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Richard Wolff


A Marxian Critique of Keynesianism: Against Krugman

Keynesian responses to capitalist crises in the US, especially the deeper crises, have not succeeded. They failed to revive production, income and employment and/or failed to overcome the political opposition they aroused. In the 1930s, both failures occurred and the crisis only ended with World War 2 mobilization. Today, the US economy confronts the same double failure. Krugman rages against Obama’s insufficient Keynesianism. But the problem is Keynesianism itself.

Keynesian policies seek to secure the basic structures of capitalism during periods when it is threatened by the social consequences (rising unemployment, poverty, etc.) of its inherent crises. Since those basic structures produce recurring cycles, Keynesianism cannot and does not prevent them. Rather it accompanies them and sometimes softens their negative impacts on society. Decision-makers who justified their Keynesian policies as not only “getting us out of this economic downturn” but also “preventing future economic downturns” have always been proven wrong by the next capitalist crisis a few years later. Nonetheless, every President starting with FRD has repeated both of those justifications.

Keynesianism is a kind of policy theater, a weapon of mass distraction accompanying capitalism as it cycles through another downturn. Mass media focus on the Federal Reserve, Congress and the President debating and enacting regulations and monetary and fiscal policies. Each Party blames the other for causing the crisis or not fixing it or both. Meanwhile, the capitalist downturn negates itself. Rising unemployment, bankruptcies, and production cutbacks drive down wages and production costs to the point where potential profits lure capitalists back into productive investments and thereby recommence an upturn.

In short, Keynesian policies function as the second line of defense against the risks inherent in capitalist cycles. The first line is the laissez-faire that conservatives and Republican Party types advocate: that government intervenes minimally, leaving capitalists to cycle privately. When that strikes enough people as inadequate and unsupportable, enter the liberals and Democratic Party types with a good dose of Keynesianism. The next step includes hyped debates between the two – the US policy theater in 2010 – resulting in either a reversion to conservative minimalism or a reduced Keynesianism.

The only real risks are that social conditions will worsen and/or anti-capitalist political movements will strengthen enough to genuinely challenge the system at some point in the cycle. Krugman’s columns address both risks by what they say and what they don’t say. He demands more deficit spending and steps to ameliorate some of the massive social suffering caused by the crisis. He avoids even the slightest serious consideration of proposals to overcome crisis by moving beyond capitalism (occasionally dismissing caricatures of Marxist arguments, a specialty of mainstream economics since the early days of the Cold War).

Keynesian policies alter nothing basic in the capitalist economy, they aren’t radical, and they largely self-destruct once the crisis passes. The regulations imposed on financial and other industries are evaded, weakened, and eventually eliminated (unless a new crisis intervenes to postpone that last step). The monetary policies can shift relatively smoothly from easing – more money – to tightening. The costs of fiscal policy deficits – servicing a rising national debt – can be postponed and stretched out in the form of slowly intensifying austerity state budgets (which future growth might moderate).

Keynesian policies affect the macro-level of capitalist societies while leaving the micro-level largely untouched. Large capitalist corporations continue to dispose of the resources enabling them to get around, to weaken, or to undo whatever regulations and policies Keynesians impose during downturns. Watching in frustration as their policy proposals are blocked, or, when achieved, are soon undone, Keynesians nonetheless cannot take the step needed to avoid those same outcomes over and over again. Their projects founder on the absence of a micro-level transformation that could crucially support as well as constrain macro-level changes so that anti-cyclical policies are solidified into the economy’s basic structures. [Indeed, in this the Keynesians resemble those socialists – in the USSR, Eastern Europe, etc. - who likewise imagined that macro-transformations (from private to state ownership of means of production and from markets to state economic planning) without micro-transformations inside enterprises could secure a socialist alternative to capitalism.]

Thus, for example, if enterprises were internally reorganized such that the workers themselves functioned collectively as their own boards of directors (replacing share-holder-selected boards of directors), everything would have happened differently in the US since the 1970s. Real wages would NOT have stopped rising; hence nothing like the personal debt explosion would have happened, nor the mountain of asset-based-securities erected on that personal debt; inequality of income and wealth would not have grown so far and so fast; jobs would not have been relocated abroad so much – just to mention a few contributions to the current crisis that would not have happened. Such reorganized enterprises would pursue complex objectives (serving their workers’ complex needs) rather than serving the needs primarily of shareholders and boards of directors as in capitalist enterprises; this difference would make the reorganized enterprises more likely to ally with governments’ economic stabilization programs unlike the usual capitalist enterprises that function more as adversaries of those programs. Of course, such reorganized enterprises would also be more likely to embrace and support a classical socialist macro-program socializing means of production and subordinating markets to social planning since, as appropriators and distributors of the surpluses produced in such an economy, they would control the macro-level as much as it controlled them. This would be a twenty-first century socialism very different from its predecessor socialisms.


Richard Wolff is Professor of Economics Emeritus, University of Massachusetts, Amherst; currently Visiting Professor, New School University in New York. His recent writings, interviews, and videos on the economic crisis and Marxian theory are gathered on his website.

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