The paradox of the survival of Keynesian theory

The picture above comes with this article: America is Regressing into a Developing Nation for Most People.

America is not one country anymore. It is becoming two, each with vastly different resources, expectations, and fates.

In one of these countries live members of what Temin calls the “FTE sector” (named for finance, technology, and electronics, the industries which largely support its growth). These are the 20 percent of Americans who enjoy college educations, have good jobs, and sleep soundly knowing that they have not only enough money to meet life’s challenges, but also social networks to bolster their success. They grow up with parents who read books to them, tutors to help with homework, and plenty of stimulating things to do and places to go. They travel in planes and drive new cars. The citizens of this country see economic growth all around them and exciting possibilities for the future. They make plans, influence policies, and count themselves as lucky to be Americans.

The FTE citizens rarely visit the country where the other 80 percent of Americans live: the low-wage sector. Here, the world of possibility is shrinking, often dramatically. People are burdened with debt and anxious about their insecure jobs if they have a job at all. Many of them are getting sicker and dying younger than they used to. They get around by crumbling public transport and cars they have trouble paying for. Family life is uncertain here; people often don’t partner for the long-term even when they have children. If they go to college, they finance it by going heavily into debt. They are not thinking about the future; they are focused on surviving the present. The world in which they reside is very different from the one they were taught to believe in. While members of the first country act, these people are acted upon.

The article is about a book by Peter Temin who has put his finger on the great problem facing the whole of the West. But then he has also co-authored this: Why Keynes is Important Today. He argues that the problem is that there is too much saving.

Keynes’ paradox of thrift showed that the actions of individuals and economies are different. If one person wants to save more, he or she can do so by simply reducing spending. But if everyone wants to save more, or at least enough people and business firms to influence the whole economy, then their collective reduction in spending reduces national income. The economy does not save more. Instead production and jobs decrease. If everyone tries to do this in all countries, then global unemployment emerges, which is an international paradox of thrift.

He sees the consequences of an economy of dependency but remains wedded to the Keynesian ideas which are the actual heart of the problem. I you want a paradox, this is it.

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