Presidentiality: ‘Dr. Keynes’

“Presidentiality” is a weekly web series with Need to Know correspondent Win Rosenfeld that dissects what the candidates are saying, doing and promising on the campaign trail. Each week, “Presidentiality” deconstructs the candidates’ rhetoric through the lenses of historical precedent, economic theory and science.Mitt Romney is the perceived front-runner in the Republican presidential primary, but one persistent accusation continues to dog his campaign: He’s a flip-flopper. So, to quell some of the criticism, he recently attempted to quote conservative hero Winston Churchill. “Winston Churchill said, ‘When the facts change, I change too, Madam, what do you do?’”

Except, as it turns out, Churchill didn’t actually say those words. In fact, they were uttered by one of the wartime leader’s contemporaries, the economist John Maynard Keynes. The accidental quotation turned out to be more than a little awkward for Romney because, well, Republicans these days revile John Maynard Keynes.

Keynes, the founding father of macroeconomics, has become the bete noir of the modern GOP because he advocated for government intervention in capital markets during times of recession. A downturn like the one we’re in now, Keynes might say, is a vicious cycle: Consumers have less money, so they spend less, causing businesses to produce less goods and hire less workers, who in turn have less money, and so forth.

The only way out, Keynes posited, was government stimulus. Stimulus could come in the form of expanding the money supply, or it could come in the form of deficit spending — putting people directly back to work with massive government infrastructure projects, like the Works Projects Administration during the Great Depression. When “aggregate demand,” as Keynes called it, is low, governments need to step in and fill the gap.

Until recently, Keynesian principles were accepted as fundamental economics by virtually everyone in the political class. Richard Nixon, after de-linking the dollar from the gold supply, said famously, “We’re all Keynesians now.” Even Mitt Romney called for monetary stimulus during the recession of the early 2000s. And Rick Perry, who recently declared Keynesian theory “done” in a debate, oversaw an increase in government spending in Texas during the recent downturn.

So what explains the sudden turnaround in Republicans’ attitudes towards Keynes? It might have something to do with how the two parties have diagnosed the current economic problem. The Obama administration sees it as a lack of consumer demand — a decidedly Keynesian view. Republicans, on the other hand, see the problem as high taxes and burdensome regulations.

In fact, the different diagnoses may be more revealing than the prescriptions: Democrats want lots of new spending, Republicans want to repeal health care reform. Those policy proposals have been batted around for months, with little progress. The more telling rift may lie not in how the two parties would solve the economic crisis, but what sort of crisis they’re seeing in the first place.

 

Comments

  • http://twitter.com/stew_winkel Stew Winkel

    This is how the parties view the economic crisis – Democrats view it as something that is having a serious impact on majority of Americans and that needs to be addressed immediately (though what their ideas are to fix it are not nearly as clear).  Republicans view it as something that if it can just continue for another 6-9 months, they should be able to take back the White House and both houses of Congress, and then go back to the same policies (tax cuts, tax cuts, tax cuts) that helped get us into this mess during the Bush Administration. 

  • Paul

    Duh – The economy thrived because of borrowing – it burst when it became clear that this fake rise in value became unsustainable.  You can lower business taxes to zero and still, no entrepreneur in his or her right mind would hire to produce or sell a product when there is no one out there willing to by.  The real “job creators” is us – we provide the reason that the middlemen – the businesses – hire people to satisfy our desires and needs and ability to pay for them.  Uncertainty, regulations are irrelevant.  When was the last time you heard the right produce a list of debilitating regulations and then provide the business model that demonstrated that they would be compelled to hire.  Hire for what?  There’s nobody with jobs out there to afford anything these newly unfettered businesses could provide.  
    The government is not a household – it doesn’t sit around the kitchen table to make “hard choices”.  Its there to protect us and allow us to reach our potentials as human beings.  It doesn’t “spend”, it “invests”. The idea that somehow unemployment insurance is tolerable, yet taking that same money and investing in infrastructure and real jobs is not, is absurd.  Yet that’s what the right believes.  I don’t think its sinister greed on their part – just plain stupidity and logical disconnect.

    Ironically it is the Right that espouses the ultimate communist solutions.  For instance, rather than providing single payer health care, they’d prefer to spread the burden on all of us to support the poor by forcing them into pro bono ER visits which jack up the cost of healthcare for everyone.  Like I said, stupidity.

    So this story presented a nice vignette of the attitudes towards  Keynes, but as with many journalists who think they are presenting a “balanced” non-biased account – to make the case that its just a matter of point-of-view really shirks the responsibility to provide the reader with real facts.  Is regulation and taxes the real problem?  Of course not – show some real initiative and debunk some of this crap with real research not some highschool “compare and contrast” exercise.

  • HRichards

    Actual businessmen, asked why they’re not hiring, hardly ever blame taxes, regulations, or uncertainty. The primary reason they offer is nearly always lack of demand for what they sell. Why is this well known fact not reported by Gentile and Rosenfeld?

    Lower taxes and weaker regulations is the GOP’s solution to every problem. Of course they know it’s not really a solution to any problem, but simply a means to accelerate the transfer of wealth upwards. It’s class warfare, all right, and so far they’re winning.

    If a cutoff of federal funding for PBS would give its correspondents the courage to call a spade a spade, I’d be in favor of it.

  • jan

     People can’t buy when they don’t have enough income to buy anything. 

  • jan

    Republicans do NOT want to repeal health care reform.  The mega-insurance companies wouldn’t like the loss of income from mandatory health insurance and they might retaliate.  No, republicans would prefer to look like they want to repeal it while maintaining it and “adjusting” it so that the insurance companies can dump people who actually require care. 

    Skimming the cream off the top and moving on has been the Great American Business Plan for several decades now.  

  • Casperjay

    Great pieces, fulfills the title of the show – explores and teaches something you actually need to know!

  • Mttrooper

    Let me get this straight; Rosenfeld highlights Mitt Romney and Rick Perry in this piece about John Maynard Keynes and totally ignores the fact that Ron Paul has been talking about Keynesian economics for the past 30 years. What I Need To Know is when are you people going to quit ignoring Ron Paul.

  • LoisLayne

    Ron Paul is in the video stating his position on JMK.

  • Sherman

    The Left and the Right ignore Keynes idea to raise taxes and cut spending during good times to temper the extreme “boom” times. Now there’s a platform to get elected on…”If I’m elected I promise to raise taxes and cut spending!!!” Of course this would help reduce the debt.

  • Sherman

    Why does PBS ignore the other side of Keynes equation…cut spending, raise taxes…during boom times? Self-preservation?

  • Seriously?

    Ok HRichards, it’s pretty clear that you don’t actually know any real businessmen, business analysts, executive managers, HR executives, or anyone that actually makes decisions about hiring, because I do and that’s all that I’ve been hearing. Never once have I heard company leadership say that they are not hiring because of consumer demand in the last 4 years. Consumer spending has been trending upwards since the last recession!

    Obamacare is a perfect example of too much regulation. 20,000 pages of regulations. Realize that each company has to actually pay someone to read all of that and analyze how it will affect their company. Since it was rammed down everyone’s throat and not thought out before hand about how it would affect the market and how the market would react to it, legislators are still making changes right now to figure it out, while in the mean time, businesses and individuals see their medical insurance premiums sky-rocketing, and cannot make a budget to plan out how many employees they will be able to afford, based upon projected sales revenue figures. Companies are being forced

    Class warfare and the transfer of wealth upwards is A COMPLETELY DIFFERENT ISSUE. To fix that problem, changes need to be made to eliminate speculative public stock trading because upper management of companies will always be focused on producing short-term returns for investors every quarter. Healthcare, pharmaceutical, medical device, and insurance industries need to be completely reformed to reduce astronomical waste and unjustified costs. Those two reforms alone will completely change the focus, motive, and incentive for companies so they actually value and compensate their employees fairly, which will reinvigorate the economy.