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Keynesianism vs. Reaganism: Professor Richard Wolff Summarizes the Decades-long Struggle & Explains Why It's Important

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From en.wikipedia.org/wiki/John_Maynard_Keynes: John Maynard Keynes
John Maynard Keynes
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When it comes to 20th century American history, there is a very clear-cut break right around 1980, when rightwing conservatism finally broke through to the mainstream and ended the liberal consensus of the New Deal, which had held sway from the 1930s to about 1980. Here was a break between two very different ways of organizing the US economy. Before 1980 our economy was by and large run according to the ideas of Keynesian economics. After 1980 (and also before 1930) it was run primarily according to the ideas of neoclassical economics, most recently known as Reaganism or Reaganomics.

Reaganism (neoclassical economics) is based on the central belief that capitalism is a very well-organized system which is, most of the time, in very good shape, and that when it does run into problems, . .

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a) those problems are inherently temporary, and

b) the system will "self-correct."

Keynesian economics was born during the Great Depression of the 1930s, which made a big impression on John Maynard Keynes as he lived through it. To Keynes it was obvious, at that time, that the capitalist system was, to say the least, not working, AND that it would certainly not "self-correct" without an enormous amount of unnecessary destruction and pain. Many millions were unemployed and remained unemployed while huge portions of the country's productive apparatus were sitting idle, producing nothing, providing no jobs. Clearly something was fundamentally wrong and needed to be corrected (through major government intervention) ASAP.

Keynes concluded from all this, and from the recessions and depressions that historically preceded the one he lived through, that whenever you leave a capitalist system to its own devices, you inevitably get periodic downturns which, from time to time, will lead to catastrophic recessions and depressions, and that this inevitably brings:

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a) human suffering on a massive scale that is wholly unnecessary,

b) loss of production and product, which also is wholly unnecessary, and

c) lots of social problems and the millions of interpersonal tragedies that stem from all the unnecessary unemployment.

He therefore concluded that it's much better to have the government come in and 'interfere' in the economy in a variety of ways, so as to obtain the benefits of capitalism without having to deal with the horrific costs and problems that the Great Depression was bringing to us in giant waves.

So, ever since the 1930s there has been a debate between those who want government to stay out of the picture and let the system function on its own, and those who say that's way too dangerous, way too inefficient, and, above all, way too costly to the great bulk of the population. Plus, if the human suffering is sufficiently widespread and severe, there is always the danger that people will demand the overthrow of capitalism and its replacement by some form of socialism, i.e. government ownership of banks and major industries. (And in fact, this came very close to happening in the early 1930s.)

So what was America like when Keynesian economics prevailed?

We're talking about the period after the Great Depression that lasted until about 1980 when Reagan took the White House, at which time the top income tax rate was greatly reduced and the gap between the rich and everyone else began to widen dramatically.

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In the early 1930s, because of the huge amount of unemployment, the government came in and established a minimum wage, which allowed the economy to be built up from below -- this had the effect of pushing most everyone else's wages upward too, especially those whose wages were not all that much higher than the minimum.

Also, the federal government undertook a direct spending program for hiring many millions of the unemployed who could not find jobs in the private sector because those jobs were simply not there. These newly created jobs were those that had to do with improving our transportation system, our schooling system, and all other things that would help our economy start to grow again. As a result of getting these jobs, thanks to government 'interference,' there were millions of additional people earning money and, most importantly, spending that money, thereby creating new consumer demand as well as the new jobs that resulted from that additional spending.

Most Americans could not afford to buy homes because of the Great Depression -- the banks were reluctant to loan money to virtually everyone who needed a loan for that purpose. So the gov't stepped in again, and created the Federal Housing Authority (FHA), (which later became Fannie Mae and Freddy Mac), so as to guarantee loans from banks to those borrowers who then became homeowners.

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Several years after receiving my M.A. in social science (interdisciplinary studies) I was an instructor at S.F. State University for a year, but then went back to designing automated machinery, and then tech writing, in Silicon Valley. I've (more...)
 

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