The Unanimous Declaration of the Keynesian Coalition

By Tyler Healey

IN AMERICA, September, 2012

When in the Course of human events, it becomes necessary for one school of economic thought to dissolve the bands which have connected it with others, and to assume among the powers of the earth, the separate and superior station to which the Laws of Science entitle it, a decent respect to the opinions of humankind requires that the members of their school should declare the causes which impel the separation.

We the Keynesian Coalition hold these truths to be empirically evident:

  • Excessive fiscal austerity causes and prolongs economic downturns.
  • Properly-sized and well-targeted deficit growth prevents and ends economic downturns.
  •  Tax cuts for the rich is among the least effective ways to stimulate an economy.

In every stage of this recession, we have petitioned for these truths in the most humble terms: Our repeated petitions have been answered only by repeated dismissal.

We, therefore, the scholarly descendants of John Maynard Keynes, in America, assembled, do, by authority of history, solemnly publish and declare, that the citizens of this nation ought to be free and independent of the failed economic dogma of the past and present, and that as free and independent people, they have full power to elect political leaders that will pursue Keynesian economic policies, which, since their inaugural implementation, have kept millions from the harsh cruelty of poverty. And for the support of this Declaration, with a firm reliance on the stubbornness of facts, we mutually pledge to each other our lives, our fortunes, and our sacred honor.

13 responses to “The Unanimous Declaration of the Keynesian Coalition

  1. Very clever. Who are the political leaders you’re going to elect?

    • Thanks! I support Keynesians like Tim Kaine and Krystal Ball. Regarding the presidential candidates, I believe President Obama is closer to being a Keynesian than Romney because he appears to not plan on raising taxes on the middle class or the poor.

  2. Too bad they repealed the Enlightenment and replaced it with a post-postmodern pastiche where the twain of signifier and signified shall not meet.

  3. These Keynesians have no idea as to what really drives our macroeconomics system to work in the way that it does. To begin with, the Keynesian model of our social system is very badly incomplete and it omits the effects of landlords (who don’t function as capitalists because when stocks fall in price with lower interest the land becomes more “productive” in terms of rent/investment). The banks too are incompletely represented as is the government in their model.

    When a tax is raised it leaves less money to spend or invest with by the person being taxed, whilst allowing the government more money to use and a chance to employ more workers. Thus any tax change has NO DIRECT OVERALL EFFECT on the progress of the macroeconomy. When we look at only part of the full model of our system this effect is lost and that is basically why Keynesian Theory does not work! In order to see if a tax change can stimulate the progress of the economy, it is necessary to examine its secondary effects.

    Suppose land values are taxed instead of “the rich”. Immediately land value speculation ceases to be worthwhile. More land is placed on the market, its price falls and the majority of entrepreneurs who could not afford to set up their businesses at the old prices now find themselves able to start doing business. This is an indirect result of the tax change, but the number of unemployed people now able to find work now grows greatly. The theory behind this policy was described by Henry George in 1879, (see “Progress and Poverty”, not by J.M.Keynes in 1936).

    Past speculation in the land values has raised its price and made the opportunities to work minimal. Land and its opportunities are deliberately held unused! The gain in land value is due to the investment by tax payers in their local infrastructures, so landlords are reaping tax monies indirectly.

    TAX LAND NOT PEOPLE; TAX TAKINGS NOT MAKINGS!

    • David,

      You’re writing under the assumption that the federal government needs revenue in order to conduct spending. This is entirely false, as any economist on this website will tell you. The success of Keynesian economic policies is indisputable. For example, Reagan tripled the national debt and it led to the creation of nearly 20 million jobs.

      • But is there a causal relationship between Reagan tripling the debt and the added jobs? I’ve seen many claims of this sort on this website (deficits create jobs) yet it seems that data is presented where it fits the hypothesis and ignored where it doesn’t fit the hypothesis.

        For instance (I don’t have employment numbers handy, but do have the unemployment rate, I’ll use that in the following comparisons):

        During Reagan’s 8 years national debt tripled and unemployment dropped from close to 8% to about 5% (with a jump to about 10% in the middle). However, during the previous 8 years (1973-1980) the national debt doubled and unemployment rose from 5% to 7%. Apparently deficits didn’t help during this period.

        Now look at the period from 1950 to 1972. Nominal GDP increased four fold while the nominal national debt less than doubled. National debt fell from almost 90% of GDP to about 35% of GDP. Unemployment moved for the most part in a range from 4%-6%.

        More recently, during the Clinton years unemployment decreased from 7% to 4% while the national debt increased about 40%. During the Bush years the national debt doubled while unemployment was under 6% until the end of 2008. The last four years have seen national debt increase 50% while unemployment has remained stubbornly high.

        Obviously there is no simple relationship between deficits and unemployment. In fact, from about 1970 to today unemployment and deficits have largely risen and fallen together. This suggests a relationship between the two, though I can’t say anything about causality either way.

        The authors of this website have blamed today’s economic problems on the Clinton era budget surpluses. I find this odd since the Clinton surpluses (about $550 billion) were more than offset by the $2.1 trillion of the Bush era and roughly $5 trillion of the last four years.

        I would find the theories advocated on this website much more convincing if I saw data supported the theory. Instead I see simple explanations of “how the economy works”, a few examples which support this view, and when contradictory evidence is mentioned, long complicated explanations going far beyond the concepts of these simple explanations.

  4. Thomas, the basic idea of Keynesianism is that putting or leaving money in the economy will give people more spending power, which will force businesses to hire. This is why FDR’s massive spending led to an unemployment rate of 1%. Regarding the 1970s, that was a recessionary period largely caused by OPEC. I highly recommend a book by Warren Mosler, “The Seven Deadly Innocent Frauds of Economic Policy,” which can be read at the following web address: http://moslereconomics.com/2009/12/10/7-deadly-innocent-frauds/.

    • Mr. Healy, I do understand the basics of Keynesian economics, MMT, and classical economics. My questions come from looking at specific economic statements (such as deficits create employment) and trying to determine if the evidence supports the statement. Thus I looked beyond the Reagan years using some back of the envelope level calculations. As I mentioned, the question is whether the relationship between Reagan deficits and employment are causation, correlation, or just coincidence.

      You mention FDR reducing the unemployment rate to 1%. As far as I know, unemployment only went to 1% during WWII. Prior to WWII FDR was unable to eliminate unemployment or end the depression, even though both Hoover and FDR presided over large increases in federal spending and large (for the time) deficits. During WWII unemployment was essentially eliminated, however a significant portion of the working age population was also removed from the employment pool (often involuntarily) via the military. If the way to solve a depression is with spending and upheaval equivalent to WWII, I’d prefer an alternative.

      This also brings up the question of how the United States ever got out of any of the economic downturns of the 1800s. As far as I know the government didn’t embark on massive spending programs during that period. I asked a similar question on this web site a couple months ago (http://neweconomicperspectives.org/2012/07/what-do-you-want-for-america.html) and never got a direct answer.

      I’m also familiar with the theory that OPEC caused the inflation of the late 1970s and 1980s. The problem I have with this is it doesn’t explain the rise in inflation prior to any oil price rise. The inflation rate (measured by consumer price index change) during the period from 1966 to 1972 (prior to any oil price increases) increased from the 1-2% range to the 5% range. So it appears prices were on the way up independent of oil (I note this also contradicts the “hard money” camp who blame Nixon going off the gold standard for inflation).

      • Growth during FDR’s presidency was fantastic until 1937, when he abandoned Keynesianism and pursued a balanced budget.
        Regarding inflation, I recommending reading John T. Harvey’s blog at Forbes.com to get a better understanding of its causes. For more on stimulus, check out Rodger Mitchell’s website, particularly this post: http://rodgermmitchell.wordpress.com/2012/09/01/what-is-stimulus-and-why-does-it-always-work/

        • Real life got in the way, so it took a while, but I did look at the sources you suggested.

          On FDR, unemployment dropped from around 24% to 16% during his first term. There was a lot of growth, but the US didn’t get anywhere near full employment until WWII intervened.

          I read Mr. Harvey’s blog at Forbes.com. I didn’t see the inflation from 1966 to 1972 (prior to oil shocks) mentioned, his inflation arguments seem to boil down to “there are lots of causes, and too much money is never the cause”. On his other blogs I found the arguments sloppy and poorly reasoned (such as arguing high gas prices are caused by increased speculation without ever looking at oil markets directly).

          While Mr. Harvey argued against any of the usual assumptions related to inflation (so that “too much money” is not the cause), Mr. Mitchell’s arguments on why stimulus always works is predicated on a number of assumptions that increased Federal spending will not have a negative effect on other parts of the economy.

          I also read Warren Mosler’s book. I found the arguments matched other MMT arguments I’ve seen, but I thank you for getting me to actually read it, he shows nicely why many MMT arguments only work for a reserve currency (or at least strong currency). Taking statements like one that the trade deficit is “a case of offshore investors desiring to hold U.S. financial assets” and re-wording it for other nations with trade deficits (e.g. Kenya’s trade deficit is because offshore investors want to hold Kenyan financial assets) neatly shows the problem with these arguments.

  5. Are there any republican leaders who are keynesians?