Restoring Trust in the American Economy: The Real World v. The Confidence Fairy

By Paul Davidson,the author of “The Keynes Solution: The Path to Global Economic Prosperity” and the editor of the Journal of Post Keynesian Economics. Cross posted from Alternet

Recently I went to a well-known restaurant in Evanston, Illinois. This restaurant has a reputation for providing excellent food and service. But the night I was there, it was less than half full. I asked the manager if he would he hire more waiters and chefs if his taxes were reduced and/or government removed the existing regulations controlling the way his restaurant could operate. His answer was that even if his taxes were reduced and regulations eliminated, he would only hire more staff if more customers came in for dinner. On the other hand, if there were twice as many customers for dinners than there were on this night (and there were many more customers before the recession began in 2007) he would gladly double the number of workers he employed even if his taxes were not reduced or regulations changed.

That’'s how things work in the Real World. This simple case illustrates clearly that entrepreneurs will have confidence to expand and hire more workers only if they find the market demand for their products and services strong and growing.

There are plenty of other things that would do wonders just now to help restore trust and confidence in the American economy: a well-regulated financial sector; smart government investment in the things we need, like jobs and infrastructure; and fair taxation that asks the rich to pay their share. You wouldn't know this listening to conservative economists stuck in Neverland –– a place where the government must never function and corporations must never be regulated.

Conservative economists and their friends like to trot out a mythical being whenever they want to make arguments that favor an economy built for the wealthy at the expense of ordinary people. This imaginary being, known as the Confidence Fairy, is only happy when capitalists are given free rein to do whatever they want – even if it brings us to the brink of a global economic meltdown.

In a recent “Face the Nation” broadcast, Republican presidential candidate Mitt Romney expressed his devotion to the Confidence Fairy when he told us that a magical economic recovery would happen if only we got rid of the terrible burden the federal government had put on businesses by imposing regulations and big government financed by heavy taxation. In other words, if only government would shrink itself and relax business regulations, the resulting freed-up markets would make people who run businesses confident enough in the economy to bring forth a wonderland of prosperity and full employment.

Conservative economics professor Tyler Cowen took a page from the same storybook recently in the New York Times, blaming the lack of significant economic recovery from the financial crisis of 2007-'08 on the unhappiness of the Confidence Fairy. Politicians, he says, have failed to make us as “safe, financially speaking, as we used to be.” So Cowen argues that the “slow cure” for our economic malaise is to allow asset prices, wealth, trust, and so on to gradually rise in a free-market environment without any interference from government. Cowen states that the textbook cure for recession — namely, significant “Keynesian” government stimulus spending — will not quickly restore prosperity because the Confidence Fairy doesn'’t like things like building roads, repairing schools and putting firefighters to work.

But if we can move past this mythical land created by conservative economists to that place known as the Real World, we can easily see what really drives people like the Illinois restaurant owner to engage in the kind of activity that gets the economy humming. It turns out that they invest and expand when people demand their goods and services.

So why, you may ask, would conservative economists argue that the demand for the products of American enterprises will increase only if we reduce the size of government and remove regulations that were designed to protect the public from businesses engaging in activities that are detrimental, like dumping hazardous waste in our backyard?

A sage once said, "Those who do not study history are doomed to repeat its errors."”

If we take a little trip back in time, we can see that economic pain often arises from a distinct lack of regulation, rather than too much of it. Beginning in the 1930s, for example, Congress instituted a series of regulations that limited the operations of financial institutions so that they could not engage in the dangerous speculative practices they were so fond of in the 1920s. These activities, the 1933 Pecora Congressional investigative committee found, had contributed to the financial crash of 1929 and the real estate bubble that burst with the onset of the Great Depression. The committee findings led to the passage of the 1933 Glass-Steagall Act, whose regulations restricted operations of banks and other financial institutions.

For several decades after the second world war, American manufacturing and financial enterprises thrived and grew despite operating under the regulations that were instituted as part of the New Deal and paying higher income tax rates than are enforced today. The 1950s and 1960s were part of a golden age of economic growth and prosperity. These two decades exhibited a rate economic growth that far exceeded the average growth rate for the Industrial Revolution era where there was no income tax and there were far fewer regulations.

The 1950s and '60s was an era of robust and successful big government programs that helped the economy stay healthy. Under the Republican Eisenhower administration the U.S. experienced the largest public works project ever undertaken, the building of the interstate highway system. This public works project dramatically improved the operation of the American economic system as goods could be brought to market faster and more cheaply.

The 1960s saw active big government in the development of NASA’'s program to land a man on the moon and other projects that developed many of the important technological innovations that have contributed dramatically to improving the American way of life.

And guess what? The tax rates during the 1950s and '60s still far exceeded today'’s federal tax rates. But somehow US industries had sufficient confidence to expand production and create in most years a prosperous full employment society.

After the experience of rising inflation and stagnating economic growth of the 1970s, there began a movement to relax government regulations of financial institutions in the belief that this would restore business confidence and encourage economic growth. The result of these relaxed rules governing financial institutions was that by 1989, the nation faced a savings-and-loan association system failure. For the first time since the 1930s a large number (743 out of 3,234) S&L banks collapsed and the government’'s Resolution Trust Company was created to provide the S&L industry with aid to prevent a national financial disaster.

When the Glass-Steagall Act was repealed in 1999, investment banks and depository banking institutions went wild playing casino games that helped crash the economy in 2007-'08. Most of these activities were illegal under the Glass-Steagall Act and hence could not have occurred if the regulations that had existed for more than 60 years had remained in place. The repeal of the Glass-Steagall Act, unfortunately, permitted what were called “financial innovations” such as the development of financial derivative markets and markets for credit default swaps. These intricate financial instruments were such that even many of their holders did not quite understand them. They ultimately led to the subprime mortgage crisis and threatened a global financial collapse in 2007. The federal government had to bail out the major financial institutions that were judged to be “"too big to fail.”"

This history dramatically demonstrates that when regulations that were put in place to protect the American economy and its financial institutions are removed, economic disaster is likely to follow.

And what about the textbook cure for recession — the so-called Keynesian fiscal stimulus –that conservative economists are always denying? Will that restore prosperity?

When President Obama came into office, the US economy was declining so swiftly many were fearful that the economic situation would develop into a second Great Depression. The Obama administration managed to get Congress to permit a relatively small fiscal stimulus program. (A larger stimulus package was seen by many in Washington as causing too great an increase in the total federal debt and thereby too burdensome for future generations.) The result of the small Obama fiscal stimulus program was that the economy did not collapse into another great depression that many had foreseen. From hindsight it is clear that the size of the Obama stimulus was too small to provide sufficient stimulus to restore prosperity.

People like Professor Cowen or Mitt Romney do not understand that if we were to develop a large fiscal stimulus program around a needed national infrastructure rebuilding, we could restore prosperity and confidence in the future of the American economy and simultaneously contribute to significantly improving our future standard of living. If the federal government were to let contracts for at least $1 trillion to private enterprise to rebuild failing highways, bridges, municipal water and sewage systems, and provide resources for our shrinking public and higher education systems, the entrepreneurial expectations of continuously ringing cash registers as firms are awarded these government contracts would quickly restore entrepreneur’ial confidence. The profit opportunities made available by this large government spending program would encourage firms to hire more workers and buy materials needed from other US firms.

The number of unemployed workers would shrink substantially. When these newly hired workers go out and spend their wages to rebuild their households and lives, the confidence of US retailers would immediately surge as these additional customers were breaking down the doors to get at the merchandise on the shelves.

Perhaps someone should teach Tyler Cowen and presidential candidate Romney the basic economic principle that nothing will build confidence of business firms and workers quicker than the continuous ringing of cash registers.

And there'’s more they don’'t want us to know. The fact is that even if this large, needed Keynesian stimulus spending were financed by large federal deficits, we would not be impoverishing our children. Instead we would be investing in the future of our children by providing them with an adequate educational system so they could be qualified to take on future productive hi-tech jobs. Restoring our infrastructure facilities makes it easy and inexpensive to bring goods to market, and it allows us to have safe, sanitary living conditions for enjoying a good life. These are the things that contribute to the productivity, health and happiness of our children. Not economic fairy tales.

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  1. Lambert Strether

    Obama is deploying exactly the same idea as the Confidence Fairy on the campaign trail under the rubric of “certainty” (see here at Meme watch), but applied to citizens, not corporations. These are not “conservative” ideas. They are the official consensus in Washington, and that consensus is shared by both legacy parties — so-called “conservatives” and so-called “liberals.

      1. Min

        “Government can’t replace — can’t create jobs to replace the millions that we lost in the recession, but it can create the conditions for small businesses to hire more people, through steps like tax breaks”

        –President Obama, September 27, 2010

        Who could have known that the H in his initials really stood for Hoover?

        OK, Mr. President, let’s not argue with your belief system. But how about restoring the gov’t jobs you eliminated? That would help. (And it’s an election year, too. :))

      1. JamesW

        The 1960s saw active big government in the development of NASA’’s program to land a man on the moon and other projects that developed many of the important technological innovations that have contributed dramatically to improving the American way of life.

        And the last democrat was in the White House then, NOT coincidentally!

        For a more elucidating explanation:

        Battling Wall Street: The Kennedy presidency
        by Donald Gibson

        Mandatory reading for today!

    1. Min

      Honest money? Right now we should temporarily decriminalize countefeiting! Show us the money!

  2. F. Beard


    Has the fundamental problem, excessive private debt been solved?

    Has the cause of that problem, the counterfeiting cartel, been eliminated?

    So much for confidence then.

  3. pathman

    I’m not a big fan of anecdotal evidence like the restaurant story. Does anyone have a real study backing this stuff up?

    1. rotter

      You cant divide by zeo. if theres no money to tax, then taxt breaks dont help anyone. Even if they gave small business tax checks, they way they used to give rebate checks to poor people trying to survive on less than about $10,000 per year (think about that for a minute thats $833 dollars per month) they wouldnt use it to hire anyone because it couldnt replace daily customers – they would stick it under the matress or pay down some debt..let the banking and insurance industry lose half (or more) of their customers. They would be showered with cash -they already have been time and time again.

    2. Min

      Does anybody have a study about why businessmen hire people? (Nothing against your point about not relying upon anecdotes. :)) Why have studies when you can simply invoke rhetoric? It’s bad enough when politicians do it, bless their little black hearts, but where are the empirical economists?

  4. Foppe


    So why, you may ask, would conservative economists argue that the demand for the products of American enterprises will increase only if we reduce the size of government and remove regulations that were designed to protect the public from businesses engaging in activities that are detrimental, like dumping hazardous waste in our backyard?

    Does it not seem noteworthy to you that liberal politicians have so little to say about economic policy issues, when conservatives (who know just as little) say so much? I mean, there’s a bit about ‘taxation’ every election, but there is nothing comparable to the single-mindedness with which conservatives are talking about how important it is to deregulate the economy further to let “job creators” like Romney to do their worst.

    The first question we can ask is: why is this? Why, on the liberal side, do we only find technocrats like Reich, dubious figures like Krugman, and hacks like DeLong talking about economic policy questions (ignore for the moment the question of the quality of their remarks), without many if any politicians taking up the talking points they no doubt offer in spades? Is it because their message is that implausible, or hard to sell? I doubt it. So what is the reason that politicians aren’t really talking about issues of political economy?

    And two: what do you think it does to the political climate when one side is talking about job creators all the time while the other side is quiet? Does it not seem politically undesirable to not also talk about economic issues? And since if I can think of this everyone can, so that democratic party strategists must also realize this, what do you think it says about the democratic party that they only trot out the economic policy verities around election time?

    1. Sufferin' Succotash

      If you’re a Democratic politico and you start talking about economic issues in ways that don’t reflect the neoliberal assumptions of the past 30+ years then you will be waging Class Warfare.
      That’s a sobering thought, especially if you’re more concerned with raking in fat-cat donations than in mobilizing apathetic low-income voters.
      Which is better, to have millions of unattractive people who buy their clothes at K-Mart cheering your name or to be welcome in the Hamptons?
      I donno about you, but I’ll take Outer LawnGuyLand any old day.

    2. JTFaraday

      I think that Congress today is taking legislation virtually pre-written for it in advance by outside policy people, and those policy people mostly work for the corporations, the FIRE sector, and the propertarian think tanks that are well funded by the wealthy like Pete Peterson and the Koch brothers.

      You have no comparable “liberal” contingent of policy writers feeding legislation into Congress.

      What “liberals” have amounts to endless whining about the current state of affairs by people like those you mention–some of whom, as tenured academics in economics and public policy, could very well get off their fat asses, do some research and oversee some actual policy writing.

      And I’m certain their fawning, desperate graduate students would fall all over themselves for the opportunity to put a line on their CVs. So, lots of little elves, too!

      There was, I think, a “single payer” health care bill delivered to our congressional hacks (probably written ages ago). But when it comes to things like domestic employment and international trade, the Keynesian whiners don’t seem to actually do anything.

      Now, I have to say, I don’t always like their fuzzy ideas so I’m not sure I actually want to see them fleshed out and on their way to fascist Fedgov, where they would only be tortured into the most punitive form possible fine tuned to to do maximum damage– which is what they did with Jacob Hacker’s public option-health insurance mandate– but I can’t appreciate the hand waving learned helplessness either.

      So, now whenever one of these deskilled professional whiners pops up–Reich, Galbraith– I just tell them to shut up. :-)

      1. Lambert Strether

        If you’re going to write a check with “whining,” then you need to be able to cash it with a little research. The House bill is HR676, and its Senate companion is S703.

        1. JTFaraday

          I said there was a single payer health care bill. And this is not “a check” it’s blog comment.

          My point is that until these tenured Keynesian fat asses put their money where their mouths are, they have no credit with me. I have relegated them to the same kabuki puppet show that is the D-Party.

          I don’t need them to whine, I can do that myself. I don’t need them to “blog” either.

    3. Min

      “Does it not seem noteworthy to you that liberal politicians have so little to say about economic policy issues, when conservatives (who know just as little) say so much?”

      Who says they’re liberal?

      The Democratic Party has a strain of economic conservatism going back to Andrew Jackson, and including Carter, both Clintons, and Obama.

  5. MG

    Thank you for saying this. I work for a venture capital firm (a real VC firm, not an LBO firm like Bain Capital) and have been in about 200 board meetings of about a dozen of companies that have created by my count ~20K jobs in the past 5 years. In all that time going through hiring forecasts and budget planning, the issue corporate and individual marginal tax rates has come up exactly zero times. “How much revenue do we think we can bring in?” “What does the sales pipeline look like?” Every single meeting.

    1. LucyLulu

      Exactly! Decisions are driven by profits, and the primary driver of profits is demand. Cutting taxes on the ‘job creators’ to zero and eliminating all regulations won’t restore demand. In fact, demand would be better helped by a tax amnesty for those who have little or no discretionary income……but the deficit would take a real beating (assuming we’re in the real vs. ideal world, FB :=) ).

      1. Ishmael

        Well having been the CFO of three public company turnarounds — not chainsaw type things but improving sales and margins — as well as twenty plus years of consulting, I can agree with this. Yes, it is revenue which directly drives growth. As the saying goes, nothing that sales will not fix. However, that is the front end driver. But what drives revenue. Money (and credit in people’s pockets)! There are plenty of people with built up demand but they do not have the money to fulfill it.

        Now being much older than most here (but still working 50 hours a day even though many wonder why) I have watched credit grow since in the 70’s I was one of the few with a credit card until everyone has a ton of debt. So there was the old way that demand use to be driven out of cash from pay checks and then the ever ramping demand from credit growth. Credit growth has hit a brick wall.

        Now we can argue all day why the old fashion income growth is not there. Hey my income from salary has been flat for 20 plus years and this is despite a ton of additonal skills and productivity enhancements (like my laptop I am typing this and doing what it use to take three people to do).

        It just comes down to too much labor and most of it has a real skill limitation. Secondly, competition from outside of the US has become much stronger (I have lived and worked in NA, Australia/Asia, Europe and the ME) so this is a factor also.

        So, in fact some of the drivers mentioned by politicians are the indirect drivers that drive jobs and growth of incomes which will inturn drive top lines which will increase hiring. There are other factors such as rampant coruption also raises the cost of business.

        When I consult for people one of my mine rules is that the macro events are the ones that will always sink you ultimately.

        1. LucyLulu

          Thank you for your thoughts. Your broad background and experience lends them credibility.

        2. LucyLulu

          P.S. If you had remained a CFO of a public company, your salary would have shown quite healthy growth! ;)

        3. Min

          “There are plenty of people with built up demand but they do not have the money to fulfill it.”

          Demand without affordability is simply desire.

  6. Brent Eubanks

    To paraphrase the article, “We had rising prosperity through the 50’s and 60’s, which stagnated in the 70’s”.

    Why is that, one asks? (Well, the article didn’t, but perhaps it should have.) Maybe this is your answer:

    Energy drives EVERYTHING in a modern economy. So when the cost of energy goes up and/or more of that energy is imported (sending money out of country), the result is a pervasive drag on every single function of the economy. It’s quite literally like trying to fly into a financial headwind – you can do it, but it is increasingly harder and less rewarding.

    This also brings into question the wisdom of a large, unfocused stimulus package. In the past, those tactics worked because the cost could be paid off over future years of rising prosperity. But as energy becomes more costly, the assumption of future increases in prosperity becomes more and more questionable.

    Don’t get me wrong: I think a big stimulus would have been (and still would be) a good idea, if the stimulus is focused in sensible ways. Incurring debt now to fund infrastructure projects that will ensure continuing supplies of critical resources makes sense: solar and wind energy, water and energy conservation, water harvest and recycling resources, soil conservation and agricultural land restoration are all good investments. Other projects, such as expanding the interstate highway system (which is only as valuable to the extent that we have cheap gas to put in our cars), are not.

    1. LucyLulu

      We are now importing less oil and energy than ever.

      “Since 2005, gross oil imports have declined 17%, according to the Congressional Research Service, while gross oil exports have increased by about 150%.”

      The article goes on to say that we currently import 45% of the oil we consume and it is expected to fall to 40% by 2020. Meanwhile, we have increased the petroleum products we export from 1.2 million barrels/day to 2.9 million over the same last six years.

      In addition, the price we pay for oil, natural gas, and petroleum products is a fraction of the price our competing developed nations must pay. When gasoline was recently $4/gallon here, it was $16/gallon in Japan and $13/gallon in the EU. Our coal-burning power plants produce dirt cheap electricity. Natural gas is being produced abundantly for ~$2/1000 cf.

      If the cost of energy drives EVERYTHING, we should have an overwhelming economic advantage over our global competitors.

      1. Ishmael

        Kind of a red herring argument. In fact we import a large amount of manufactured products and commodities. All of these have a component of energy. That energy use to be expended in the US to manufacture the goods or commodities. Now it is expended in the country of origin.

        1. rotter

          And its real cost is concealed by govt subsidies – actual cash payments in china and those magical tax cuts in the US

        2. sleeper

          Sorry folks –

          Although some basic industries aluminium, glass, concrete, steel do have a large energy component for most manufacturing operations the energy costs are around 3% – 5%.

          And if an energy efficiency path is chosen most operations can trim their energy bills by around 15% with minimal investment. The measures for doing so are well understood but rarely implemented.

          The focus of most manufacturing firms are production metrics which unfortunately leads to a sort of tunnel vision when it comes to energy and other costs.

    2. Max424

      “Energy drives EVERYTHING in a modern economy.”

      How true. And how sad. It doesn’t have to be this way.

      A nation-state could chose a different path. They could opt to use their fiat currencies wisely, and slowly wean themselves off the Super-Cheap-Fossil-Fuel Exponential Growth Model.

      It’s absurd, isn’t it? The model is already long outdated, yet EVERYTHING is based on it, including the bleak destiny of our species.

      “Other projects, such as expanding the interstate highway system … are not.”

      Indeed. The largest individual chunk of the stimulus package was spent on adding extra lanes to Southern California’s already, super-wide freeways –turning eights into twelves, and twelves into sixteens, that type of senseless thing.

      This is an excellent link. Like I said, it doesn’t have to be this way. There is a simple alternative. It only requires logical, long range planning and patience. Unfortunately, it also requires the element this nation lacks most, sane leadership.;content

      1. Max424

        I was watching the ’54 sci-fi classic Them the other night. Premise: Giant mutant ants, genetically altered by H-bomb testing, threaten not only Hollywood and its environs, but the entirety of the global village.

        The ant’s plan, hide below the surface in the concrete storm drain system that is the Los Angeles River. Then, when their numbers are calculated as sufficient, come out into the light, and party on humanity like it’s 50 million years B.C.

        It’s a good plan, and fails only because the mutant ants foolishly kidnap two kids, and the trail left by the kidnap victims leads a laconic FBI agent, a plucky police sergeant, two endearing intellectuals, and a Marine battalion, to their lair.

        The reason the plan should have worked: The giant ants could have built up strength undetected in the massive underground network, for a long and indefinite period. As one pessimistic character points out, when pondering the fate of the kids in the mandibles of the ants, “There’s 700 miles of tunnels under this city. We’ll never find them!”

        700 miles of tunnels! Really?

        That got me thinking. I know how we built this stuff back in the day. We decided we wanted to build it, so we spent a small amount of fiat money and built it. Very simple. But why did we build it? What was so different about my country then, that we could actually do big things, that more often than not, made a modicum of sense?

        This country can’t do anything for itself now. Literally, NOTHING. And I’ll say it again, the answer to the question, why can’t the United States use its OWN MONEY to wisely plan, and build?


        Note: If you are not committing treason in Washington, you likely haven’t been there very long.

    3. Min

      During the Energy Crisis of the 1970s PetroDollars left the country, but they came right back to the New York (TBTF) banks. If the banks had lent money to, say, farmers in the US we might not have had such stagnation, but they made bad loans to Latin American dictators for high returns.

  7. F. Beard

    Incurring debt now to fund infrastructure projects that will ensure continuing supplies of critical resources makes sense:

    The US is monetarily sovereign; it has no need to borrow money it can create at will.

    1. LucyLulu

      You are assuming we have an economic system not in place. We use a debt-based economy in this country, and there is no political will to make a change.

      It is akin to saying citizens don’t need to have the right to own guns as a means of reducing the homicide rate. Ain’t gonna happen.

      I don’t know how old you are, but I don’t see it happening in my lifetime (next 30 years). With luck, perhaps our children will see a more fair economy, such as the one you propose, ushered in.

      1. F. Beard

        and there is no political will to make a change. LucyLulu

        Not yet. But people are beginning to ask how almost the entire world can be in debt at the same time.

        And as this Depression continues, more will become possible. We need to be ready with sound, principled ideas.

  8. Sam

    I’d like to see the dollar amount of damage totaled up for each of the derivative products created at the repeal of Glass-Steagall. Then I’d like to see the entire total dollar amount presented in Congress, with Phil Gramm sitting front and center. Glass-Steagall kept the bank system in the US table for decades. It was put in place by Roosevelt as a means of telling Wall Street and bankers to put a cork in it. They weren’t running the US.

    1. F. Beard

      Credit creation is INHERENTLY discriminatory. It is thus NOT stable unless injustice is stable.

      1. skippy

        Capital is the ultimate discriminatory actor, it seeks its self for protection. Credit is just capital portioning out bits of its self for future worth, exchangeable price, value expected, cough more capital consolidation.

        skippy… all other considerations are secondary, including human beings and all other living things.

        1. F. Beard

          How did capital get so concentrated in the first place?

          Ans: the money system.

          Honest usury alone is enough to cause vast wealth inequality over time which is why periodic debt forgiveness was a custom. Credit creation is far worse since it adds what is essentially counterfeiting to usury.

        2. skippy

          Capital ie, concentration of power expressed by a small percentage of the human population.

          skippy… this state occurred before credit. BTW was credit the first – act of – derivatization on/of a promise, which results were crystal ball gazing in their accuracy.

          1. skippy

            They don’t call them – capital ships – in navy for nothing.

            skippy… Funnily enough, one relatively cheap torpedo / surface – air to surface missile can send them to the bottom, hence the need for all the smaller assets utilized as defensive screening, from below, on the water and in the air, hell in orbit now days. These are sacrificial assets.

            Are you a sacrificial asset? Who / whom is your capital ship and do your pray to it? What is your rank?

          2. skippy

            Ideological coward….

            Skippy… run back into your temple…. of nonfactual thoughts.

  9. ChrisPacific

    I like the idea of rebuilding failing municipal sewage systems. As an added bonus, workers on those projects would gain valuable job training that could then be usefully deployed on other tasks, namely rebuilding the failing banking system.

    We are going to need a lot more shovels.

  10. briansays

    i long ago shed any illusion that these types care about this country or its people other than their class
    a means to their ends
    that’s why mitt looks uncomfortable
    he knows its all bs
    that’s why they pine away for another Reagan
    he was such a good salesman
    as noted in the Inside Job if you are too good at what you do they will offer you a job and co-op you
    you think this professor is getting by on salary or those additional amounts in speaking fees??

    1. paul davidson

      Believe or not I am retired and living off my pension plus some small royalties from the books I have written.
      NO SPEAKING FEES AT ALL. Although if you want to hire me to talk,I would be negotiable. Although I prefer you have your audience buy my book THE KEYNES SOLUTION: THE PATH TO GLOBAL ECONOMIC PROSPERITY for them to get all my words of wisdom is a printed form.

  11. Jim


    In my opinion what could be considered the social-democratic “left” (Keynesian, Post-Keynesian, Progressive, Marxist, liberal) does not appear to have the faintest idea of a meaningful alternative to the present existing structure of power.

    Our contemporary social democrats yearn for a 2nd New Deal, seemingly with Big Government, Big Capital and Big Bank operating in close collaboration and increasing managed by a properly credentialed group of professional experts (think economist, accounts, lawyers, judges, doctors, professors etc.)

    Modern social democrats seem unwilling to consider that what has become the modern structure of power in our country today has its foundation in the interpenetration of the public and the private spheres( which have evolved over the past 200 years) and which largely makes their yearning for a 2nd New Deal an endorsement of the status quo.

    Their much acclaimed first New Deal ended whatever class struggle had been on the agenda in the U.S, with the integration of American labor into the national bureaucracy of that same New Deal. Ironically, on hindsight, it was the communist organization of labor unions in the 1930 which were instrumental in corporatizing the American working class.

    For too long our moderns social democrats have relied on an economist perspective focused almost exclusively on an analysis of the historical expansion of capitalism while ignoring and consequently obscuring the political and cultural dimensions of domination which have increased in importance with the growth of our nation-state as well as the growth of Big Capital.

    These political and cultural dimensions have become key parts of our modern structure of power and those who have cultural capital are increasingly cooperating with Big Capital and Big State institutions and personnel in managing our collective lives—of course always for our own benefit.

    In fact I would argue that Big University, along with Big Capital, Big State and Big Bank are today pretty much in charge.

    No modern political or economic analysis can pretend to be in touch with reality without taking into consideration, the creation, evolution and contemporary predominance of our surveillance state working hand-in-hand with Big Capital.

    To not engage in a critical inquiry into Big State as well as Big Capital is, in my opinion, to practice a type of conservatism that plays into the hands of those individuals, institutions and networks increasingly managing our new structure of power.

    1. Greg T

      These are important points, Jim. It’s easy to say we need a 2nd New Deal and a reconsideration of Keynesian prescriptions back to economic balance. I tend to agree that the Keynesian prescriptions worked; the massive government spending required during WW II restarted the economy, and the New Deal’s system of laws and regulations helped maintain it for three decades. However, we also saw the aggressive actions taken in the 1970s to circumvent the New Deal. The capture of the education system by organized big business, the pressure to deregulate industries across the board and the rendering of regulation as a mere footnote to enterprise all contributed to the tilting of economic balance back to the oligarchs.

      The next set of reforms need to be deeper and longer lasting. Key questions must be grappled with; who should have the power to create money and credit? How should enterprises be organized? Shouldn’t the workers own and control or at least have a say in how businesses are run? Is regulation alone a remedy to externalities? You have a great point, the left in this country seems too focused on past successes and lacks a coherent vision of what a future economy would look like.

    2. Anarcissie

      Well ranted. But even if one decided that the Empire was okay as long as its metropole was social-democratic enough, the idea of recovering investor and consumer confidence through big-ticket government expenditure and regulation because this sort of thing worked in the 1960s, does not seem very reasonable. In the 1960s, the United States was not a deindustrialized, demoralized state living on debt and delusion, at least not in the same way it is today. Plus, its inspiring buddy the Evil Red Empire is gone. Things have changed, and the magic formulas must change with them.

      On a tangential note, since liberal capitalist polities are dynamic systems, the more liberal-capitalist, the more dynamic, aren’t confidence and capitalism inherently contradictory terms? In case it’s not obvious: I use the term liberal in the ancient sense.

    3. mafer

      True. With the exception of some Trotskyist sects, the left has completely abandoned its traditional moorings and now endorses the status quo with some cosmetic differences.

    4. JTFaraday

      “the modern structure of power in our country today has its foundation in the interpenetration of the public and the private spheres( which have evolved over the past 200 years) and which largely makes their yearning for a 2nd New Deal an endorsement of the status quo.”

      Well, arguably the distinction between the New Deal order and the contemporary neo-liberal order is that the New Deal government subordinated corporations to “the national interest,” whereas in the neo-liberal order the government facilitates corporate interests (globally) without any reference to the national interest.

      So, the upshot is that the government-corporate coalition still exists, but the government no longer works in the interests of the US population and is actively facilitating corporate predation upon it, particularly from the financial sector.

      It seems to me that liberals would simply like to overturn this balance of power and turn the government back toward the interest of the majority public, but don’t have plan for how to make that happen.

      The fact that they don’t have a plan, leaves things status quo (to include continued whining). But to actually shift the balance of power would represent a small alteration in the status quo.

      I’m not sure how much of a difference that makes in people’s lives at this point, but that’s the liberal game. What’s interesting is how ill equipped liberals– like the D-Party O-bots– are to play it, given that they appear to have failed to recognize the Obama Administration’s (and probably the Clinton Administration’s) actual predatory track record.

    1. F. Beard

      Keen confuses the issuing by calling a universal bailout (which would equally benefit non-debtors) “A Modern Jubilee”.

      1. spooz

        ZH posted a RT interview of Keen where he explained the “Modern Julbilee” (he also called banks parasites and said Bill Black should head a Libor probe). It was clear in the comments section that many either didn’t bother watching the clip or somehow missed the universal bailout message and responded only to the word “jubilee”, criticizing it for being unfair to savers.

  12. krb

    Talk about cherry picking data to suit your beliefs! You can’t be serious, extrapolating the hiring practices of a restaurant to the rest of the economy?!

    My family has been in the restaurant business for 3 generations, and I’m a former business owner in a goods producing industry…..the decision tree for expansion and hiring is completely different.

    A restaurant is manned by minimum wage plus tips people who are hired and laid off as frequently as the seasons change with the rise and fall of business volume. A producing industry that must make decisions about adding a second shift, purchasing more equipment, expanding plants, hiring trained personnel that will require commitments to health care and punitive legal problems should the decision to hire a person ever wish to be rescinded. Hiring in the restaurant and its minimal employee commitment very logically follows the rising and falling volume of business, not legislative certainty. Hiring and other expansionary business decision making in a producing industry absolutely depends on certainty and confidence……in health care legislation, energy legislation, tax legislation, transportation costs and therefore speculative energy costs and therefore monetary and fiscal policy, etc.etc.

    If you have so little understanding of the apple vs orange comparison of these two completely different business expansion decisions, you shouldn’t be commenting on either of them. Your sophomoric restaurant-hiring extrapolation to the rest of the economy would be comical if it weren’t so tragic that this simplistic thinking is so prevalent among big govt, Keynesian disciples. krb

      1. krb

        He takes a simplistic and cherry picked view to a complicated topic and does us all a disservice by doing so.

        Deficit spending is acceptable……but only to the extent the private sector saves. Current deficits FAR exceed that now. This is economic fact, and hugely misunderstood, since going off the gold standard during the Nixon administration. Conservatives expose their misunderstanding of how our economy actually works every time they lobby for austerity in pursuit of “balanced budgets”…..but so do big govt Keynesians who claim deficits and debt don’t matter.

        Going further, deficit spending to the extent the private sector saves is acceptable, so long as the deficit spending is efficient in its job creation. And of course govt fails on this count as well……our govt and its deficit spending has a terrible track record in its job creation efficiency.

        Handouts that may stimulate restaurant and retail store sales have fleeting impact…..when the handouts end the retail sales end, both in theory and now in our actual experience of the last 3 years.

        If deficits were limited to the the level of private sector savings, govt spending on road building, bridge building, power plant building….at market and not inflated costs….would be efficient, job creating spending by govt. Great in theory, and I’d be a supporter, but of course that’s never what happens. The kind of govt spending we actually get, under the guise of “stimulation” when it in fact is simply more crony handouts and bailouts, will NOT revive the economy in a self-sustaining way. It only buys a little more time, with diminishing returns each time for the amount of spending needed, before more “stimulation” is needed. I would argue it is as much a political strategy than it is an economic strategy.

        There are components of Keynesian govt pump priming that can be sensible and effective. But the Keynesians never seem to distinguish between effective and ineffective spending, and stopping at the right level of deficit spending. Or if they do in their theoretical discussion, they never follow through to make sure the politician decision makers abide by it in actual practice. And in that way they do a disservice, by giving cover to the politicians who provide handouts to their select supporters under the guise of “Keynesian stimulus”. It is ironic that Davidson chose “The Real World….” for his title because his portrayal is as far from the real world as those he attempts to mock! krb

        1. JTFaraday

          “but so do big govt Keynesians who claim deficits and debt don’t matter.”

          Actually, I think that was the neo-conservative war monger Dick Cheney.

          Thank goodness he wasn’t the decider!

          1. rotter

            He actually said “Reagan proved deficits dont matter”..the obvious inference being, thats the REAL insider “common wisdom” among both dems and repubs in DC, and “regan proved it”…says dick cheney

    1. LucyLulu

      Let’s assume you project a (more than temporary) increase in demand for the product or service that your business can sell for a net profit. Are you implying that you would not expand your business to accommodate that increased demand because the tax code or regulations MIGHT change unfavorably in the future? Or because you are unable to be absolutely confident that the demand won’t fall again? That’s okay. I’m sure another company will be happy to meet the demand instead.

      When have we ever had certainty? After 40 years, I can’t recall a time when the tax has code NOT been changing every year and I knew for sure what I would owe (pay estimated taxes). What healthcare commitments do you have if you layoff employees, besides COBRA notification and allowing them to remain on the plan for 18 months (usu. 18 months, and at their own expense, if they can afford it….. more accurately you can charge ex-employees 102% of your expense). How are you legally punished for laying off employees due to loss of business?

      1. krb

        You’re right, ABSOLUTE certainty will never be the case. But I’m 55 years old and there has never been a time in my working life with this much UNcertainty… what costs may be imposed on my business by energy legislation, health legislation, tax policy, transportation cost, raw material cost……ALL related to decisions by govt or the fed, and any of which could change quickly from one election to the next. We now routinely see companies ignore laws they don’t like and not get prosecuted for it! Sometimes it is the govt itself that now ignores the law! It logically makes semi-permanent decisions about like plant expansion, equipment buying, and the hiring to operate them much more difficult if not impossible with the economic landscape zigging and then zagging like it potentially could right now. Compared to current uncertainty, anything we faced in the past seems stable by comparison….at least during my working life. Its all relative, and not black and white. The level of uncertainty in the past, which seems very stable in hindsight, was probably enough to make some expansionary businesses step to the sidelines at the time and provided an opening for someone more aggressive. With much more uncertainty now, its not surprising that more are standing aside…….that’s the real world, not the simplistic picture portrayed above. krb

        1. Greg T

          I don’t think you’re refuting Paul Davidson’s basic point. The primary driver of a hiring decision is demand. Discussions on uncertainty, and risk in decision-making are complex and not very controllable by firms anyway. Hiring follows demand and right now, demand is weak because of high private sector leverage, high unemployment and wage stagnation.

          Your take on infrastructure spending is along the lines of ” if it isn’t perfectly allocated it shouldn’t be done. ” Of course some spending will be wasteful, but much of it will be useful and SOCIALLY useful, unlike bank bailouts which have negative social utility.

          1. krb

            First, thanks for the thoughtful reply, I appreciate it.

            With regard to your first comment…I respectfully disagree. I can create demand for my product….we have several times in our history……variously it has been new products, improvement to a product, existing product made less expensively. But each time it took a decision to take on risk…..what if our idea DID’NT work? what is the downside risk? what is the cost that we would be out?. There wasn’t a single time when a current or potential new customer came to us anticipating the new idea and said “if you make it I’ll buy it”. People who believe that is the order of activity in the real world don’t understand it. Or rather, that type of “demand creation” stimulus is fleeting….like the restaurants and clothing stores Davidson uses in his example.

            On your second comment..”Of course some spending will be wasteful, but much of it will be useful and SOCIALLY useful, unlike bank bailouts which have negative social utility.”….I appreciate what your saying and completely agree with your view on bank bailouts. We would all be surprised at how fast due diligence in risk-taking decisions would improve if govt committed to no bailouts, let failure fail, prosecution of fraud and the actual laws that are already on the books, and clawback of pay gained during failure, fraud and law breaking. Then consider the govt resources that would be freed up for use on actual job-creating stimulus! I don’t like being politician-like and claiming the unprovable…like “3 million jobs created or saved”….but I’m confident my prescription would have our economy further along that the policies we’ve chosen instead….yes, I know I can’t prove it. But having said that, I’m uncomfortable “accepting” the view that “Of course some spending will be wasteful…”. If we don’t at least aspire to excellent allocation and job-creating efficiency in our govt spending, than we have no chance at it, and whatever we get is less effective than it could have been.

            Sorry for the long reply, but though I can lash out with the best, I really appreciate an intellectual, mutually-respectful discussion of our problems and prescriptions. Thx, krb

        2. JTFaraday

          Well, if “uncertainty” is the problem, then what you’re saying is that businesses can’t do business in the market.

          You do realize this don’t you? Or is the ideological fog just too thick?

          1. krb

            Go re-read my comments, carefully. I’m not the one floundering in the ideological fog. Anyone who believes our problems are ideological, dem vs rep, cons vs lib, has their head in the sand and believing only the commentary that reinforces their previously held beliefs. My background is science….I want fact-based, defensible analysis and solutions, and accept them from anyone irregardless of ideological tags. The mainstream theories whose cheerleaders want to claim has some basis in science or fact, but are actually more sociological or political than economic, and without any basis in provable or repeatable fact, is a diversion and wasting our time while the middle class, retired and elderly grow poorer, and poorer, and poorer….. Think a littler deeper than dem or rep and become part of the solution instead of part of the problem. krb

          2. JTFaraday

            “My background is science….I want fact-based, defensible analysis and solutions, and accept them from anyone irregardless of ideological tags.”

            None of your comments are backed up by any sort of research, much less “science.” They are at best anecdotally driven opinion, just like the author’s generalization from the restaurant example. Consequently, you have no authority whatsoever– according to your own criteria.

            Thus, I am fully competent to put my reasoning up against your unsubstantiated opinion.

            The original complaint is that businesses simply cannot deal with the “uncertainty” that the mere possibility of some sort of government action produces. You seem to agree with this reputedly “free market” ideological perspective. Was this not your original plaint?:

            “You’re right, ABSOLUTE certainty will never be the case. But I’m 55 years old and there has never been a time in my working life with this much UNcertainty… what costs may be imposed on my business by energy legislation, health legislation, tax policy, transportation cost, raw material cost……ALL related to decisions by govt or the fed, and any of which could change quickly from one election to the next.”

            My point is that the uncertainty that liberal governments (may or may not) introduce into the market in the form of tax policy or labor and environmental regulation or stimulus bills is no different from any other market moving/ market shaping force.

            So the bottom line question I have for most of you “free market” quibblers is whether businesses can do business “in a market”–which is riven with all kinds of uncertainties– or whether they can’t.

            Because it really does seem to me that your complaint is that the government is NOT using its market moving force to pro-actively shape the market to YOUR benefit– and then agreeing to never throw its weight around again so you don’t you don’t have to adapt to too many changing market conditions.

            In which case, you don’t really want a market. You want a nanny state that is “responsive” to you and your need for a large degree of business certainty.

            The major exception to all this musing about how the US government participates in shaping market conditions– along with all the other forces powerful enough to move markets– is if your business is wholly in danger because the US government may regulate it out of business entirely because it is deemed so socially destructive that it can no longer be permitted to exist, despite the profit as excuse for anything short of murder (or not) orientation of the vast majority of the US citizenry.

            If you worked a business that was about to be regulated out of existence as a social menace–or one that was too dependent on its profits from its association with such a business– then I can see how the “uncertainty” produced by prospective government action is significantly more powerful than that of other market forces of sufficient strength to move the whole market.

            You don’t work in that sort of business do you? A lot of people do today, some of them even trailing their guilty consciences behind them. Nothing to be ashamed of if you’re one of them.

            And if you are one of them and you’re really worried about it, you can always hedge your bets on the market in corruption and leave, right? Head off for cleaner waters now and beat the rush.

          3. krb

            JTF, replying to your post JTFaraday says:
            July 12, 2012 at 12:38 pm here because it was out of space below…..

            Re-read all my posts to all those who commented back to me…..they are all in close proximity to your and my comments. I have stuck to economic comments that ARE based on provable facts, with regard to how our economy operates since the early ’70s, or are based on first-hand personal experience in expansionary business decision making.

            You are free to believe whatever you want about your own credentials or understanding of our govt’s supposed prescriptions for our economic problems……but the mechanics of our economy, and my personal business experience, is what it is. The only anecdotal is where I’ve opined on where govt strays from the Keynesian’s own theory on infrastructure spending wisdon…and that can be substantiated without much difficulty, and where I can’t prove a claim, I said so.

            On the other hand, to suggest that whether a business can operate successfully in a market is a yes or no question as you imply in your “can” or “can’t” question…..

            “So the bottom line question I have for most of you “free market” quibblers is whether businesses can do business “in a market”–which is riven with all kinds of uncertainties– or whether they can’t.”

            ….suggests to me that you over-estimate your understanding of business decision making. Additionally, I specifically addressed this question in a reply to another commenter. Levels of uncertainty change, and the different levels of uncertainty will send different business decision makers to the sidelines…..and the greater the uncertainty the greater numbers of those moving to the sidelines. krb

          4. krb

            By the way JTF, it is food ingredients. You have consumed our product(s) at one time or another, and am proud to say we have helped make your meal safer, more stable and less expensive. Your welcome. krb

          5. JTFaraday

            100% contentless verbiage, followed by more insinuations about credentials and no argument on the part of our would-be nanny state beneficiary–who is clearly in over his head in this basic discussion of political economy.

          6. JTFaraday

            “By the way JTF, it is food ingredients”

            If it’s “food ingredients”– and a public service I should “thank” you for– then more than ever I think your complaining about “uncertainty” introduced by government action is ideological sludge.

            Care to substantiate your case that the US government is a toxic threat– and not your nearest competitor or the latest diet craze or “a mistake” in your China manufactory?

          7. JTFaraday

            By the way, I am not one of these people waiting for businesses to wax “expansionary” or for the “job creators” to “create jobs” because we are in a global depression, with a fragile interconnected financial system run by an international mob which has taken over the majority of first world governments.

            In the context of multiple failed states, your processed food is relatively low on my list of things to be done.

            So, if it makes you less nervous, you and your processed foods should feel free to coast through the civilizational collapse as far as I’m concerned.

          8. krb

            We produce domestically and sell to domestic clients. Profit margins are under 10% in good times. Amazingly, our lower cost of holding inventory just hasn’t been able to overcome the increases in raw material cost, employee health care cost, energy cost, transportation cost, etc. I give up, you win……the environment for taking the risk necessary to grow our business and hire more people has never been better. It’s difficult debating a child… fault for trying. krb

          9. JTFaraday

            “It’s difficult debating a child… fault for trying.”

            Every single one of those cost factors is “market driven,” unless you think nanny state commodities traders who bend the will of the government so as to create markets that are amenable to their activity– but not to YOURS– are actually part of the government.

            There are winners and losers in this business of ordering the US government about to create a “pro-business environment.”

            It looks like you drew the losing hand this time.

          10. krb

            JTF, if you don’t mind, what is your profession? You certainly argue like someone at the govt tit. We’ve been at it for over 30 years and some of my peers (with ancestors of course) for over 100 years. We aren’t losers, just simply able to recognize when an environment is suitable for taking risk and pursuing growth and when it is better to playing it close to the vest. I need to thank you now… actually have helped make my point, unintentionally I’m sure, by your comment…..that it is the govt that now determines the winners and losers in our economy.

          11. JTFaraday

            “…that it is the govt that now determines the winners and losers in our economy.”

            I have been saying all along that the government is a market moving force– just like any number of actors and institutions that you would consider “private.” Your contention is that you can deal with all sorts of risks and uncertainties– just not any introduced by the government.

            Your only problem is that YOU currently do not control the US government’s definition of a pro-business environment. You show every evidence of wanting to control the government’s market moving force otherwise– “5 year rules” and so forth– thereby hoping to create yourself a nice little nanny state wading pool.

            If you had not just appeared out of nowhere and spammed the board with your ideological sludge, you would know that I do not work for nor do I favor the US government.

          12. krb

            “Ideological sludge” is in the eye of the beholder. I play it down the middle because like everything else in life the answer usually lies somewhere between the left and right. Govt is for setting the rules, keeping them consistent for everybody, and enforcing them. Govt was never intended to be, nor should it ever be, the picker of winners and losers. I’ve been consistent throughout, in supporting portions of what each of the ideologues want to be the whole….which means I’m probably the ONLY person NOT slinging “ideological sludge”. As Yves knows, I’m a daily reader, just not a daily commenter. “Spamming” every day seems even more distasteful than spamming once every several weeks. Have a nice day…..and you didn’t answer my question. krb

          13. JTFaraday

            “Govt was never intended to be, nor should it ever be, the picker of winners and losers.”

            The US government has always had a role in “picking winners and losers”! If you’re “not a loser” as you contend, then it’s because the US government made it nice for you. Now you suggest your luck has run out. Well, you can join a lot of other people.

            As for “who” I am– which seems to be the only thing you’re really concerned about– your luck is out there too because identity is not germane to the nature of this discussion. Even if I were “a scientist” like you, it would still be completely irrelevant. (It’s not helping you any).

            Sorry if my lack of cultural signifiers is too much for your delicate constitution.

        3. different clue

          This reminds me of a talk I watched on CSPAN about 12 or more years ago. It was delivered by Alan Bossidy (name remembered right?) the CEO of Allied Signal and in response to a question about what menu of government tax policies he would ideally like to see, he said something like: ” the policies themselves are not so important as that they be kept in place once they are set. Leave a set of policies unchanged for 5 years for once so we can plan for 5 years for once.”

          I am just a $34,000/year bi-weekly wage-worker so what would I know . . . but that answer sounded like it had some real-world merit at the time that I heard it.

          1. krb

            Exactly. You deserve to make more, you actually get it while our more highly paid economists, writers, politicians clearly don’t.

          2. JTFaraday

            “Exactly. You deserve to make more, you actually get it while our more highly paid economists, writers, politicians clearly don’t.”

            I still fail to see how– unless your business is about to be regulated out of existence as a social menace– setting government policies every other year instead of every 5 is any different from any other market moving force that could impinge on your business plans at any time.

            You don’t want a market. You want a pro-business nanny state.

            I’m glad we cleared that up.

        4. Greg T

          Check Dan Kernick’s comment below. His comment is better than anything I can add. Dan’s opinion assumes we can still make the requisite changes in the existing system. See Hugh’s comment if think the US has become a hopeless kleptocracy and can’t be changed without a popular revolution.

          I’m still not convinced that we don’t have a serious shortfall in aggregate demand, but your policy criticism of the bailouts I agree with. Had we done a winddown of the banking institutions that caused this mess, we’d be further along to recovery. Your description of ” rewarding Failure ” is true. It’s more than that, actually. We rewarded crime. When you reward criminals, you can expect more criminals to breed.

          1. JTFaraday

            Too true. And they’ll almost certainly be eating krb’s macaroni and cheese.

            So, we should thank him.

          2. krb

            Greg T,

            I read Dan K’s comment and I think it is excellent. Even where we appear to disagree (demand or confidence, govt pick winners or just referee) I believe it is more semantic than real. Where I believe in more stability or certainty in policy, I accept that his view that govt needs to have a “strategic plan” or direction is the same thing in practice.

            I don’t like his use of the phrasing “govt should pick winners”, because it can easily be misunderstood to mean the cronyism that we currently experience and which I feel strongly is an inappropriate role for govt to play. But when put in the context of his “govt should set the direction….we’ll pursue space instead of ocean depths”, then his view is much clearer and I completely agree with him. I want to make sure we’re not talking past each other, you’ve returned to the “shortage of demand” theme…..I don’t disagree we all need more customers. The discussion is over how more customers are found or developed. I believe Dan K description is consistent with mine…..if I had a better vision of what the future holds for those things that impact my business and risk, I may have more confidence to take the risk necessary to grow my business….if the picture remains cloudy or unclear I’m going to sit tight until it clears up. When I take that risk, I will develop the customers. And it depends on the nature of the business. Let’s use for example Apple, I’m confident that NO consumer had the vision to say “I’m dreaming of this product that can do all these things, and if you develop it I’ll buy it”, and then the iphone happened. They took the risk, created it first, and then the customers came after….they “created” their demand or customers, which is my view. And the threshold risk-taking environment will be different for every business. A restaurant on the other hand, will have the customer first, and when they can’t fit more tables within their walls they will expand and hire more……maybe…they need to also make sure the extra customers weren’t from a one-time convention next door. :)

            I guess its another another example of how the ideological prescription of one solution for all problems isn’t real world.

            Thanks for your replies….I’ve been worn out by this blog and other comments today and got little done, so will have to go. Thx again, krb

          3. JTFaraday

            “if I had a better vision of what the future holds for those things that impact my business and risk, I may have more confidence to take the risk necessary to grow my business…”

            Yup, just what I thought. You nanny state liberaltarians are all alike under the skin:

            “No ‘market uncertainty’ for us, thanks!”

            The fix should be in (at all times).

          4. krb

            You’re hopeless JTF. I’m about taking reasonable risk, competing, and losing if/when I fail. You go ahead and just keep bellying up to the govt trough….

          5. JTFaraday

            You’re so full of it, it’s coming out of your ears. There’s no difference between your desire to have the US government arrange the market so you can pretend “to compete” within it and Lloyd Blankfein’s.

            You’re just miffed that you encountered a force more powerful at manipulating the US government than you are– whereby you may presently join “the losers” who have previously been conspired against.

          6. krb

            What’s next JTF….did to, did not, did to, did not…..


            I apologize for being party to this childish exchange today. After this infantile exercise I promise to go back into hibernation for several weeks and read only. krb

  13. Glen

    “The fact is that even if this large, needed Keynesian stimulus spending were financed by large federal deficits, we would not be impoverishing our children. Instead we would be investing in the future of our children by providing them with an adequate educational system so they could be qualified to take on future productive hi-tech jobs. Restoring our infrastructure facilities makes it easy and inexpensive to bring goods to market, and it allows us to have safe, sanitary living conditions for enjoying a good life. These are the things that contribute to the productivity, health and happiness of our children. Not economic fairy tales.”

    Instead, we’re spending all that taxpayer money to prop up and bailout the exact same banksters and banks that created this crisis. Now, that is really screwing the next generation.

  14. LucyLulu

    “The result of the small Obama fiscal stimulus program was that the economy did not collapse into another great depression that many had foreseen. From hindsight it is clear that the size of the Obama stimulus was too small to provide sufficient stimulus to restore prosperity.”

    And the size of the federal stimulus was exceeded by the size of the cutbacks by state and local governments.

  15. craazyman

    It is time to terra-form Mars. That should keep everybody busy for 100 years. Why wait? And it’s only 4.3 light years to Alpha Centauri and there’s probably 30 or 40 stars within 20 light years that may be suitable for orbiting planetary stations. The original Star Trek is all we really need for a model. I’ll be Kirk. haha. Who wants to be Scotty? Or what about Counselor Troy in the newer Star Trek? She was hot. I used to drink alot of Dewars but not any more. Now it’s red wine, mostly. OK, if you look at Mars through a telescope, even a small one, you can see the polar caps. It really is out there. It’s not just something on the internet you waste time with. Imagine that! The first thing is: You need to get excited about something. The second thing is: You need to do it. Then it pays for itself if it’s honest.

    1. emca


      You have the terminal ability to turn reality into categorical, phantasmagorical tripe.

      That said, I would volunteer to be Spock, but I don’t have pointy ears.

  16. Sherlock

    Blaming Great Depression on the crash of 29 is like blaming feavor on a thermometer. Main reason US underwent huge post WWII boom was because rest of the world (Europe) had to be rebuild and noone else possesed production capacity on the level to do so, which create huge demand for US goods. Glass-Steagall Act was an efford orchestrated by Rockefeller’s interests to dismantle mighty House of Morgan, so-called consumer benefits were a nice PR. Using a single restaurant as an example is a weak argument. Nobody argues the role of actual demand for goods and services on hiring. Proper question to ask would be given a particular level of demand would more or less workers be employed under a particular tax/regulatory burden. What’s more importan still, is observing such number in aggregate accross many restaurants. So-called “conservative economists” typically make a point that any regulation or lack of there of matters on the margin, not in absolute. Markets would be self regulated only if fraud and such would really be persecuted with jail terms and payouts that make a material difference to a fraudster. If I can steal a billion and pay out 200M in worst case scenario, I’d take such odds any day.

  17. thelonegunman

    No way!!!! You mean real life everyday small businesses don’t base business decisions upon fantasy world assumptions about government action!?!?!?

    what will all the Chicago and London school of economics students, graduates, and propagandists, er, I mean professors, say?

  18. LucyLulu

    Very interesting article: The Financialization of Accumulation

    Keynes’s own argument was therefore quite different from the theory that we have become accustomed to via Minsky. He stressed that the stagnation tendency—or the decline in expected profit on new investment in a capital-rich economy—served to increase the power of money and finance. Thus, for Keynes, Minsky noted, “Money rules the roost as the expected yield of real assets declines.”33 As Keynes put it: “Owing to its accumulation of capital already being larger” in a mature, capital-rich economy, “the opportunities for further investment are less attractive unless the rate of interest falls at a sufficiently rapid rate.” The uncertainty associated with the tendency of expected profit on new investment to decline gave an enormous boost to “liquidity preference” (or as Keynes also called it “the propensity to hoard” money) and to financial speculation as an alternative to capital formation, compounding the overall difficulties of the economy.

    Underlying all of this was a tendency of the economy to sink into a condition of slow growth and underemployment: “It is an outstanding characteristic of the economic system in which we live,” Keynes wrote, “that…it seems capable of remaining in a chronic condition of sub-normal activity for a considerable period without any marked tendency either towards recovery or towards complete collapse. Moreover, the evidence indicates that full, or even approximately full, employment is of rare and short-lived occurrence.” These conditions led Keynes to his longer-run policy proposals for a “euthanasia of the rentier” and a “somewhat comprehensive socialisation of investment.”34

    Keynes did not develop his long-run theory of stagnation and financial speculation. Yet subsequent elaborations of stagnation theory that built on his insights were to arise in the work of his leading early U.S. follower, Alvin Hansen, and in the neo-Marxian tradition associated with Michal Kalecki, Josef Steindl, Paul Baran, and Paul Sweezy. There were essentially two strands to the stagnation theory that developed based on Keynes (and Marx). The first, emphasized by Hansen, and by the later Sweezy—but characterizing all these thinkers in one way or another—examined the question of the maturation of capitalism, i.e., the development of capital-rich economies with massive, unused productive capacity that could be expanded relatively quickly.35 This enormous potential to build up productive capacity came up against the reality of vanishing outlets for investment, since current investment was hindered (under conditions of industrial maturity) by investment that had occurred in the past. “The tragedy of investment,” Kalecki remarked, “is that it causes crisis because it is useful.”36

    The second strand, in which Baran and Sweezy’s Monopoly Capital is undoubtedly the best known example, centered on the growing monopolization in the modern economy, that is, “the tendency of surplus to rise” in an economy dominated by the giant firm, and the negative effects this had on accumulation.

    In both cases, the potential savings or surplus generated by the economy normally outweighed the opportunities for profitable investment of that surplus, leading to a tendency to stagnation (slow growth and rising unemployment/underemployment and idle capacity). “The normal state of the monopoly capitalist economy,” Baran and Sweezy wrote, “is stagnation.”37 Rapid growth could thus not simply be assumed, in the manner of mainstream economics, as a natural outgrowth of the system in the mature/monopoly stage, but became dependent, as Kalecki stated, on “specific ‘development’ factors” to boost output. For example, military spending, the sales effort, the expansion of financial services, and epoch-making innovations such as the automobile all served as props to lift the economy, outside the internal logic of accumulation.38

    None of these thinkers, it should be noted, focused initially on the macroeconomic relation between production and finance, or on finance as an outlet for surplus.39 Although Monopoly Capital argued that FIRE could help absorb the economic surplus, this was consigned to the last part of a chapter on the sales effort, and not given strong emphasis.40 However, the 1970s and ’80s saw a deceleration of the growth rate of the capitalist economy at the center of the system, resulting in ballooning finance, acting as a compensatory factor. Lacking an outlet in production, capital took refuge in speculation in debt-leveraged finance (a bewildering array of options, futures, derivatives, swaps, etc.). In the 1970s total outstanding debt in the United States was about one and one-half the size of GDP. By 2005 it was almost three and a half times GDP and not far from the $44 trillion world GDP.41

    Speculative finance increasingly took on a life of its own. Although in the prior history of the system financial bubbles had come at the end of a cyclical boom, and were short-term events, financialization now seemed, paradoxically, to feed not on prosperity but on stagnation, and to be long lasting.42 Crucial in keeping this process going were the central banks of the leading capitalist states, which were assigned the role of “lenders of last resort,” with the task of bolstering and ultimately bailing out the major financial institutions whenever necessary (based on the “too big to fail” principle).

    A key contradiction was that the financial explosion, while spurring growth in the economy in the short run, generated greater instability and uncertainty in the long run. Thus, Magdoff and Sweezy, who engaged in a running commentary on these developments from the 1970s to the late 1990s, argued that sooner or later—given the globalization of finance and the impossibility of managing it at that level—the ballooning of the financial superstructure atop a stagnant productive base was likely to lead to a major crash on the level of the 1930s. But whether even such a massive financial collapse, if it were to occur, would bring financialization to a halt remained, in their view, an open question.43

  19. JEHR

    How about a debt jubilee (as per Steve Keen) where individuals receive enough money to pay off all their debts and then a JG (job guarantee) program so that everyone that wants to work can work (as per MMT). But, of course, the country would need a government that is not run by big money interests and I don’t know where that will come from or when that will come.

  20. rotter

    Tax cut “stimulus” is a fraud. It is at best a gimmick to provide a line or two for acampiagn speech. More like likely its cover for another round of handouts to the part of society that already has all the money. You cant divide 0.

  21. Dan Kervick

    This is excellent Yves. Anyone who actually works in the business world knows the issue is not enough customers. May I add something? Because I think a bit more is needed than just a generic injection of demand capability.

    In a period of crisis, insecurity and confusion, people need an answer to one particular question: “What’s the plan?” The stagnation of the present time, in the US and Europe, is due to the fact that we have timid, conformist, weak and bureaucracy-minded politicians who serve the decadent status quo and don’t lead. There is no plan. No one knows what to do with their capital because know one knows where we’re going.

    For all the vaunting of ceaseless change, innovation, risk and creative destruction in the American ideology, businesses crave and thrive on security and predictability. Investment projects are often time-consuming and very expensive, and require a substantial commitment of capital. Risk needs to be minimized. Businesses need more than some reassurance that some potential customers somewhere will be coming into more disposable income. They need more than calls for politicians to let a thousand flowers bloom and get out of the way. They need some clear and reliable ideas about what people will likely be buying over the medium and long term and what they won’t be buying.

    For example, the highway system wasn’t just some generic spending or “stimulus” that put money in people’s pockets. It was a plan to build particular highways in particular places. That means anyone desiring to build a roadside restaurant, a chain of gas stations, or a residential development knows where to build it. If there is no plan, they people have to sit on their capital and wait until something pops up and a clearer picture emerges.

    If the government says, “We’re going to be spending billions of dollars on going to outer space,” an army of potential investors now has clearer ideas about what they can do to make money. People who were thinking that maybe the government would be spending money on deep-sea exploration rather than space exploration are no longer in doubt. They can get off the dime and act.

    Contemporary America is extremely plan averse. We have a deluded understanding of our own history. We think of the future as an unpredictable vacuum that will only be filled up by the disorderly and radically decentralized initiatives of a million separate entrepreneurs, each doing their own thing. We think that plans are something that only bad old communists did, and that the America loves the way of plan-free spontaneity. This is a denial of history, and a weird ideological disturbance that is probably the result of post-Cold War triumphalism about a fictional land of utterly free enterprise that never existed.

    It is no coincidence that the American economy doubled in size during the 1939-45 period. People knew what the plan was: a global war to defeat the fascist powers. If we chose something equally bold, but less martial, around which to organize the vast untapped potential of the highly industrious American public over the next decade, we could double our economy again, and generate both enormous prosperity and a more equal distribution of that prosperity.

    A dynamic and developing nation needs a strategic national plan. It needs to “pick winners”. Of all the things it could do, it needs to pick some things, reject other things, take some national risks, and provide the central strategic organizing theme around which investment can take place in a coherent and effective fashion.

    1. different clue

      Such a plan or plans could be built around the vision of Terraforming America and Carbon De-Loading The Atmosphere. Invest in making the topsoil of a million square miles of American farm/pasture/rangeland twice as deep as today, and twice as soil-carbon-rich over that whole depth. It could be pursued by such means as re-mineralization of relevant land, de-subsidising soil thinning agriculture and subsidising soil-deepening agriculture, etc.

      And investing in Atmosphere-Carbon-Loading Reduction through investing in car-bus displacing mass-rail transit wherever feasible. Restore some of America’s missing passenger rail and trolley lines that were destroyed in America’s bonfire of the trains and trolleys. Spend the money scheduled to be wasted on prestige bullettrain projects on rational fairly-speedy networked networks of deep-penetration rail networks instead.

      Vague I suppose . . . but inspiring?

  22. Flying Kiwi

    Surely confidence, real confidence rather than confidence with wings and a wand, is what is required?

    Putting the unemployed to work with pick and shovel building roads and sewers might have worked in 1930 when the bulk of the unemployed were unskilled labourers – or at least of a ‘labouring’ class – but how is that going to work for unemployed teachers, ex-civil servants, even bankers?

    Don’t the vast majority of people still have their jobs, and the salaries they had at least two or three years ago? Isn’t the problem that they’re now sitting on that money instead of going to restaurants to spend it? And they are sitting on that money because they have lost confidence they will have those jobs and that income in the future. They are paying down debt rather than going to restaurants or buying new furniture/cars/TVs so that if they lose their income the resulting burden will be less.

    Knowing there would be a job building a bridge is of little consolation to most wage-earners today. Iceland, Ireland, Greece and Spain have caused a seismic shift in perception as the social contract that underpinned the 1950’s-80’s has been torn up and thrown into the faces of the 99% and I suggest even Joe SixPack on his couch – while he might not fully understand the reasons and processes – has drawn the correct conclusions, and is acting accordingly.

  23. Hugh

    As lambert notes at the beginning of this thread, the post points a finger at Romney and the Republicans when Obama and the Democrats are just as corporatist.

    The author also fails to grapple with kleptocracy, wealth inequality, and class war. If he understood kleptocracy, he would know that there is no difference between Robama and Obomney. He would know too that the Obama stimulus was pretty much designed to fail and thereby discredit any subsequent stimulus efforts. Understand if there was a second stimulus our elites would try to loot it. They would load it up with tax cuts like they did with the original one and a lot of the money would end up not creating American jobs but Chinese ones. That’s the whammy of GATT. The truth is that our elites don’t like stimuli precisely because even with their best efforts some money does trickle down to ordinary Americans, and they have much better ways of looting the government which avoids this problem.

    Also just saying that there is a demand shortfall doesn’t get to why there is insufficient demand. In the US, the rich and the elites own and control virtually all of the country’s wealth. The 99% have debt, no money, no security, and consequently no demand. That is not going to change until the massive wealth transfers/looting of the last 40 years are reversed. And that is not going to happen until we free ourselves from the stranglehold of the 1% and the elites who serve them, by taking back the wealth from the one, and the power from the other. In other words, that we win the class war that they have been waging against us.

    All this is left out of the article and that is not surprising. It is the work essentially of an Establishment liberal, one who is critical of the present system but still believes, despite all the evidence to the contrary, that system can somehow reform itself. The problem with such a view is that as deep as we are into kleptocracy, wealth inequality, and class war is that it is not any longer honestly tenable. The rich have stolen too much. The elites have grabbed too much power. To continue the fantasy that it is all just an honest mistake, some animal spirits that got a little out of hand is an insult to our intelligence and to all those who have suffered at their hands. At some point, we have to say enough. Do not warn us against one fairy tale only to replace it with another.

    1. different clue

      But there may well be a short-term operational difference between Obama and Romney and we would put our future survival at greater risk under Obama 2.0 than under Romney 1.0 in 2012. And that difference is . . . Obama is the more eFFECtive evil and can destroy some things by stealth that Romney would be too obvious to get away with.

      For example, would Romney have any better luck privatising SS than Bush had? Whereas Obama pursues his Final Solution to the Social Security Question by slow stealthy salami tactics . . . and if he is re-elected, he will get away with it, because the Democratic Senators also support Obama’s Final Solution to the Social Security Question. Whereas if Romney were elected, the Democratic Senators might (MIGHT!) feel they have to “defend” Social Security to protect the shredded remnants of their tattered political brand. If such thinking is short-term reality based, then it actually makes a short-term DIFFerence whether Obama is re-installed or removed. I think my Social Security future is safer Over The Next Four Years under Romney than under Obama. And a Four Year Romney interlude would give people time to organize more comprehensively against the people Obama works for. Not to say that people would use those four years, but they could.

      Whereas if Obama is re-elected, we will not even have that four year grace period to organize to loot-proof Social Security with.

      If that sort of thinking is short-term valid, then clever tropes like “Obomney versus Robama” prevent us from seeing it and prevent us from attacking or defending particular pain-infliction points where/when such points become vulnerable to attack.

  24. rotter

    Theres the confidence fairy, the invisible hand,what other magical beings populate the Freemarket Olympus? Physical scientists have to model thier guesses in actual experiments (not imaginary experiments),while economists want to be philosophers who are given the expert-opinion authority of scientists. They call themselves scientist but they dont ever challenge thier own theories. They manufature consent over this or that one and then publish the textbooks.

  25. JB McMunn

    Why didn’t you ask him what he’d do when you raised his taxes in 2013 for being a “rich” guy making $250k? Cut wages? Lay off a busboy?

    Why is it that businesses make a huge stink about government interference in markets and then spend millions lobbying for government interference in markets?

    1. hermanas

      When the hooker is caught the John, who do you chastise?
      It takes two to Tango.
      Gov. perps and bus. go back and forth like ping pong balls.
      Hope those fleeing to China know they got the death penalty for corruption.

  26. Professor Galt

    “The profit opportunities made available by this large government spending program would encourage firms to hire more workers and buy materials needed from other US firms.” – How will the government choose this White Elephant project to minimize bridge-to-nowhere-type waste?

    Should it use price signals? Or academics who have studied Keynes (and never tried to start a business) to advise it? This agrument shows the narrow-mind of a focus on flow metrics (GDP) at the expense of the balance sheet (wasteful ‘investment’). Witness the ‘debt won’t hurt our children’ flourish at the end.

    1. Foppe

      That’s pretty easy.. line up a number of potential projects, call citizens in affected areas, and ask them which of these programs they would prefer to see realized, and which they would find pointless and why. Then execute the politicians who came up with ideas that 70% of the respondents or more said would be pointless, and start again.

  27. kurringai

    “From hindsight it is clear that the size of the Obama stimulus was too small to provide sufficient stimulus to restore prosperity.”

    Not in hindsight. It was seen as too small before the event by Krugman, among others.

    “So we need a fiscal stimulus big enough to close a 7% output gap. Remember, if the stimulus is too big, it does much less harm than if it’s too small. What’s the multiplier? Better, we hope, than on the early-2008 package. But you’d be hard pressed to argue for an overall multiplier as high as 2.

    When I put all this together, I conclude that the stimulus package should be at least 4% of GDP, or $600 billion.

    That’s twice what the unreliable rumor says. So if there’s any truth to the rumor, my advice to the powers that be (or more accurately will be in a couple of months) is to think hard – you really, really don’t want to lowball this.”

  28. Howard Matthews

    We are in a hole because no one has any faith in the American dream anymore of owning a home. The media mostly TV shows were telling every day people how to get rich with real estate. Banks were feeding the dream with magical #’s and as with any bubble it is going to pop…..But, if you can loose 20-30% or more of the value of your home over night, what is real….Houses were the dream it was like a savings for retirement which my parents did.
    Now I have decided to not get back into “real” estate by not buying a house and just renting until I decide where I want to retire. Will I buy then, NO it will take over 20 years for the lost value to return and I think that is a low #. The American people were looking for an outsider to fix Washington and Wall Street he hired the guys from Wall Street who helped make this mess…

  29. mary

    This article hits the nail on the head. I own a small business, and over the last couple of months we have seen a HUGE drop in sales. I and my partner didn’t even get paid last month at all, we only paid employees. We are only covering our expenses right now. I tell you, we are in another recession.

  30. Gil Gamesh

    Good, but why not get to the root causes of the demand problem: wages here suck, and private debt will never be repaid. Until private debt is addressed in a thoughtful, adult way (i.e. unAmerican) such as Keene’s debt jubilee proposal, and until our vicious anti-labor industrial policy is repealed and replaced with policies that insure wages rise with productivity, then nothing good will happen here. Nothing. Good.

  31. Keating Willcox

    @krb is correct. There are endless examples of state and country governments who become less intrusive and less expensive, and they have job growth at all times. Texas, Canada… And there are cities and states that do what Yves would want, lots of debt and stimulus spending. California, Illinois, Detroit, most of Europe.

    The evidence is so clear I am offended when people refuse to accept it. Smaller government, sensible, quick thoughtful regulations, no bail-outs, and balanced budgets always, always create more prosperity for everyone.

    If your restaurant moved to Dallas, prehaps his business would improve.

  32. KeninSD

    Look at what the captains of industry have done in the past 30 years with regulations! Imagine what they could do with fewer of them!

    On a less snarky note, with some trillion+ corporate dollars parked, uselessly, offshore, is it not possible to encourage them to be used to fund the dormant Infrastructure Investment Bank? The federal government could offer repatriation incentives, e.g. enhanced returns on investment, to put this money to work while minimizing the total fed fiscal contribution. Think of it as a kind of Marshall Plan to rebuild ourselves!

  33. Andrew Baumgardt

    In the real world a business with less than optimal customer’s would look to see if lowering prices would generate enough volume to offset lost margin on the existing business level. Such an analysis would need to look at fixed vs variable costs.

    In today’s world the variable costs can be high for certain types of labor due to minimum wage laws, social security matching contributions and all the regulations they have to comply with as a result of more highering.

    This particular restaurant owner very well may not have done this analysis which if done may conclude he can’t make it work due to the high all in costs of incrmental labor.

    Single anacedental examples being touted as a proxy for the entire real world are usually cherry picked to support a pre-determined conclusion not to get at the real truth.

  34. JTFaraday

    “Govt was never intended to be, nor should it ever be, the picker of winners and losers.”

    The US government has always had a role in “picking winners and losers”! If you’re “not a loser” as you contend, then it’s because the US government made it nice for you. Now you suggest your luck has run out. Well, you can join a lot of other people.

    As for “who” I am– which seems to be the only thing you’re really concerned about– your luck is out there too because identity is not germane to the nature of this discussion. Even if I were “a scientist” like you, it would still be completely irrelevant.

    Sorry if my lack of cultural signifiers is too much for your delicate constitution.

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