Keynesian Economic

This is one of my favorite subjects because very few politicians follow the requirements of it.  The idea behind Keynesian Economics is that of one buying on credit.  In the past, you were expected to balance your budget at the end of every fiscal year, whether that year ended on June 30th. or December 31st.  You were not supposed to carry the balance onto the next year.  You were supposed to balance your budget.  Keynes changed all of that.

The British were borrowing heavily in World War II in order to pay for the damaging war.  They tried every year to balance their budget until Economist John Maynard Keynes came up with a brilliant “out.”  What he proposed was a credit line which could last the entire war.  He said that Britain should borrow the money it needed to continue the war until it was won.  He said, “We have shown that, quite apart from war increases in rates of wages, the earnings of the country as a whole should increase by as much as 825 million pounds merely as a result in output and employment.” (Page 20; “How to Pay for the War.”)

“By the end of January 1940, wholesale prices had risen by 27%, the cost of living (seasonally corrected) by 10%, and wages by perhaps 5%; which means that the aggregates I am using should be increased by nearly 10% to conform to the wge and price levels current at that date.)”  The question became how to align those different areas and pay for the war while not upsetting the economy.  His solution was to float the deficit.  He questioned whether the “working class need to be asked to make any sacrifice.  Admittedly,” he said, “they will work harder.”  The trick was to keep the working class working, which meant that they had to get paid, and there was not a tax to ensure their payment.  So, Keynes said, you would pay the average worker with money you had not gathered yet.  You would have to pay them on credit.

Interestingly enough, he said that “If we drift without a comprehensive plan, not this but shop-shortages will result.  And inflation, as we shall see, will be to the clear advantage of the richer class and result in this class bearing not more, but less than their fair share.” (ibid.)  This would result in a class war.  So Keynes was basically saying that, in order to not have a class war, the working class would have to somehow be paid.  And the way to do this was to pay some war expenses on credit.

He said that the national income would be distributed between different income groups which he admitted, was a matter of “first importance.” (ibid.)  So we had countries buying on credit for the first time.

Why was that important?  Because this was a new idea, flying in the face of current reason, it did not take hold immediately.  It took awhile.  It also took the approval of the United States of America, which was floating most of the loans incurred by England and had the most to lose.  Fortunately, President Franklin Roosevelt saw the beauty of the plan.  He even used it to float loans to diminish the effect of the Great Depression.  So it was instituted to the point that, today, we cannot balance the budget if we try to do it.  That is why we are trillions of dollars in debt.  And that is also one of the possible reasons that no administration has been willing to try to balance the budget.

We keep having to raise our “debt ceiling,”  and seldomly does either side of the aisle make much of a ruckus about the debt.  We just continue to raise the “debt ceiling.”  I believe that it is time to pay off some of that debt.  Keynes never said that this was supposed to supplant the idea of a balanced budget.  That could be culled from the  lack of effort to pass laws that could balance the budget.

Keynes said of the burgeoning debt, that “taxation on this scale would involve such wide-spread breaches of existing contracts and commitments that the taxable income themselves would be largely reduced.” (ibid.)  In other words, it would be necessary to offset the debt by paying against it.  That is something that we in the current United States do not seem to be willing to do.  It does not matter which income-level we reported in or at, payment is a problem.   When Bill Clinton was President, I heard his Vice President say that we did not have to worry about Social Security because it would not become collectible until 2037.  I raised my hand, and explained that my young daughter, who was sitting with me would be one of those most affected by the carelessness of the current administration.  I joined the budget cutting group called the “Concord Coalition.”   I have been a member ever-since.

Trump seems as unwilling to balance the budget as Obama was, and that is a problem.  As Keynes said, the deficit has to be trimmed by payment in good times.  We cannot just continue to let it grow as a deficit.  There has to be an effort to tame it.  No more “Debt Ceilings.”  We are opening ourselves to a lack of respect for the United States of America and that is not a good thing.  We cannot allow the Chinese to be the lienholder on our debt.  We should, I believe, pay against the Chinese liens.  We are no longer in the days of Keynes.  We have to pay our debts.  And we have to discontinue trying to augment our economy by floating loans.  As Keynes said, the rich are the only ones who benefit by being in debt.  The rest of us have to eat it.  So let us discontinue that practice and pay on our debt.  It is the only logical thing to do.  Whether it is because of Trump or Obama, does not matter.  It has to be paid.