New York, NY, August 24, 2010 – The Institute for New Economic Thinking (INET) has appointed Paul Davidson, Editor of the Journal of Post Keynesian Economics and Holly Chair of Excellence Professor Emeritus, University of Tennessee, to its advisory board. Paul Davidson, is the 31st distinguished individual to join INET’s Advisory Board, including five Nobel Prize winners.
Professor Paul Davidson is currently a Senior Fellow at the Schwartz Center for Economic Policy Analysis, The New School. He has taught at number of prestigious institutions including: University of Pennsylvania, Rutgers University, and Bristol University (UK). Davidson served as the Assistant Director of the Economic Division of the Continental Oil Company and has testified before 20 congressional committees over the years on various economic questions. He has authored co-authored or edited 22 books, including: The Keynes Solution: The Path to Global Economic Prosperity, Economics For A Civilized Society (co-author), Financial Markets, Money and the Real World, and Post Keynesian /macroeconomic Theory: A Foundation For Successful Economic Policies For the Twenty-first Century.
“I share the Institute’s commitment to education, open dialogue, and the support of the next generation in effecting change,” commented Paul Davidson. “I am dedicated to advancing the Institute’s vital initiatives and honored to join its distinguished Advisory Board.”
“As a distinguished educator and champion of Keynesian Economics, Paul Davidson is a invaluable addition to the INET community that held its inaugural conference at King’s College, University Cambridge, where Keynes himself debated economic theory and instigated reform,” commented Dr. Robert Johnson, Executive Director of INET. “His presence and counsel will undoubtedly have an important impact on the Institute and its work.”
About the Institute for New Economic Thinking:
Launched in October 2009 with a $50 million pledge from George Soros, the Institute for New Economic Thinking promotes changes in economic theory and practice through conferences, grants and education initiatives. The Institute embraces the professional responsibility to think beyond the inadequate methods and models of the world’s financial infrastructures and will support the creation of new paradigms in the understanding of economic processes. For more information please visit http://www.ineteconomics.org/
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Paul Davidson
Editor, Journal of Post Keynesian Economics
author: THE KEYNES SOLUTION: THE PATH TO GLOBAL ECONOMIC PROSPERITY
Bernard Schwartz Center for Economic Policy Analysis
66 Country Club Drive
Monroe Township, New Jersey 08831
email: pdavidson@utk.edu
Paul Davidson
Tuesday, August 24, 2010
The Triadic Analytic Esthetic Geometry of Our Universal Emotions of Genericity's Simplicity__Dimensionality and Proportionality__From the Gentile, to
(Someone elsewhere on the web mentioned this post, so I'm re-posting...)
"The world is divided into men who have wit and no religion and men who have religion and no wit. " Avicenna
"As to the mental essence, we find it in infants devoid of every mental form." Avicenna
"At night I would return home, set out a lamp before me, and devote myself to reading and writing. Whenever sleep overcame me or I became conscious of weakening, I would turn aside to drink a cup of wine, so that my strength would return to me. Then I would return to reading. And whenever sleep seized me I would see those very problems in my dream; and many questions became clear to me in my sleep. I continued in this until all of the sciences were deeply rooted within me and I understood them as is humanly possible. Everything which I knew at the time is just as I know it now; I have not added anything to it to this day. Thus I mastered the logical, natural, and mathematical sciences, and I had now reached the science." Avicenna
"The knowledge of anything, since all things have causes, is not acquired or complete unless it is known by its causes." Avicenna
The Triadic Analytic Esthetic Geometry of Our Universal Emotions of Genericity's Simplicity__Dimensionality and Proportionality__From the Gentile, to the Projective, to the Factual...
Avicenna made it part way there... Kant made it a bit further... Peirce made it the furthest... We must finish the journey of the triadic whole__subjective/objective/ajective, or the, monojective/bijective/trijective minds' final journey...
Emotions, our most important essence, are much simpler than most have thought them to be__iff looked at, thoroughly, from and with the esthetic, analytic-synthetic a priori__The true triadic self...
Emotions are the primary source of all the energies of our complete mind’s functioning, whether our animal fight or flight instincts, our most aesthetic emotions of compassion and empathy, or our higher emotional foundations under our intellectual and logical states of mind. We’re talking about our primary energy states in all these categories of choices of personalities, attitudes or medium to higher states of mind potentialities. Many have stated for centuries that this metaphysical state of primary energies could not be analyzed__But I see this, so far non-conceptual state of mind, as being analyzable iff we simply see its primary brain state function, before we apply content to it, as being fully possible of analyzability.
When the primary brain state is looked at, which would be our perceptions’ essence agents’ tools, whether passion, pain, reason, compassion, empathy, love, judgment or whatever other state may be involved, at the time of our action’s choices__is subject to nothing more than the use of the powers of this very primary energy. And when we are talking about any human energy source, we are simply talking about its capacity for good or bad, happiness or sadness, helping or hurting, loving or hating, on and on, yet it has and implies parameters of these mentioned choices and actions__which would be the proportionalities of energies applied to the many different situations we encounter. Just as a simple example; We may use our gentlest of emotional states of love toward another, with the least proportion of energy applied to the person our love is projected toward, even though this may take a tremendous amount of energy to control our will’s involuntary action, at the time__while at other times this state of low intensity energy may be a naturally flowing symmetry, often granted by what's outside our personal control of energy flows__The purely natural metaphysical flows. It’s still understandable as a low proportionality of energy applied.
On the other hand, we may want to excite another couple to a certain action for the day’s activities, and we’d apply a large proportion of energy, with our personality and attitude, to entice that particular couple to be enthused to bid our wishes, as we may have planned a very exciting outing, for everyone to enjoy, as I’ve often done, when bored of the atmosphere of the local area I may have been in. All I’m showing is the simple proportional emotional energy use we may have all applied at differing times in our lives. This would mean our basic epistemic agents of perception, as I see all essence agents, as being housed in perception, are actually acting through a geometric process of distributing energy to our willed actions proportionately differing at differing times and circumstances. Of course, this is just a simple explanation, but many are un-aware of the basic mechanics of pure emotional energy, and I think it’s very important to see all the varied dimensions of actions the emotional mind is actually capable of.
When one realizes it's simple energy choices, of actions’ choices, to control our emotions, we need never be trapped in our boredoms, excess desires or greed, because the free-knowledge-choices of actions is much more fun, than all the fulfillments of possessions could ever accomplish. A pure freedom of our mind’s actions’ choices, knowingly, is the most fulfilling of the spirit's possibilities__and is available to anyone who is shown this simple path__”Put the body in action/motion and the mind will follow.” It is no more complex than this simple statement. There’s no amount of possessions or money in the world, that can surpass the mind’s knowledge of its own freedom’s possibilities of free-will actions’ Possibilia. I’ve seen so many relationships go sour for the simple reason of not realizing the power of empowering the body’s actions, to have the minds follow, it's almost uncountable__and for no other reason than not knowing__The body controls the mind’s states of happiness__Do something__Anything__You’ll like it...
I’ve only offered a simple mind map of happiness’s possible actions, but imo, this is the fundamental state of The Triadic Analytic Esthetic Geometry of Our Universal Emotions of Genericity's Simplicity__Dimensionality and Proportionality__From the Gentile, to the Projective, to the Factual...
"The world is divided into men who have wit and no religion and men who have religion and no wit. " Avicenna
"As to the mental essence, we find it in infants devoid of every mental form." Avicenna
"At night I would return home, set out a lamp before me, and devote myself to reading and writing. Whenever sleep overcame me or I became conscious of weakening, I would turn aside to drink a cup of wine, so that my strength would return to me. Then I would return to reading. And whenever sleep seized me I would see those very problems in my dream; and many questions became clear to me in my sleep. I continued in this until all of the sciences were deeply rooted within me and I understood them as is humanly possible. Everything which I knew at the time is just as I know it now; I have not added anything to it to this day. Thus I mastered the logical, natural, and mathematical sciences, and I had now reached the science." Avicenna
"The knowledge of anything, since all things have causes, is not acquired or complete unless it is known by its causes." Avicenna
The Triadic Analytic Esthetic Geometry of Our Universal Emotions of Genericity's Simplicity__Dimensionality and Proportionality__From the Gentile, to the Projective, to the Factual...
Avicenna made it part way there... Kant made it a bit further... Peirce made it the furthest... We must finish the journey of the triadic whole__subjective/objective/ajective, or the, monojective/bijective/trijective minds' final journey...
Emotions, our most important essence, are much simpler than most have thought them to be__iff looked at, thoroughly, from and with the esthetic, analytic-synthetic a priori__The true triadic self...
Emotions are the primary source of all the energies of our complete mind’s functioning, whether our animal fight or flight instincts, our most aesthetic emotions of compassion and empathy, or our higher emotional foundations under our intellectual and logical states of mind. We’re talking about our primary energy states in all these categories of choices of personalities, attitudes or medium to higher states of mind potentialities. Many have stated for centuries that this metaphysical state of primary energies could not be analyzed__But I see this, so far non-conceptual state of mind, as being analyzable iff we simply see its primary brain state function, before we apply content to it, as being fully possible of analyzability.
When the primary brain state is looked at, which would be our perceptions’ essence agents’ tools, whether passion, pain, reason, compassion, empathy, love, judgment or whatever other state may be involved, at the time of our action’s choices__is subject to nothing more than the use of the powers of this very primary energy. And when we are talking about any human energy source, we are simply talking about its capacity for good or bad, happiness or sadness, helping or hurting, loving or hating, on and on, yet it has and implies parameters of these mentioned choices and actions__which would be the proportionalities of energies applied to the many different situations we encounter. Just as a simple example; We may use our gentlest of emotional states of love toward another, with the least proportion of energy applied to the person our love is projected toward, even though this may take a tremendous amount of energy to control our will’s involuntary action, at the time__while at other times this state of low intensity energy may be a naturally flowing symmetry, often granted by what's outside our personal control of energy flows__The purely natural metaphysical flows. It’s still understandable as a low proportionality of energy applied.
On the other hand, we may want to excite another couple to a certain action for the day’s activities, and we’d apply a large proportion of energy, with our personality and attitude, to entice that particular couple to be enthused to bid our wishes, as we may have planned a very exciting outing, for everyone to enjoy, as I’ve often done, when bored of the atmosphere of the local area I may have been in. All I’m showing is the simple proportional emotional energy use we may have all applied at differing times in our lives. This would mean our basic epistemic agents of perception, as I see all essence agents, as being housed in perception, are actually acting through a geometric process of distributing energy to our willed actions proportionately differing at differing times and circumstances. Of course, this is just a simple explanation, but many are un-aware of the basic mechanics of pure emotional energy, and I think it’s very important to see all the varied dimensions of actions the emotional mind is actually capable of.
When one realizes it's simple energy choices, of actions’ choices, to control our emotions, we need never be trapped in our boredoms, excess desires or greed, because the free-knowledge-choices of actions is much more fun, than all the fulfillments of possessions could ever accomplish. A pure freedom of our mind’s actions’ choices, knowingly, is the most fulfilling of the spirit's possibilities__and is available to anyone who is shown this simple path__”Put the body in action/motion and the mind will follow.” It is no more complex than this simple statement. There’s no amount of possessions or money in the world, that can surpass the mind’s knowledge of its own freedom’s possibilities of free-will actions’ Possibilia. I’ve seen so many relationships go sour for the simple reason of not realizing the power of empowering the body’s actions, to have the minds follow, it's almost uncountable__and for no other reason than not knowing__The body controls the mind’s states of happiness__Do something__Anything__You’ll like it...
I’ve only offered a simple mind map of happiness’s possible actions, but imo, this is the fundamental state of The Triadic Analytic Esthetic Geometry of Our Universal Emotions of Genericity's Simplicity__Dimensionality and Proportionality__From the Gentile, to the Projective, to the Factual...
Monday, August 2, 2010
Making Dollars and Sense of the U.S Government Debt...
Paul Davidson
Abstract: This paper explains why, given Keynes’s General Theory, worries over the size of the government’s national debt per se is foolish. It is more important to educate politicians and the public that government fiscal policy should be designed to make sure that aggregate market demand will produce sufficient profits so that entrepreneurs will hire all domestic workers willing and able to work. Empirical evidence is provided to demonstrate the correctness of this concept of fiscal policy of the balancing wheel for full employment effective demand. Key words: deficits, national debt.
No economic topic encourages more political demagoguery than the
“unsustainable” national deficits that face the Obama administration as
it tries to extricate the economy from this Great Recession that began
in 2007. Even President Obama has appointed a commission to develop
a plan to assure a reduction in future deficits by lowering government
expenditures or raising taxes.
A sage once said, “Those who cannot remember the past are condemned
to repeat its errors.” So let us review the past history of the national debt
to make sure we avoid its errors and repeat its successes.
Is the national debt too large? In 1790, the newly founded U.S. government
assumed the debts that had been incurred during the Revolutionary
War. Thus, from the very beginning, the U.S. national debt was
approximately $75 million. In 1835, President Jackson reduced the debt
to close to a zero balance. By 1837, however, the economy went into a
steep recession that lasted approximately six years and the national debt
increased dramatically. Since then, the U.S. government has always had
a significant outstanding debt.
During World War I, the national debt increased substantially from approximately
$6 billion in 1916 to over $27 billion in 1919. The prosperous
decade of the “roaring twenties” saw a decline in the national debt
as tax receipts exceeded government spending. By 1929, the total debt
had been reduced to $16.9 billion. This 1920s experience indicates that
when the private sector is spending sufficiently to buy all the products
that industry can produce in a fully employed economy, then there is no
need for the government to deficit spend merely to maintain a prosperous
economy. The 1920s prosperity, however, was partly the result of
significant bubbles in the stock market and in real estate. (Shades of the
dot.com bubble of the 1990s and the housing bubble of early 2000s.)
In 1929, private spending suddenly slowed causing a devastating drop
in business profits. Unemployment rose rapidly as the United States
entered the Great Depression. Tax revenues fell from $4 billion in 1930
to less than $2 billion in 1932. When Roosevelt took office in 1933, the
national debt was almost $20 billion; a sum equal to 20 percent of the
U.S. gross domestic product (GDP).
During its first term, the Roosevelt administration ran large annual
deficits between 2 and 5 percent of GDP. By 1936, the national debt had
increased to $33.7 billion or approximately 40 percent of GDP. Many
“experts” of that era said disaster awaited the nation if the government
continued to deficit spend and thereby burden future generations with this
huge debt. Accordingly, as a part of his reelection campaign, Roosevelt’s
fiscal year 1937 budget submitted to Congress in 1936 cut government
spending dramatically. As a result, in 1937, the economy fell into a steep
recession. Tax revenues declined and the national debt increased to $37
billion. The government resumed significant deficit spending in 1938
and the economy quickly recovered. By 1940, the economy had grown
substantially while the national debt rose to $43 billion.
When the United States entered the war in 1941, the fear of deficits and
the size of the national debt were forgotten. The important thing was to
defeat the enemy. In the war years from 1941 to 1945, the GDP doubled
while the national debt increased by more than 500 percent as Roosevelt
financed much of the war expenditures by government borrowing. By the
end of the war in 1945, the national debt had increased to $258 billion
and was equal to approximately 120 percent of GDP.
Rather than bankrupting the nation, this large growth in the national
debt promoted a prosperous economy. By 1946, the average American
household was living much better economically than in the prewar
days. Moreover, the children of that Depression–World War II generation
were not burdened by having to pay off what then was considered
a huge national debt. Instead, for the next quarter century, the economy
continued on a path of unprecedented economic growth and prosperity
with the Eisenhower administration launching the biggest public works
project—the interstate highway system—and the Kennedy–Johnson
administration spending large sums on sending a man to the moon and
the escalating Vietnam War. At the same time, the inequality in the distribution
of income was significantly narrowed. It was the golden age
of economic development for the United States as the rich grew richer
while the poor gained even more in a rapidly rising level of income that
created a large American middle class.
As a child of the Depression and a young teenager during the World
War II, I have never felt burdened by the huge government deficits that
accrued due to government spending during the Great Depression and
the war that followed. The legacy that the Great Generation who were
adults during the depression and the war left to their children was an
economy of abundance and prosperity. I inherited an economy that made
finding a good job easy for me and all of my cohorts and provided excellent
opportunities to improve our living standards. If this is burdening
children and grandchildren, I hope the current generation can create such
a “burden” for their progeny.
The moral of this history of the national debt and the economy during
the Great Depression and World War II is that we have nothing to fear
about running big government deficits when, during a recession with
significant unemployment, the federal government is the only spender
that can take the responsibility to sufficiently increase the market demand
for the products of our industries and thereby maintain a profitable entrepreneurial
system. For government to spend less in the hopes of keeping
down the size of the national debt will cause market demand to remain
slack, thereby impoverishing both our business firms and our workers.
The idea that capitalism works best when spenders cause healthy growth
in market demands and thereby generate profits and jobs for the community
was the basic message of Keynes theory.
This was clearly demonstrated when government spending increased
during the years 1933–36 and 1938–45. When Roosevelt cut spending
in 1937, the sharp recession showed that at that stage of recovery, no
other spenders were willing or able to take over from government the
role of generator of market demand and profits for American businesses.
Had Roosevelt, in 1938, continued on the path of keeping government
spending in check in order not to increase the total national debt, the
result would have been to propagate the poorly performing economy
of 1937. When the war broke out and no further thought was given to
the size of the national debt, government spending quickly pushed the
economy to a profitable full employment status. Keynes’s ideas that the
role of government fiscal policy was to make sure that the total demand
for goods and services provided profit opportunities to encourage business
firms to hire all workers who wanted a job was validated by this
historical record.
Business firms will hire more workers only when they expect the market
demand for their products is increasing. Today, who are these buyers who
will be willing to buy significantly more products from factories located
in the United States in order to end this Great Recession? Clearly households
suffering from high unemployment, decreasing market values for
their homes, large credit card debt, and shrinking pension funds are not
likely to rush to buy significant more goods and services. Entrepreneurs
with existing excess facilities and facing declining or at most not rapidly
rising market demands are unlikely to invest significantly in new plant and
equipment. Moreover, foreigners such as China with its large savings of
U.S. dollar earnings appears unlikely to spend more dollars to buy more
U.S.‑produced goods. With falling property and sales tax revenues, local
and state governments such as California are cutting spending on public
services and reducing purchases from domestically located firms. Only
the Federal government can afford to buy significant additional products
to stimulate market demand for American products.
Just as we expect the Federal government to spend whatever is necessary
to protect us from foreign enemies during a war, we should also
expect the government to spend whatever is necessary to protect us
from the economic terrorism of a great recession. The public must be
educated to understand that a civilized society is one that assures both
domestic workers and enterprises prosper and that the intelligent use of
government fiscal policy can assure that total market demand is always
sufficient to generate domestic profits large enough to create a fully
employed economy.
Some argue that tax revenues must finance all government spending
so that the federal budget is always balanced without deficits, or at least
annual deficits do not increase the debt-to-GDP ratio. As history shows,
however, even during World War II when America was attacked by foreign
nations (remember Pearl Harbor?) the U.S. government did not finance
the entire defense of this nation by raising taxes. Instead, during the war
years, deficits expanded dramatically while no one worried (correctly)
about burdening future generations with debt.
If wars are not sufficient (or necessary) reasons to raise taxes or cut
government spending sufficiently to balance the budget while protecting
the nation, then why should defending the nation against serious economic
threats require a balanced budget or a lower deficit? Our politicians and
the public must be educated to understand that when total demand for
domestically produced goods is low so that recession and depression
threaten, then government must deficit spend as much as necessary to
encourage domestic entrepreneurs to hire all American workers who
are willing and able to work. If, on the other hand, market demand for
domestically produced goods and services exceed America’s full employment
productive capacity, then government must increase taxes and
reduce spending in order to reduce aggregate demand to a level that can
be met by a fully employed labor force.
When the public and politicians recognize that a primary function of
government fiscal policy is to act as a balancing wheel for aggregate
demand to be sufficient to encourage America’s entrepreneurs to create
jobs for all our workers, we will have developed the political will to
develop a perpetual prosperous American civilized society.
At that point of time, our next task will be to develop an international
financial and payments system that will provide for global full employment
and prosperity.
Abstract: This paper explains why, given Keynes’s General Theory, worries over the size of the government’s national debt per se is foolish. It is more important to educate politicians and the public that government fiscal policy should be designed to make sure that aggregate market demand will produce sufficient profits so that entrepreneurs will hire all domestic workers willing and able to work. Empirical evidence is provided to demonstrate the correctness of this concept of fiscal policy of the balancing wheel for full employment effective demand. Key words: deficits, national debt.
No economic topic encourages more political demagoguery than the
“unsustainable” national deficits that face the Obama administration as
it tries to extricate the economy from this Great Recession that began
in 2007. Even President Obama has appointed a commission to develop
a plan to assure a reduction in future deficits by lowering government
expenditures or raising taxes.
A sage once said, “Those who cannot remember the past are condemned
to repeat its errors.” So let us review the past history of the national debt
to make sure we avoid its errors and repeat its successes.
Is the national debt too large? In 1790, the newly founded U.S. government
assumed the debts that had been incurred during the Revolutionary
War. Thus, from the very beginning, the U.S. national debt was
approximately $75 million. In 1835, President Jackson reduced the debt
to close to a zero balance. By 1837, however, the economy went into a
steep recession that lasted approximately six years and the national debt
increased dramatically. Since then, the U.S. government has always had
a significant outstanding debt.
During World War I, the national debt increased substantially from approximately
$6 billion in 1916 to over $27 billion in 1919. The prosperous
decade of the “roaring twenties” saw a decline in the national debt
as tax receipts exceeded government spending. By 1929, the total debt
had been reduced to $16.9 billion. This 1920s experience indicates that
when the private sector is spending sufficiently to buy all the products
that industry can produce in a fully employed economy, then there is no
need for the government to deficit spend merely to maintain a prosperous
economy. The 1920s prosperity, however, was partly the result of
significant bubbles in the stock market and in real estate. (Shades of the
dot.com bubble of the 1990s and the housing bubble of early 2000s.)
In 1929, private spending suddenly slowed causing a devastating drop
in business profits. Unemployment rose rapidly as the United States
entered the Great Depression. Tax revenues fell from $4 billion in 1930
to less than $2 billion in 1932. When Roosevelt took office in 1933, the
national debt was almost $20 billion; a sum equal to 20 percent of the
U.S. gross domestic product (GDP).
During its first term, the Roosevelt administration ran large annual
deficits between 2 and 5 percent of GDP. By 1936, the national debt had
increased to $33.7 billion or approximately 40 percent of GDP. Many
“experts” of that era said disaster awaited the nation if the government
continued to deficit spend and thereby burden future generations with this
huge debt. Accordingly, as a part of his reelection campaign, Roosevelt’s
fiscal year 1937 budget submitted to Congress in 1936 cut government
spending dramatically. As a result, in 1937, the economy fell into a steep
recession. Tax revenues declined and the national debt increased to $37
billion. The government resumed significant deficit spending in 1938
and the economy quickly recovered. By 1940, the economy had grown
substantially while the national debt rose to $43 billion.
When the United States entered the war in 1941, the fear of deficits and
the size of the national debt were forgotten. The important thing was to
defeat the enemy. In the war years from 1941 to 1945, the GDP doubled
while the national debt increased by more than 500 percent as Roosevelt
financed much of the war expenditures by government borrowing. By the
end of the war in 1945, the national debt had increased to $258 billion
and was equal to approximately 120 percent of GDP.
Rather than bankrupting the nation, this large growth in the national
debt promoted a prosperous economy. By 1946, the average American
household was living much better economically than in the prewar
days. Moreover, the children of that Depression–World War II generation
were not burdened by having to pay off what then was considered
a huge national debt. Instead, for the next quarter century, the economy
continued on a path of unprecedented economic growth and prosperity
with the Eisenhower administration launching the biggest public works
project—the interstate highway system—and the Kennedy–Johnson
administration spending large sums on sending a man to the moon and
the escalating Vietnam War. At the same time, the inequality in the distribution
of income was significantly narrowed. It was the golden age
of economic development for the United States as the rich grew richer
while the poor gained even more in a rapidly rising level of income that
created a large American middle class.
As a child of the Depression and a young teenager during the World
War II, I have never felt burdened by the huge government deficits that
accrued due to government spending during the Great Depression and
the war that followed. The legacy that the Great Generation who were
adults during the depression and the war left to their children was an
economy of abundance and prosperity. I inherited an economy that made
finding a good job easy for me and all of my cohorts and provided excellent
opportunities to improve our living standards. If this is burdening
children and grandchildren, I hope the current generation can create such
a “burden” for their progeny.
The moral of this history of the national debt and the economy during
the Great Depression and World War II is that we have nothing to fear
about running big government deficits when, during a recession with
significant unemployment, the federal government is the only spender
that can take the responsibility to sufficiently increase the market demand
for the products of our industries and thereby maintain a profitable entrepreneurial
system. For government to spend less in the hopes of keeping
down the size of the national debt will cause market demand to remain
slack, thereby impoverishing both our business firms and our workers.
The idea that capitalism works best when spenders cause healthy growth
in market demands and thereby generate profits and jobs for the community
was the basic message of Keynes theory.
This was clearly demonstrated when government spending increased
during the years 1933–36 and 1938–45. When Roosevelt cut spending
in 1937, the sharp recession showed that at that stage of recovery, no
other spenders were willing or able to take over from government the
role of generator of market demand and profits for American businesses.
Had Roosevelt, in 1938, continued on the path of keeping government
spending in check in order not to increase the total national debt, the
result would have been to propagate the poorly performing economy
of 1937. When the war broke out and no further thought was given to
the size of the national debt, government spending quickly pushed the
economy to a profitable full employment status. Keynes’s ideas that the
role of government fiscal policy was to make sure that the total demand
for goods and services provided profit opportunities to encourage business
firms to hire all workers who wanted a job was validated by this
historical record.
Business firms will hire more workers only when they expect the market
demand for their products is increasing. Today, who are these buyers who
will be willing to buy significantly more products from factories located
in the United States in order to end this Great Recession? Clearly households
suffering from high unemployment, decreasing market values for
their homes, large credit card debt, and shrinking pension funds are not
likely to rush to buy significant more goods and services. Entrepreneurs
with existing excess facilities and facing declining or at most not rapidly
rising market demands are unlikely to invest significantly in new plant and
equipment. Moreover, foreigners such as China with its large savings of
U.S. dollar earnings appears unlikely to spend more dollars to buy more
U.S.‑produced goods. With falling property and sales tax revenues, local
and state governments such as California are cutting spending on public
services and reducing purchases from domestically located firms. Only
the Federal government can afford to buy significant additional products
to stimulate market demand for American products.
Just as we expect the Federal government to spend whatever is necessary
to protect us from foreign enemies during a war, we should also
expect the government to spend whatever is necessary to protect us
from the economic terrorism of a great recession. The public must be
educated to understand that a civilized society is one that assures both
domestic workers and enterprises prosper and that the intelligent use of
government fiscal policy can assure that total market demand is always
sufficient to generate domestic profits large enough to create a fully
employed economy.
Some argue that tax revenues must finance all government spending
so that the federal budget is always balanced without deficits, or at least
annual deficits do not increase the debt-to-GDP ratio. As history shows,
however, even during World War II when America was attacked by foreign
nations (remember Pearl Harbor?) the U.S. government did not finance
the entire defense of this nation by raising taxes. Instead, during the war
years, deficits expanded dramatically while no one worried (correctly)
about burdening future generations with debt.
If wars are not sufficient (or necessary) reasons to raise taxes or cut
government spending sufficiently to balance the budget while protecting
the nation, then why should defending the nation against serious economic
threats require a balanced budget or a lower deficit? Our politicians and
the public must be educated to understand that when total demand for
domestically produced goods is low so that recession and depression
threaten, then government must deficit spend as much as necessary to
encourage domestic entrepreneurs to hire all American workers who
are willing and able to work. If, on the other hand, market demand for
domestically produced goods and services exceed America’s full employment
productive capacity, then government must increase taxes and
reduce spending in order to reduce aggregate demand to a level that can
be met by a fully employed labor force.
When the public and politicians recognize that a primary function of
government fiscal policy is to act as a balancing wheel for aggregate
demand to be sufficient to encourage America’s entrepreneurs to create
jobs for all our workers, we will have developed the political will to
develop a perpetual prosperous American civilized society.
At that point of time, our next task will be to develop an international
financial and payments system that will provide for global full employment
and prosperity.
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