Michael Roberts reminds us of something important – that Keynesian economics has severe shortcomings. I agree.
For me, the problem with Keynes was what he didn’t say. He was largely silent about three related issues: class, power and profits, or least he dismissed them lightly:
the problem of want and poverty and the economic struggle between classes and nations, is nothing but a frightful muddle, a transitory and an unnecessary muddle. (Preface to Essays in Persuasion)
It’s no accident that it should have been so easy to find a Keynesian-neoclassical synthesis, as both schools of thought ignored these matters.
This omission, however, has had several baleful effects.
One is that, in regarding full employment as a narrowly technical matter, Keynes overlooked the fact that capitalists have a powerful interest in maintaining unemployment – both because it disciplines workers, and because it gives capitalists influence upon the state to ensure that it maintains business confidence. As Kalecki wrote (pdf):
[Capitalists’] class instinct tells them that lasting full employment is unsound from their point of view and that unemployment is an integral part of the " normal capitalist system.
Post-war Keynesianism broke down in the 1970s in part precisely for this reason: full employment squeezed profits (pdf) which choked off growth.
Secondly, Keynes “paid even less attention to monopoly power than some of his neoclassical colleagues.”* The possibility that capitalists or bosses would use this power to extract massive rents eluded him. (Again, of course, Kalecki was his superior on this point).
Thirdly, Keynes saw the problem of capitalism as basically one of cyclical swings which are remediable by a few levers of macroeconomic policy. This might have been true once. But as Michael says, it’s doubtful now. Long-term stagnation might require different remedies.
Which brings me to a fourth problem. In a sense, Keynesianism was profoundly conservative. In believing that technocratic governments could provide workers with decent wages and full employment, Keynesianism did away with the need for industrial democracy: one of the achievements of Keynes was to eclipse movements such as guild socialism. It wasn’t Keynes himself who said “the man in Whitehall knows best” but one of his disciples, Douglas Jay – and that encapsulated a key part of Keynesian ideology, its belief in top-down management.
Populism, of course, is a backlash against just this. That slogan “take back control” and the dismissal of experts represent a rejection of Keynesianism; the baby of decent macroeconomic policy is being thrown out with the bathwater of elitism. It’s far from clear that Keynesianism has the intellectual or political resources to fight back.
Now, at this stage we might channel Leijonhufvud (pdf). The Keynes I’m thinking of here is the capitalist-friendly one. But there’s another Keynes. There’s the Keynes who said that “a somewhat comprehensive socialisation of investment will prove the only means of securing an approximation to full employment”. And there’s the one who argued in the best chapter in the General Theory that bosses do not and cannot know what they’re doing.
It’s this Keynes that deserves to have a lasting influence.
* Howard and King, A History of Marxian Economics voll II, p101.