A Resurrection of Keynesianism is more than Dubious

By Robert Kurz

[This article published in: Freitag 8/29/2008 is translated from the German on the World Wide Web,]

The clearer the crash of the global deficit economy, the louder become the calls for a state economic program from the economic wise man Bofinger, economics minister Glos, unions to the left political spectrum. In view of a return of the stagflation of the 1970s, variants of Keynesian prescriptions will be exhumed that failed at that time when capitalist elites escaped in the "neoliberal revolution." Now the same problems return on the higher level of globalization. Overcoming the obvious bankruptcy of neoliberal doctrine through the resurrection of Keynesianism is more than dubious.

All nation-state economic programs are limited. There is no national economy any more. What is shown in the books as the national economy has long been an element of an integrated world economy with a one-sided export orientation that had its vanishing point in the deficit-sponsored "consumer wonder" of the US. When this suction ends, what is still imminent and can be expected is a negative domino effect through the linkage of the world economy. The economic downswing in the whole European Union in Eastern Europe and Asia is only the forerunner of this development. Under these conditions, national economic programs can at best have the effect of the celebrated drop on a hot stone. At the same time the dilemma of monetary policy is repeated as a dilemma of economic policy as in the stagflation of the 1970s. The central banks had to raise the key interest rate to banish inflation. On the other hand, they had to lower the key interest rate to stabilize the drowning economy. State economic injections through additional borrowing as the Keyneisian prescription earmarked would intensify this dilemma. An increasing state credit-demand drives the market interest upwards, raises the price of investments and strengthens the inflationary potential.

In reality, the Keynesian powder has already faded. Neoliberalism was more Keynesian than it wanted to believe. State interventions only went in another direction and no longer in social programs, education investments and infrastructures. On the other hand, the military Keynesianism since president Reagan guided the streams of surplus global money-capital into the US as a "safe harbor." The orgies of deregulation and privatization cleared the way for the "assets inflation" of the financial bubble economy that fueled the world economy. This deficit growth comes to an end with the global financial crisis and the global inflation as a consequence. To prevent a "core meltdown" of the financial system, the states must raise enormous sums to revitalize bank balance sheets. An end is not in sight. The armament-, financial bubble- and revitalization-Keynesianism exhausted state possibilities before additional economic programs could even be considered.

Instead of an economic program, the neoliberal mainstream of economists urges more "free enterprise reforms," above all in the deregulation of the labor market. Regarding the economy, the illogicality of this argument is striking. The past Agenda 2010 already showed that the alleged "job successes" of coercive state administration through low wages and temporary work went along with a drying up of domestic consumption. The end of the export economy will also strike back on precarious pseudo-jobs arising in its slipstream. Delegation to the state's ability to perform miracles is not currently demanded but rather a nonchalant social resistance for a drastic increase of wages and revising the disgraceful Hartz IV earnings in the name of life interests (Hartz IV was the German welfare reform combining unemployment assistance and income support and drastically cutting the duration of benefits).