Here are three replies to Thomas Geoghegan’s essay, "What Would Keynes Do?" A second installment of this forum will be posted tomorrow.
WWKD: ‘Somewhat Comprehensive Socialization’
Before I say what I didn’t like about Thomas Geoghegan’s essay on Keynes, I want to applaud something I really like about it: his dismissal of protectionism. That’s rare on the left, especially the labor left. You often see analyses coming from our side that compute job losses from trade—basically by dividing trade deficits by country by the average US wage—while allowing no offsetting gains from trade.
To steal Keynes’s word, any protectionist moves by the United States now would be “treacherous”—they could drive the world into deep recession. Obviously the US trade deficit is unsustainable, but our voracious demand for imports has been a great support for the global economy. Taking that away suddenly would be disastrous. Something’s got to give, but that’s a project for the long term.
But I fervently disagree with the emphasis Geoghegan places on keeping interest rates low. As any Keynesian could tell you, in a depression, even a zero rate of interest cannot overcome fear. In an economy as rocky as this, investors prefer US Treasury paper—which has continued to trade at ever-lower interest rates since the S&P downgrade—to riskier bets. (Prospects in private markets can’t be great if investors are willing to lend a supposedly busted Washington money for ten years at a rate well under 2 percent.) That is precisely why the government has to do some investing: no one else is.
As Keynes said, “For my own part I am now somewhat sceptical of the success of a merely monetary policy directed towards influencing the rate of interest. I expect to see the State…taking an ever greater responsibility for directly organising investment.” He was always coy about exactly what he meant by this, or his statement later in the General Theory embracing “the somewhat comprehensive socialization of investment.” Bringing Keynes back means talking about that sort of thing, with some more precision.
Joan Robinson said that it was a pity that Keynes talked so much about investment without talking about what investment should be for. She has a point. The burying bottles only to dig them up example may be reductio ad absurdum, but it’s still revealing.
The investments that the private market is not making are those necessary to deal with climate change. Clean energy, fast trains, all that wonky stuff like smart grids and retrofitting isn’t the kind of thing that gets the heart racing, but it all has enormous potential to generate not only domestic economic growth in both the short and the longer term but also to keep earth reasonably habitable.