In a recent syndicated column, Rich Lowry pronounced Keynesian economics dead, killed by the debt deal. I agree that Keynesian economics has been defeated. But the problems Keynesian economics was meant to address will remain unsolved.
Keynes sought to explain how unemployment arises in modern capitalist societies and what can be done about it. His basic prescription is for governments to bolster consumer demand, especially for poor people in economic downturns. This would maintain the capitalist system in a form that would work better for everyone.
In the current downturn, for example, many elderly people would be much worse off without Social Security and if they had to rely on investment income instead. According to Keynes’s theory, everyone would be worse off without Social Security. The downturn would have been deeper without Social Security absorbing some of the shock to consumers. Nearly half of all elderly people depend on Social Security for most of their income, according to Census Bureau data.
Good ideas often are defeated in politics. In order to deal with the problem of climate change, first carbon taxes and then carbon emissions trading were proposed. Both were tested ideas supported by many economists. Both were defeated politically. But we still must deal with climate change.
Denial is one way to deal with climate change. Not a good way. But is it possible to deny the existence of poverty and unemployment? Unfortunately denial is possible, by saying that unemployed people are shirkers, poor people are whiners and charity is available. But that does not really solve the problem.
Similarly, the plan proposed by U.S. Rep. Paul Ryan, R-Wis., to convert Medicare into a voucher program would only shift future health-care costs off the federal budget. But it would leave unsolved the problem of how we can efficiently provide medical care to those who need it. This is a problem for which other countries have produced a variety of possible solutions.
When ideological barriers close off possible solutions to social problems, this does not solve them.