There are certain disciplines – theology, forensic pathology, seismology and meteorology spring to mind – that have wonderfully omniscient practitioners. In retrospect, that is. They can usually explain just why the thunderbolt hit this blasphemer and not that one, why the seemingly healthy politician keeled over stone dead, and how the tsunami hit this shore and not that one – after the fact.
Head of the pack among this tribe of expostfactologists are, of course, economists who can always explain – afterwards – why there was a crash or a boom. Perhaps that is why recent Nobel Prizes have tended to go to glorified accountants rather than economists – people who calculate the value of options rather than throw light on the mechanisms that move the economies of the globe.
One of the few economists to have stood the test of time is John Maynard Keynes, who, even if he did not predict exactly when the economy was going to fall down a hole, at least provided an effective first aid kit to get it back on its feet and running again. Keynes pointed out the need for government to spend its way out of a recession, using deficit financing if necessary. It was Keynes’ blueprint that Franklin Roosevelt followed with his New Deal to turn the US economy round in the 1930s.
Ironically, the two recent greatest apostles of Keynes and FDR have been Ronald Reagan and George W Bush, even if neither of them would admit it. Just look at the size of those deficits! And both have contrived to have wartime booms with huge military expenditure, which boosts American industry – all the more so because in recent years the Pentagon is about the only voluntary buyer of modern American engineering products. That may not last, of course. How long before production of Hummers, Strykers and M16s is offshored to China?
Supporters of Bush and Reagan never invoke the names of FDR and Keynes because they tend to regard them both as dangerous socialists. This is a shame. It would have been better if the administration had actually read Keynes and adopted him officially rather than just picked up his big idea and skimped on the essential details.
The most important of these is that the purpose of tax cuts is not to reward the already rich who bankrolled your campaign, but to encourage consumption and production at home, rather than abroad. And the purpose of deficit spending is not to finance tax cuts but to put money into active spending circulation – in the US, not in China.
Adam Smith, another economist who has stood the test of time, also had relevant insights that are now forgotten. Like Henry Ford when he began, Smith thought paying workers well was not only a good idea for them, but also encouraged capital investment to boost their productivity. As long as governments think we are in downward competition with India and China on labor costs for everyone except lawyers, CEOs and politicians, we are headed for a future where Chinese kids will be told to eat up their breakfasts and think of the starving American children. That is a prediction – and you can take it to the bank. It may be worth more than a dollar sometime.
