The failure of economics in the runup to and aftermath of the Great Recession has generated a lively debate about how to reform economics and more specifically about the renewed relevance of Keynesian economics, which had fallen out of favor since the 1970s. The Keynesian message, so important in this latest round of political wrangling over the increase in the US debt ceiling, is that cutting government spending in a slump will only worsen the unemployment problem. The role of expansionary fiscal policy, according to Keynesianism 101, is to provide demand for goods (and thus for employees to produce those goods) when the main sources of demand in a capitalist economy — households and businesses – are not providing a level of demand necessary to generate a socially acceptable level of unemployment.
Keynesianism 102 is about the multiplier effect of changes in spending. This is the notion that an increase in demand (from any source, not just government but certainly including government) will impact employment and incomes with a ripple effect. This includes a direct impact and then a secondary impact when the direct incomes are then spent (in some fraction) and an additional fraction of that is spent, etc.
There are two corollaries to the lesson of Keynesianism 102 that are worth mentioning because they have been raised in the current policy debate. The first is about the differential multiplier effect of a spending increase compared to a tax cut. Empirical studies show that the multiplier effect of the former is greater than the multiplier effect of the latter. The second is about the differential multiplier effect depending on the income of the recipients. Since the poor are more likely to spend a higher percentage of additional disposable income than the rich, a tax cut that benefits low-income people will have a bigger multiplier effect than a tax cut that benefits the rich.
These lessons have not been integrated into current economic policy in the US, where deficit spending and progressive tax reform and expanded benefits . . .
Read more: Unemployment Equilibrium: Keynesianism 103
The issue of debt, both public and private, has been a top news story ever since the financial collapse of 2008, but especially in recent weeks with all of the reporting on federal budget negotiations and the debt ceiling. (Another noteworthy item: The New York Times recently reported student loan debt has now exceeded credit card outstandings for the first time and is likely to top $1 trillion by the end of this year.) The problem cultural critic Richard Dienst claims in his new book The Bonds of Debt: Borrowing Against the Common Good (Verso: 2011) isn’t that debt levels are too high; it’s that they aren’t high enough.
A critical and literary theorist, Dienst expands the concept of debt from its purely economic connotation to include social reciprocity broadly understood. The “magic” of debt, Dienst asserts toward the end of the book, is that it ultimately constitutes a common good by binding us inextricably to one another. Debt as conceived under the capitalist system has in the current environment been revealed as an apparatus of capture that has reached its penultimate “terminal crisis” to use Giovanni Arrighi’s term, opening the door to new world-historical possibilities of social interdependence and human understanding.
Dienst begins by reviewing the ideas of several key theorists of late capitalism. From Robert Brenner he takes the notion of global capitalism as a system in perpetual turbulence. He places Brenner alongside Arrighi’s application of the Kondratiev Curve in the modern world-system analysis of the development of capitalism since the fifteenth century, which essentially tracks that turbulence at a macrolevel. He finds further complement with David Harvey’s recent books on neoliberalism that extend the primarily economic arguments of Brenner and Arrighi into the realm of politics and ideology. And as Dienst notes, the recent financial crisis came as no surprise to any of them.
The question Dienst raises is: If we agree that these thinkers have aptly described the circumstances that have brought us to our present state, then where do . . .
Read more: Richard Dienst’s The Bonds of Debt: Borrowing Against the Common Good