Global Keynesianism

The post-war Keynesian emphasis on demand management told only half the story; to leave the supply side to the fallacies of laissez-faire is to torpedo hope of economic change. The simplistic dualisms of the last decade -- public versus private, collective versus individual, state versus market -- do not do justice either to the differences that already exist between the mixed economies of advanced capitalism, or to the economic, social and environmental choices we now face. The mixed economy today is not a compromise between command communism and the free market -- and somehow a dilution of each. The ideological spectrum from command planning to laissez-faire is not adequate either to explain the differences that exist between industrialized countries or to provide coherent policy prescription for their reform. Instead, all market, and the economies they make up, have their own logic, institutions, and character, based on the interdependence of state action, market rules and individual decision-making. The central question is not, therefore, whether we have more or less market, or more or less state, but what kind of state we develop.

Contrary to the predictions of free market theory, productivity gains in practice result in the loss of jobs but seem never to create them. The dogma that when wages go down employers hire more workers, and low interest rates always generate new business investment, was contested by Keynes. Reducing production reduces receipts, and reducing wages reduces the buying power of consumers. Firing workers reduces their buying power. Keynesianism broke this cycle through government spending.