From Billmon's long essay on Keynes and Barney Frank. This hints at the future where business and government come together "for the social good", which means an authoritarian solution embraced by a wide majoriy.
World Beat
The growing imbalances in the world capitalist economy, as symbolized by the massive U.S. trade deficit and the equally massive Asian trade surpluses, are symptoms of a potential crisis, one that can only be staved off by keeping the U.S. economy in a state of perpetual boom, so that it can continue to absorb the rest of the world's excess savings (the source of those massive Asian trade surpluses.)
But the downward pressure on U.S. employment and wages -- from outsourcing, the substitution of capital for labor and chronic industrial overcapacity -- coupled with the steady rise in household debt loads, the "echo bubble" in the stock market, signs of a housing bubble (at least in some major metropolitan areas) plus the revived terrorist threat -- show how difficult it could be to perpetuate the necessary permanent boom.
In other words, in a globalized laissez-faire system, the stimulative powers of the U.S. Treasury and the Federal Reserve may no longer be enough to keep the world economy from sinking into a prolonged deflationary slump -- what Keynes termed a "high unemployment equilibrium."
Which means the solution might also have to be a global one. Coordinated economic intervention -- to boost the purchasing power of Asian workers, finance public infrastructure spending in the poorest of the poor countries, and prevent a deflationary round of beggar-thy-neighbor currency devaluations, might be necessary.
But who's going to provide that coordination? In the '30s, national economies could still be rescued by national governments. But capitalism is in the process of outgrowing the nation state -- and there is no global mechanism strong enough, or legitimate enough, to play the role of Keynesian stabilizer.
Even if such a mechanism existed, one has to wonder: Given how hard it's been for national governments to promote public investment and create jobs (without being totally corrupted in the process) how plausible is it to think that a supranational coordinating body might be able to do it successfully?
Not very, I suppose. But just because something is difficult, doesn't mean it isn't necessary. Capitalism has been able to skate around a major systemic crisis for nearly 60 years now -- thanks in part to the conventional tools of neo-Keynesian stabilization. But that string of luck may be running out. Which means that sooner or later, some of Keynes's more radical ideas may also need to be tested out -- on a truly grand scale.
