There may be something interesting to discuss here but I think you need to spell out more clearly what you mean. And I don’t want to be rude, but it doesn’t help that the sentence, which I just cut and pasted that statement from, is really horrible. Never mind Tyler Cowen and the alleged convergence of his ideas with those of Martin Wolf. (Wolf doesn’t even mention Germany.) What’s the claim being discussed? Certainly Germans have less reason to fear from the prospect that right-wing lunatics may gain control of the budget, but that’s just because they’ve been there and done that. (Granted that may explain why they like social democracy.)

Sorry if I’m being obtuse but I suspect I’m not the only reader wondering what you’re trying to say.

Keynesianism would be a step up for the US. What we have now is the rule of wolves. Sadly, it seems as though the sheep are not yet fed up with being on the menu either.

As I understand Keynes, there are 2 parts:
Pump priming during slow part of the economic cycle;
and government surplus when the economy is running.

the US has been woeful at the second part for at least the last 2 economic cycles.

I would suggest it is structurally incapable of achieving surplus’s at any times.

What amazes me it that there is a movement for fiscal austerity at exactly the wrong time in the economic cycle in the US.

The U.S. has just acquired a new piece for the safety net and the Republicans have been put to a disadvantage. In fact the Republicans could win back the Congress and they will still be in dangerous shape. Let’s look at (A) Two current debates, and then look at (B) What’s happening to the Republican Party:

(A) Two current debates: Here come two big differences between the Democrats and the Republicans in the near future: (1) Are you going to extend the Bush Tax Cuts beyond their expiration date into perpetuity? (2) Do you uphold the ideal of universal healthcare?

The parties are quickly moving into diametrically opposed positions, on both. They are being pushed there by their netroots.

Let’s look at (1) the Bush Tax Cuts. As of this moment, the long-term budget is roughly in balance, if the Bush Tax Cuts expire as scheduled.

Democrats might go for a short extension because the recession is bad — but not a permanent extension, because that will make a new long-term deficit. On the other hand, Republicans are sticking to the line that a permanent extension is okay without spending cuts, because tax cuts “pay for themselves”.

Well no, they do not pay for themselves. And the Republicans are now on notice. Greenspan just said last week that there should be no permanent extension of the Bush Tax Cuts, and Bernanke mentioned tax cuts only in the context of a short-term stimulus, a few days ago.

Let’s accept genuine concern about the accumulated debt. Let’s encourage more and more citizens to start exercising their RIGHT to INSIST that any long-term (i.e., permanent) tax cuts be offset in the SAME Congressional bill with long-term (permanent) spending cuts. Then: we all get to discuss it, before they pass it.

The political bottom line is, if the Republicans want permanent Bush Tax Cuts, they are going to have to DO the entitlement cuts. And that won’t go over well. As the old tea-partyer said, “Keep your government hands off my Medicare!”

This is a political disadvantage that the Democrats do NOT have: They merely have to stick to paygo. They just balanced the long-term budget, so maybe the debt can start to be paid down. They can point out that everything will be worse, if the Republicans get their tax cuts. The CBO just said they can save more spending, by getting a non-profit public option. Well then: save it, and give a little permanent Obama Tax Cut. Further, the Administration just signalled that they are going to co-opt even more of the Republican thunder with a temporary extension of some of Bush’s tax cuts.

Let’s look at (2): whether we are going to honor the new law to have universal health coverage. “Universal healthcare” (of whatever shape) was the last remaining liberal goal, and it has just been accomplished, in theory. At this point, anything the Republicans do to harm Obamacare can be referred DIRECTLY to the question of whether they support the idea of universal access to healthcare. This is a another disadvantage for the Republicans.

For example: Do they want to end the mandate? Well, that means they have to release the insurers from providing universal coverage, such as by allowing the insurers to rescind coverage and deny coverage as before — or else the insurers go bankrupt, because the mandate is put in there to give them a larger, therefore, better risk pool. So: M. Congressperson, are you against universal coverage?

The problem for Republicans here is that ObamaCare’s main parts are an interlocking set of institutions that (a) provide universal coverage, (b) manage costs, and (c) highlight the next problems we have to take care of. If you start pulling it apart, then you start having to explain yourself, even to little kids. It is clever stuff — the fruit of about 20 or 30 years of Congressional discussions, and 1/2 (one-half) composed of Republican ideas.

Now I’m guessing that the mainstream Republican leadership wishes that THEY were the ones to give us universal healthcare — they rammed through Medicare Part D under Tom DeLay, for heaven’s sake… You could see this sinking wistful feeling in their faces at Obama’s televised healthcare summit.

To conclude, combining (1) and (2), the status of the debates about the Bush Tax Cuts and about universal health coverage, I would say that the Democrats have been pushed by their clever base into balancing the long-term budget while adding an entitlement, and on the other hand, the Republicans have been pushed into the position of explaining their rhetoric, i.e. explaining to the INDEPENDENT VOTERS why they want to recreate a long-term deficit and why they won’t guarantee universal access to healthcare.

Put another way, the Democrats have instigated an epoch wherein they have basically locked the budget and can administer the welfare state, while the Republicans have to find spending cuts to pay for their campaign promise of tax cuts.

Of course these issues may not be coming up in the very next election. But they are inexorably programmed to come up, and they are just on the horizon.

And this gets us to (B): What is really happening to the Republican Party?

It looks to me like the Republicans are breaking up. They were born of a break-up, the Whigs, and they had a good run. Now they are in big trouble — two different kinds of big trouble:

(i.) Their economic ideology has imploded — we’ve been seeing various aspects of it for years. Nobody really believes that tax cuts “pay for themselves” and even Greenspan is frightened. If the Republicans retake the House, they’ll move into full obstruction mode because they don’t have much else to say.

(ii.) At this same moment, the party is splitting up because the hardcore tea party 27%, goaded on by the likes of Limbaugh, has gone completely populist and is replete with crackpots, and loathes the mainstream Republican leadership. This gives you one of the reasons why Boehner doesn’t want to say what the Republicans are going to do until after the election.

An immediate tactical question for Washington Republicans is how successfully and cleverly they can co-opt a teapartyer like Rand Paul without his true-believer supporters noticing. While teaching him all their theatrical dialogue about how the system really “works”. Perhaps they hope that Karl Rove can come up with a cunning plan! After all, he just got $4.5 million from four billionaires for a “grassroots” “shadow RNC.” Good luck, there!

Another prediction: look for a few more mainstream Republicans to jump from the party, like Crist.

Is this the end of the Republican Party? Notice that they formed in the ashes of the Whigs, who basically split over an intractable moral economic rights issue: whether new states in the union should be Free or Slave — it was a labor issue; the white workers didn’t want it. (On the other hand the Democrats were by far the worst racists, at least up through the time of Ulysses Grant, as far as I have read. See the terrific new book on Grant by Joan Waugh.)

Ironic, if what kills the successor to the Whigs is an intractable moral economic rights issue like the passage of universal healthcare, the acceptance of a big legitimate structural safety-net budget, and the necessary realignment of the society to accommodate it.

There is an almost theological beauty in the way in which posters are using the word ‘Keynesian’ to mean exactly what they want it to mean throughout this thread.

I may not have helped matters. There’s more ways to do stimulus than just fiscal policy, and Martin Wolf does mention the Fed, but really only in passing. To keep the argument clear, and to fit in with the current debate, it might make sense to stick to a discussion of deficit-financed public spending of the traditional kind.

Bob has it right: Germany is not “Keynesian”, it’s ordoliberalist.

Yeah, got it, thanks. But I why get involved in debates about the true meaning of Keynsianism while discussing Germany, when ordoliberalism which provided the basis for the German “social market economy” is pretty well defined in its own right by its proponents and has been German policy for decades.

Not just Keynesianism but also Social Democracy (e. g. 5) are used pretty much arbitrarily here. Unless we figure out the terminology, we are unlikely to get anywhere with this.

What Wolf is saying is that Republicans have been successful as a tax-cutting party, that this could be regarded as a form of Keynesianism (stimulate demand by running deficits)

But that’s not Keynesianism. Keynesianism is a program of *situationally* stimulating demand by running deficits *during recessions* (and correspondingly, cooling inflation by running surpluses during booms). If you don’t understand that Keynesianism prescribes different actions for different sets of economic conditions then you don’t know it from a hole in the ground.

Republicans cut taxes to run deficits during booms, which is not Keynesian at all; it’s not even cargo cult Keynesian.

chris, you should attack Wolf, not me.

Keynesianism is a program of situationally stimulating demand by running deficits during recessions (and correspondingly, cooling inflation by running surpluses during booms).

This brings up the question whether true Keynesianism has ever been practiced. Anybody wanting to chime in on that?

I guess it’s the obvious line, but my honest counter is that social democracy is an inadequate substitute for Keynesianism. And I don’t think Keynesianism is that difficult to define in this context — it’s the use monetary and fiscal policy to stimulate the economy in the absence of private demand. This is distinguished from core social welfare programs or (duh) any old large public expenditure in that it’s explicitly, first-purposefully countercyclical. It’s true that many social welfare programs (unemployment insurance etc.) are countercyclical as well, but that’s basically a secondary benefit, and certainly one that’s not large enough to counter a recession of this size.

I do think it’s telling how this ‘debate’ (too kind a word) has worked, where US critics like Krugman don’t see a ‘vs.’ at all — just a recognition that structural social policies, while hugely important in their own right, don’t obviate the need for more targeted gov’t action in the face of a collapse of private demand.

I like all this lively academic discussion about economics. It’s fun for all participants.
But here’s a thought: how about talking to people with first-hand knowledge?
Sure, you’d have to actually get up and do stuff like talking to the great unwashed in their dirty habitats. As for myself I’m a chronic depressive Dane, and whatever faults I can find in my country’s policies, I am eternally grateful that I’m not american, british, or any other nationality… except maybe swedish, because as much as I’m loath to admit it, I think they might actually have an even better system.
Politics-wise, denmark has a long history of social democracy. My proof:
Our right-wing are known as… tadahh: Liberals.
Yeah, we have heavy taxes, on tobacco, on cars, on booze, on and on and so on.
But guess what we don’t have: an overall gap between haves and have-nots as disgusting as the U.S.
A murder rate that is unfathomable.
A media that is totally broken, (though we’re getting there).

But we have plenty of problems, every county does.
But as for the U.S, where even hinting in print or on the air
that taxing the super-rich and helping the destitute is suicide… yeah, well.

Impressively thorough for a blog comment, Lemuel.

Commenting on a dead topic here but here is my sixpenthworth as I also read the Wolf Blog and was very interested in the idea. What makes the US ‘Keynsian’ ish is that despite the rhetoric they are commited to managing demand, whereas post 70’s Europe has adhered to the monetarist shiboeths about interest rates and inflation.
The key points for me are these
a) It is the loyalty to monetarist fetishes of interest rates and inflation – not unions and welfare states – which have caused the massive rise in unemployment in post 70’s Europe.
b) Right-wing hegemony in the US however has meant that it is a very inefficient and impoverished form of demand management – giving tax breaks to the rich is much less efficient than tax breaks to the poor (even setting aside Bush cuts US tax system is among the least progressive anywhere), and stimulating the economy without a strategic or redistributive role for the state leads to import consumer booms for crap that doesn’t make us happy, and is environmentally disasterous.
The take home message is that redistributive states which manage demand to create jobs are what we need. I can see it as a banner headline in the FT