Monday, October 31, 2011

Keynesian economics vs. Say's Law

Krugman is back at it with another article, this time discussing one of the new hypocrisies of the Right. With this new push to find a solution via the supercommittee, Krugman asks why Republicans are so protective of our defense budget. They're reasoning? Defense spending creates jobs, and cutting that spending will cost jobs.

He points out, very well, that this argument is the exact opposite of the standard GOP mantra of "government doesn't create jobs, can't create jobs, won't create jobs, and shouldn't create jobs. Ever. Period." So, the GOP has now confirmed that the government can in fact create jobs and that those jobs are worth protecting. So does that mean they'll be looking into other areas of public jobs creation? Not so much.

The broader fight that this article alludes to is one being waged against Keynesian economics by the Right, which has their own brand of economic theory (Laffer Curve, Say's Law, Free Market, etc.). Keynesians, like myself, believe that a mix of private and public sector focus is the way to go. Common-sense regulations, spending by the government that is responsible and that creates jobs, and reasonable levels of taxation are the underlying principles. For all of that, Keynesian economics is not really a leftist theory, since it encourages spending in every area that creates jobs, including defense.

As for theories like Free Market Capitalism and Say's Law, the opposite view is true. Government has no answers and should only exist to protect the rights of the wealthy and the private sector. No regulation, no focus on the people. According to Say's Law, for example, supply creates its own demand, reducing any focus on consumers to effectively zero. It's also complete lunacy. But it fits into the conservative model because it helps them to justify their neverending focus on special interests and big business.

The current political and economic climate is a ripe environment for these kinds of ideas to be re-examined and retooled. The Republicans have had to switch gears so many times on things like wars, health care, education, and government spending that they seem to be contradicting themselves every other day. We need a bit of Keynesian economics injected into this system, because it releases some of the pressure on the public. By focusing on getting people back to work, even through defense spending, you help the economy. When you focus only on the markets, the wealthy, and the businesses, you are leaving a majority of the people behind. This is not just about sound economics, this is about sound principles.

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