March 2012

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Electoral Right-Wing Keynesianism: Our System of Political Economy Defined

by the Libertarian Heretic libertarian.heretic@gmail.com

If you want a term to concisely describe the political economic system of the United States, a useful one might be Electoral Right-Wing Keynesianism. Despite its clumsiness and non-obvious references, the term nevertheless neatly embraces the motives, programs and outlook consistent to BOTH ruling American political parties for several generations with little sign of abatement.

There are differences of course, but the main difference between the two parties is merely this: The Democrats are the Electoral Right-Wing Keynesians who dishonestly deny being right-wing, while the Republicans are the Electoral Right-Wing Keynesians who dishonestly deny being Keynesian. (And, as we shall see later on, in his clever methodology of keeping in office, denying while doing also describes the successful methodology of maverick GOP libertarian Ron Paul, who one would assume might be averse to such things).

The “Electoral” part of the name is a feature of the system that is also equally ascribable to both parties. Nonetheless, that part is also wholly denied, at least most of the time, while it is actually the most important and derives from the pretty much undeniable fact that all political economy, anywhere, including all politics everywhere, is subservient one overriding factor. That factor is the existing strategic sense within the governmental class – whether that sense is right, wrong, intelligent or stupid – of what feasible steps are required to appease the Great God of Maintaining Incumbency in Office.

Now, particular steps towards maintaining incumbency by officials will vary by culture and tradition and the nature of public institutions, as well as circumstance. But in the USA nowadays, with its formal and somewhat sincere embrace of free markets and with its cultural expectations of rapid wealth accumulation, the concept Right-Wing Keynesianism works as a guiding principle, at least so far and for the last near-century. The Electoral part is how and why the politicians embrace that principle.

So exactly what does all this mean? How is the bipartisan system both Keynesian and right-wing, and how important are elections? Let’s start with defining the terms, but in reverse order.

The Basics: The Keynesian component.

We are all Keynesians now, Nixon accurately said of the political class, including his own Republican party, back in the early 1970s. What did that mean? Officially, it meant that our governmental economic overseers – the elected officials and the Federal Reserve -- essentially believe that government must be ever ready to provide a fiscal stimulus to the economy via aggressive spending. This is to happen by temporarily incurring high debt and even risking inflated currency. And it should be done even within an ostensibly "free" or "liberal" economy. Strictly interpreted – and it usually is not, as we shall see – such steps are supposed to take place only at those times when the economy is hurting. That program is called Keynesianism because it was most influentially advocated in modern times for a modern capitalism-oriented society by British civil servant John Maynard Keynes in the early middle 20th century.

Most would agree that for better or ill the Keynesian system does prevail in most advanced countries including the USA. But how is the American version a "right-wing" variant? How can that be? Isn’t Keynesianism a "left" idea?

Actually, and sorry to many of my fellow libertarians and to American conservatives who deludedly think otherwise, Keynesianism is not an idea sprouting from the conventional left, it is actually more of a centrist concept, with even a rightish tinge at times. It also had arightish purpose in its conception – to save an overall free enterprise system from radical insurrection and subversion in a time of economic collapse.

Nevertheless, because Keynesianism has a “command economy” premise and purpose – i.e. the government directing investment and providing for it via aggressive deficit spending -- it can be considered in general terms more left-leaning than right. And certainly in its purer form, it appeals to the political left-of-center Paul Krugman types.

But still it can have a strong right wing manifestation. And this is what we have in the USA. And it has been "right wing" not just with, nor especially with, Mr. Nixon.

Really? Where else has Keynesianism been a noteworthy right wing idea?

Well, have you ever heard of something called the supply-side economics of Ronald Reagan? Yes? Well, that was one classic form of right-wing Keynesianism.

More basics. Right-wing Keynesianism.

“Reaganomics” engaged in deficit-spending but did so via lowering or restricting taxes to well below unrestrained spending levels rather than by increasing spending. But the result is the same – deficit spending with a stimulus goal. More cash was to be in the hands of business, and to a degree, the consumer. We can call it “right-wing” because instead of Mr. Keynes’ ideas in its pure form, where targeted deficit investments in bad times were to be followed afterwards by balancing the budget in recovery times, the Reaganites sought to hold and reduce taxes permanently and ideologically, justifying this by claiming that the increased but stimulative deficit environment would magically self-correct due to increased economic activity. (Which it didn’t.) And eventually, they implied, the good Reaganites or Republicans would responsibly try to cut spending. (Which they didn’t. Go out and google, for example, the GW Bush prescription drug plan.)

This right-wing view of a magic self-correction without tax increases is not precisely pure Keynesianism, but it is a Keynesianism we can call "right-wing" in that ideologically there are never to be, or almost never to be, tax increases to make up for the stimulative deficit. That is wise conservative "right-wing" political messaging in a country founded on an anti-tax revolution and whose citizens like to keep their wealth.

And it is Keynesian in spirit at its core: Deficit –spending stimulation.

This has continued with the Bush stimulus in 2008. Of course, by not engaging in increased New Deal-style or other jacked up direct public spending investment, or not doing so obviously by restricting payment to the innards of the damaged financial sector, and also not pursing higher taxes later on, the GOPers of the more recent stimulus get away a bit with claiming to not be Keynesian. In the recent stimulus, once out of office, the Republicans verbally embraced the anti-stimulus Tea Party (originally an anti-Keynesian movement against the Bush-GOP stimulus!) and then forgot quickly that they had initiated the stimulus and its deficit financing. (Sort of like the way the Democrats “forgot” they started the Vietnam war once Nixon was in). Formal penance from the 2008 stimulus by the GOP took place in the debt-ceiling debate anyway when the Republicans pretty much rigidly opposed all tax increases designed to cover the deficit spending to which they had heartily contributed.

Meanwhile, the Democrats get to be phony leftists by complaining with compassionate fury that tax cuts are wrong and the rich are getting economic wealth unfairly. But those are ultimately only just words to steal the righteous progressivistic class warrior’s heart away. In the end, it’s "just words" because the Democrats too remain part of the same "right-wing" political economy.

How are they part of the right-wing side? They are by being fundamentally tax averse.

Tax averse? The Democrats? How?

Democrat Right-Wing Keynesianism

OK, maybe not quite averse. But not eager to raise them markedly in any period, despite their own formal tax-and-income redistribution rhetoric and their more formally conventional Keynesian orientation. The fact is that even today Obama and the Democrats keep up a very supply-side type payroll tax holiday, reducing revenue in times of stimulus outlay. And in the times of John F Kennedy, it was the Democrats who began – and mostly preserved - the radical downward trend on income taxation. They put the right-wing into the Keynesian era, the way the presumptively right-wing Nixon put the Keynesian into a Republican Presidential era.

A good overview of some of this behavior is by Major Garret in the National Journal.

In the post-Truman era, Democrats have tiptoed around the tax debate. John F. Kennedy cut marginal tax rates. . . . Johnson also said that revenue would rise due to "a strongly growing economy spurred" by Kennedy’s tax cuts. Jimmy Carter didn’t propose higher taxes in 1980, and cuts he sought in social spending prompted a bitter primary challenge from Edward Kennedy.

Note carefully: LBJ’s rationale is identical to the tax averse rhetoric of Reagan’s supply-side (right-wing Keynesian) theories on budget growth through low taxation.

Democrats talk a good leftish game. Obama’s latest tax plan is about taxing "the wealthy". But any such increases won’t be enough to balance the budget, a balancing which proper non-right-wing Keynesianism demands after the stimulus. So, the Democrat’s Keynesianism is still "right-wing" in the sense that it does not really embrace an aggressive overall tax strategy to reduce the deficit.

They get to deny the right-wingedness of their Keynesianism, of course, by using the Republicans as a permanent excuse: sorry to our dear left constituency, but the mean nasty Republicans won’t let us fund our spending through tax increases.

Now we have to ask why they do it.

The Big Why: The "Electoral" in Electoral Right-Wing Keynesianism

So why all this bipartisan practical unanimity around a right-wing and Keynesian system? Why does this low-tax deficit-spending happen among ostensible left-centrists who are not averse to justifying taxes for their spending? And why also among their ostensible adversaries who claim wariness of government deficits and stimulation?

The answer to the "why" is brutally direct, and you progressives will love to hear your favorite demon-word:

Guh-reeeed!

But a different kind of greed than the one-percenter shouters mean.

The “greed” here is not the hysterically-targeted corporate greed denounced by the progressives, but rather the two most decisive and destructive greeds of our society – 1) the ordinary but vast greed of the vast electorate, combined with the be-all and end-all greed of political economy, 2) the greed for incumbency by the political and government class.

Back to Major Garret in the National Journal:

Walter Mondale called for tax increases in the campaign against President Reagan and lost 49 states, darkening the shadow that the issue has cast over the Democratic Party. . . . Bill Clinton raised taxes in 1993 but lost control of Congress to the GOP in 1994. So he declared, "The era of big government is over" in 1996 and spoke no more of higher taxes. He cut them in 1997 with GOP cooperation. Even Obama’s 2008 campaign trod carefully: The candidate promised to keep taxes low for those earning less than $250,000.

The above is a good recital of why the Democrat side of the bipartisan divide accepts Right-Wing Keynesianism, alongside the GOPs same-reasoned acceptance: American electoral politics, and the need and greed to protect public officeholding in a society where such incumbency is maintained via democratic election within a somewhat capitalist system. For whatever one’s theoretical and moral economic theories are, those go readily out the window when elections roll around and one is a government incumbent or seeking to take up residence as one. One has to appease the almighty greed of the electorate for free stuff and its unhealthy sense that government should be the subsidizer/guarantor of one’s wealth. But if that is unappeased, it’s curtains for one's incumbency.

The effect of all that greed is massive hypocrisy regarding any claimed principle of political economy. Republicans preserve popular spending programs and create a deficit-fed and deficit-feeding stimulus consistent with, and even far more promiscuous than, Mr. Keynes’ vision. This happens even as many of the GOP publicly revile his legacy. Meanwhile, Democrats tiptoe right-wingishly around raising taxes on anyone in order to contain the deficit, even while piously crying out for class fairness and invoking the wisdom of Mr. Keyes. They do it not because they fear a Republican fight, but because the electorate will directly fire Democrat incumbents from office if too much cash is taken out of the public’s hands too quickly, especially in an election season.

The key thing to bear in mind – and this actually explains much of all human history in a phrase or two -- is that political incumbents fear, no utterly dread, having a constituency living with growing anxiety about that constituency’s immediate and future disposable income. This dread becomes most acute when the decline arises from real-time sinking employment numbers and/or rising tax numbers. Those conditions cause the incumbents to fear for their own unemployment. Especially in election years in electoral societies, when incumbency is decided.

And so, in the modern USA, incumbent Republicans go Keynesian by keeping up popular spending, and voting for targeted stimulus programs, most especially around or during election years and especially when in Presidential power (less so in other times, so as to undermine the rivals' incumbency). But when resisting tax increases, the Republicans will deceptively call it something like “holding a consistent line on taxes against big government.” Incumbent Democrats in turn scream about taxes on the wealthy being too low, but never produce or even propose serious tax increases to offset the spending they typically say is essential. That is because to be seen as starving the disposable income of businesses and the consumer in an election year is well-understood as meaning starving themselves out of office. Plus, taxing a lot more than the “wealthy” is necessary to actually fund their vision.

There is no greed like the greed of the masses for free money, and few types of greed like the greed of office-seekers trying to stay in control of trillions, and not mere billions, of dollars. Not to mention their “greed” to rule over, and receive admiration from, millions of people. Billionaires and corporations are simply just additional middling greed grist added in the mix. In reality, the latter are just connective tissue between the pervasive greed of the general public from whom the rich earn their money, and the almost megalomaniacal greed and egos of government incumbents who both coddle and milk the corporate and other billionaires, depending on the Incumbency needs of the moment.

(Libertarian Congressman Ron Paul is a good example of all this by the way, and not a counter-example, as one might expect. He votes against tax bills and spending bills consistently in order to preserve his incumbency-supporting libertarian and anti-federal GOP support base – technically, righteously shunning Keynesian “socialism.” Meanwhile he also inserts in the pre-vote stage “earmarks” of favorable spending for his district into the drafts of the very same bills he votes against, knowing they will pass anyway over his no vote.

That’s textbook classic Electoral Rightwing Keynesianism. Big government spending job promotion takes place while he votes against the taxes and spending, and he thus maintains long-term office incumbency. This, despite his appearing an oddball crank to many, is shrewder than average mainstream electoral politics.)

Doing Right By Keynes

To be fair to the late John Maynard Keynes, he didn’t intend all this. Well, not precisely, though I suspect he preferred to risk or to enable the current situation rather than have one where rigid economic principle meant the possible overthrow of the technocratically supervised generally democratic greatly free marketplace he wanted to preserve. Nevertheless, the orthodox Keynesian view of stimulative deficit spending was actually somewhat “conservative” – designed to be limited to those occasional times of severe downturn, accompanied by the notion that the deficit should be paid back quickly, when times were better. His spending concepts centered around planned government investments in economic sectors, and were not aimed at the more general spending we in fact do have -- continuous inflationary money supply creation, pork-barrel outlays, and permanent corporate and population-wide welfare pending.

Government spending as typically practiced feeds public greed for subsidized services and jobs, and the political class’s greed for trillion dollar office at the price of taxes or inflation on future generations. Keynes, despite not explicitly stating this, nevertheless did create, or rather recreate, formal policy rationalizations for continuing in the modern era the time-immemorial practice of strategic government subsidies aimed at preserving incumbency. The Romans, for example, did that same thing in the form described by the pithy phrase "bread and circuses”. Keynes did his part by rephrasing that old chestnut in terms of modern free-market economic investment and business parameters, and in the appropriate professional and wonk jargon worthy of a veteran of the British Civil Service.

Keynes almost certainly wanted in the early 20th century to preserve the incumbent political class and the established greatly free-market framework from being overthrown by Communists and other dangerous miscreants like the Nazis. The latters’ rise to power was even somewhat accurately anticipated by Keynes implicitly in his own early works on the damage which would be wrought by the punishing economic sanctions against Germany after the First World War.

Keynes’ views were easily taken up because he breathed new life into modern politicians’ high-sounding rhetoric when they claim a license, mandated in reality by the need to preserve office, to spend government money that doesn’t really exist when all around is broke and the electorate is threatening the politicos’ personal and professional doom.

Preserving Electoral Incumbency Is Even A Measurable Economic Fact

So all the above is why we have here today what is actually an ELECTORAL. . . . right-wing Keynesian system. We borrow and spend with Keynesian justification, but without his call for taxes to repair the situation. And we do so, not according to the limited original Keynesian vision of strategic investments, but rather according to incumbents’ electoral needs -- which follow the public’s greed for all kinds of cradle-to-grave low-cost services.

To some extent, this process of election-period artificial stimulus is actually documented – the phenomenon known as the election [economic] cycle has been studied and reported.

What happens is that a whiff of extra uplift (employment spurts, industrial orders growth, stock market rises, tax and credit relief) appears magically around election time. (This is not always due to purely Keynesian fiscal spending but also to more general government interventionism like interest rate manipulation created via official pressures on the national bank (The Federal Reserve). ) This article (should be required reading) shows well how that cycle – election-timing -- even defined the partisan 2011 debt-ceiling debate.

So that’s our system. If you have survived this essay, the key lesson is this – in a system where government can control or direct the economy, which is just about everywhere and in every period, the perceived best means by officials of maintaining political incumbency will be the guiding star and the set of justifications that will explain pretty much all policy that is implemented. Billionaires, corporations, ideologies, the one percent? Mere pieces of the puzzle; supporting characters in the play. For our American society and vast electorate, which expects low taxes, and which responds favorably to the illusion or fact of a free market, and also tends to demand fast prosperity, a right-wing Keynesianism (dishonestly disowned by each side differently) describes the framework incumbents will follow.