Main

 
The Full Keynesian Economy

The Full Keynesian Economy

Taxing and Spending

I define "economics" as "anything that has to do with our physical well-being, whether it involves an exchange of money or not." Academic economics is only concerned with money transactions, something which may be measured and counted. I have little to say about this side of economics, other than to advocate the full acceptance of John Maynard Keynes. No more "voodoo" supply-side economics, which quadrupled the national debt during the Reagan-Bush years. The 1997 tax bill is more voodoo economics, claiming to be able to cut taxes while balancing the budget. Politicians will always tell us whatever fairy tale we want to hear.

No administration has ever tried what I call the full-Keynesian counter-cyclical policy of making taxing and spending adjustments to prevent depression and inflation. It's not so difficult. It doesn't require a Ph.D. to understand this. It is taught in every beginning class on economics. To even out the natural bumps in the free enterprise business cycle, the government should raise taxes and reduce expenditures (sounds paradoxical doesn't it?) during the boom part of the cycle, running a surplus, something not seen for many years, although here at the turn of the millennium, we are about to enter an era of surplus. During the down side of the cycle, government should lower taxes and raise expenditures, thus running a slight deficit.

There is nothing wrong with a deficit, so long as it is balanced in the average by the surpluses. It is only this full Keynesian policy, scientifically rather than politically applied, which can prevent depressions, reduce the depth of recessions, and eliminate inflation. To learn more, take economics 101 (something President Clinton clearly understands, since he has halved the deficit in his first administration).

Opening or Closing our Market

The second matter of academic economics has to do with trade deficits. In the economic textbooks, it says that unlimited free trade is better for all consumers. The trouble is, we are not just consumers. We are also workers and owners. And unless everyone plays the game of international trade by the same rules, we may still gain as consumers, but this will be irrelevant, since all the good jobs and the ownership of our businesses and property will migrate to the more closed markets.

Our market is our own. We are not obliged to open it to anyone else. Those allowed to trade in our market should consider it a privilege. And if a trading partner has a market partially closed to us, we should close our market to them in exactly the same degree, without negotiation. It does not matter how they close their market; the Japanese have shown considerable ingenuity in this regard. The last twenty years have shown the Japanese a way to become world dominant without even possessing a fleet. Of course, at the end of this century, the Asian economic powers all appear to be paper tigers, beset by corruption and bad loans. They are not supermen.

Intellectual Property Theft

The government must also take a much more aggressive stance regarding theft of intellectual property. We should feel free to steal intellectual property from those who steal from us. Turn about, fair play. As long as there are no negative consequences, we will keep inventing things, like the VCR, and the Orientals will keep stealing the technology, flooding the market at a loss until all our own factories have gone belly up, and we will have gained nothing from our own creativity. We should be quick to develop a new invention, so inventors will not have to turn to the Japanese. And such developments should be safe-guarded as if it were military technology. We should then protect that market, until the industry is robust. Patents and copyrights are not sufficient in a world where the Chinese, Japanese and Koreans ignore the rules regarding such things. In short, the government should take a strategic interest in new technology, as if the fate of the nation depends on Digital High Definition Television and optical fiber, because indeed it does.

Watchdog Role for Government

Free enterprise varies from country to country and from one time and place to another. Theoretically, competition and the free market will keep it all running automatically. But in practice, it doesn't. In the 19th Century, huge monopolies developed, which then set their own prices (high). It was necessary for the Federal Government to step in. In the 1980s, corporate raiders ran rampant, buying corporations with junk bonds, which were then paid off by dismantling the company, and selling off the pieces. Eventually, most of these corporate raiders ran afoul of the law. In the 1990s, the fad is corporate downsizing.

There seems something obscene about 40,000 workers in one corporation losing their jobs, usually workers in their fifties and unable to find a similar job, all to the self-congratulation of management, which votes itself huge pay raises. Speaking of management compensation, why is it that American corporate executives make two or three times as much money as their Japanese or European counterparts? The general conclusion is just that the Aristarchy (see the chapter on "Revolution") must keep an eye on the corporations. Occasional intervention may be required.

Preventing Burnout

I have a proposal to make about vacations and holidays. This may seem a trivial matter, but in fact, it has a lot to do with the productivity of a nation, and a lot to do with preventing early burnout. In most middle class jobs, there are 15 days of vacation and 10 days of paid holidays. Five working weeks. Libraries, the post-office and government offices take off an additional 5 holidays the rest of us don't get. So they have 6 unproductive weeks. If that all came together at one time, it would be long enough to get totally out of the work frame of mind, allowing the total relaxation that staves off burnout. But unfortunately, it doesn't. People seldom even take their 3 weeks of vacation together.

What I propose is to make August a paid national holiday, while cutting the number of paid holidays to five, and reducing the optional vacation time to 8 working days. So instead of 5 weeks off we now would have 7 weeks. It is much more efficient just to close down the plant, so that everybody is off at once. For one thing, that would be a good time to retool or renovate the plant or office. For some businesses, the fact that everyone else is off means that they must work all the harder. Obviously any business connected to travel or recreation would have their biggest month in August and couldn't close down. So they should close down in February.

What holidays do we keep and which do we toss? I am in favor of moving to weekends all Hallmark holidays that do not have any deep tradition, such as Mother's day, Father's day, Valentines day, Easter and Good Friday, St. Patrick's day, Memorial Day, Labor day, and Thanksgiving. Provide 2 days off for Christmas and New Years day, since these are ancient festivals, pre-dating Christianity. Make Halloween the fall-fest, not Thanksgiving, which is only a day for stuffing oneself with food, which seems obscene given the fact that we are all too fat already. In America, the Fourth of July would be the summer-fest. Now what about spring-fest? I suggest Carnival, which would fall on the first day of good weather, suitable for outdoor activities, ranging from Fat Thursday before Lent in sub-tropical parts of the country, all the way up to May first for the Great Lakes and Northeast. Carnival is something we will have to more or less re-invent, borrowing traditions from both East and West.

What would we do if we had August off? Go some place cool, such as the Pacific Northwest. I imagine there would be a good business in summer cottages anywhere near Puget Sound or the Pacific, from Eureka to Anchorage and Homer, on Canadian Islands on the Inside Passage, and even in Vancouver or Victoria. A month off in the woods, prowling the beaches for crabs, clams and driftwood, watching the whales migrate, and possibly getting out in a boat and fishing for salmon, would restore the soul of the most compulsive work-a-holic.

Flat Taxes

Finally, I cannot leave the realm of economics without a tax proposal. I believe in the KISS principle. Keep It Simple, Stupid. Make it simple enough, and there will be no possibility of cheating, and no such things as tax returns. But can we make the tax laws fair? "Fair" is highly relative. Usually, what someone means by "fair" is something to their advantage. Every lobbyist in Washington wants to stick something into the tax code that will help their bosses. And that is why we have a tax code so complex that no one fully understands it.

I say tax every financial transaction somewhere around three percent. That's it. A one line tax code. After we convert to an all electronic monetary system, the tax will be deducted and put into government accounts automatically. Notice that this is like a combination of a VAT with a tax on gross income, which applies equally to institutions and individuals. VAT stands for Value Added Tax, and is a sales tax which also applies to wholesale. Property could be transferred with no deduction. This one line tax code ends and replaces all sin taxes, such as special taxes on liquor or tobacco. No more death taxes, also known as estate taxes. No more fees for licenses. The actual amount of the tax would vary day by day in accordance with the principles of the full Keynesian economy.

Copyright © Dr.H 2003

Home