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December 19, 2009

‘In the Long Run…’

John Maynard Keynes is considered one of the leading lights of liberal economics. Challenged by a critic who said that in the long run, Keynesian economics would lead to national bankruptcy, Keynes memorably responded with a witticism: “In the long run, we’re all dead.”

Lord Keynes—has was ennobled for his service to the Liberal Party and the Asquith Government before and during and during World War I. Keynes attended the Paris Peace Conference in 1919 and left, disgusted, at what he saw as the vengeful attitude of the victors. His book, The Economic Consequences of the Peace, was widely read and helped contribute to the general view among the upper classes of Britain, Canada, and the U.S. that the allies’ Treaty of Versailles had been too harsh toward defeated Germany and would lead to depression. Recent historians, including Margaret MacMillan, granddaughter of David Lloyd George, have pointed out that the Versailles Treaty of 1919 was certainly not as harsh as the Treaty of Brest-Litovsk, which the triumphant Germans had imposed on a prostrate Russia in 1918. Lloyd George had won a landslide election promising to squeeze defeated Germany “until the pips squeak.”

But the Keynes view helped to de-legitimize the Versailles Treaty in the eyes of the chattering classes. It doubtless helped undergird the British desire to “appease” the Germans in the inter-war period of 1919-1939. Britain was far more willing to appease Germany than France had been.

When the Great Depression of 1929 crashed in on the world, Keynes was viewed as a prophet. Terms like “priming the pump” were a way in which liberal politicians like Franklin D. Roosevelt could explain Keynes’ very complex and subtle theories of government-backed manipulation of the economy. Roosevelt’s New Deal was essentially an exercise in using the federal government to spend our way out of the Depression. In fact, by 1936, unemployment in the U.S. had gone down, from 25% to 16%.

Conservatives counter that the natural cycle of recovery would have brought the U.S. out of the Great Depression anyway, and certainly a lot faster had Roosevelt’s confiscatory taxation policies not suppressed business activity. FDR’s National Recovery Administration (NRA) involved wage-and-price controls for many industries. Major portions of Roosevelt’s New Deal were ruled unconstitutional by the conservative U.S. Supreme Court. America’s real economic recovery would take off as arms production took off in the years from 1939 on. During World War II, Germany and Russia doubled their production, Japan and Britain trebled theirs, and the U.S. increased its output twenty-five fold!

Ronald Reagan was the classic anti-Keynesian. His policies stopped the “stagflation” (high unemployment, stagnant production, and hyper-inflation) in the 1980s and led to thirty years of solid prosperity. Reagan’s policies owed more to Milton Friedman and other classical and neo-classical economists. Reagan focused on production, Keynes on consumption.

But Keynes’ ideas never went away. They formed, and still form, the basis for liberal Democratic Party ideas. When the world economic shock of one year ago struck, liberals were primed to blame it on Reaganomics. The fact that the meltdown occurred in the sub-prime home mortgage industry, and that this sector had been heavily, heavily managed and manipulated by government policies, did not deter liberals from blaming the free market for the near-catastrophe. They raced to pump trillions into the banking industry and bail-outs of “too big to fail” firms. And a lame-duck Bush administration tagged along with them.

Malcolm Muggeridge was a constant gadfly of British journalism. His late-in-life conversion to Catholicism sparked ridicule among the intelligentsia. They jibed that the notoriously philandering young Muggeridge had become “Saint Mugg” only after the flames of desire had burned out. Muggeridge gave us an incredible tribute called Something Beautiful for God, in which he brought to the world’s attention the half century of sacrificial work of Mother Teresa of Calcutta.

Muggeridge the Christian believer lost none of his sharp tongue in his conversion. He once said that if there was a “silver lining” to the dark abortion cloud hanging over the world it was that in a hundred years there would be no more Sweden. Well, let us pray the Swedes, like Muggeridge himself, come around before it’s too late.

Saint Mugg could even skewer even so high a personage as Lord Keynes. When someone repeated to Muggeridge Keynes’s famous dictum– in the long run we’re all dead–Muggeridge shot back. “Well, he would think that wouldn’t he? He was a predatory homosexual.”

That line was considered below the belt. But there is more than an element of truth in it. Conservatives are taught to think not only of ourselves, but of our children and of our children’s children. Conservative philosopher Edmund Burke memorably described all society as a compact between the dead, the living, and the yet unborn. Keynesian economics is back in fashion in the U.S. and Britain today. Will it shackle future generations with a debt that cannot be borne, a debt that will suffocate all their hopes and aspirations? We are about to raise the debt ceiling to $13,900,000,000,000 or perhaps $14 trillion.

These numbers are really beyond comprehension. Former Ohio State University political science professor, Phil Burgess, says if we think of Nixon’s resignation as a billion years ago, then a trillion years ago would be 31,000 B.C. Let’s hope neo-Keynesian economics doesn’t push us backward.

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