A voice is speaking from the tomb, and from Cambridge and Bloomsbury: John Maynard Keynes is making a comeback.
In America, more people denounce him than read him. The denouncers are conservatives -- although few are as truly conservative as he was. They hold him responsible for FDR's economic interventionism -- although it is hard to believe FDR curled up with "The General Theory of Employment, Interest, and Money" (1936).
Keynes argued that a flattened economy tends to stay flat, absent government stimulation. Of course, Keynes wrote when there was no problem of a powerful underlying inflationary pressure. But in a loose sense, we are all Keynesians now -- all of us, at any rate, who reject the notion that a sick economy heals itself by "natural" recuperative powers, without government action.
President Reagan has tried bold fiscal and monetary actions to stimulate consumer and capital-goods spending to power the economy upward. It has not worked in 19 months but, then, FDR's Keynesianism did not really work in eight years. Tojo and Hitler ended the Depression.
Today, Republicans' supply-side theories are being challenged by Democrats' equally implausible investment-side theories. Both sides are suffering failure of nerve.
The Republican theory is -- or was -- that large tax cuts would be self-financing: they would be so stimulative that there would be a gusher of revenues to the government -- higher yields from lower rates. This theory was a means of blinking away a political problem: no one likes tax increases, and there was not -- and Reagan did not try to shape -- a consensus for substantial budget cuts. (He foreshadowed cuts, but not in specific programs -- only in "waste, fraud and abuse.")
Today, Democrats are engaging in a similar sort of wishful thinking about self-financing panaceas. Pointing to the nation's crumbling physical infrastructure of roads, bridges and water systems, Democrats argue, plausibly, that with so much work to be done and so many idle workers, it should not be beyond the wit of man to get the work and the workers together.
But how will the government, which is out of money, pay for this -- by printing money? By borrowing it? By raising taxes? The lame answer Democrats too often offer is that putting people to work will generate so much in income taxes, and save so much in welfare costs, that public works spending will be -- you guessed it -- self-financing. To the extent that Democrats address the revenue side of the problem, they talk vaguely about taxing "corporations" (actually, corporations do not pay taxes, they collect taxes) or taxing "the rich" (as though the middle class does not have most of America's wealth).
Two kinds of private-sector spending can drive the economy -- consumer spending and capital goods spending. But capital spending will lag as long as 30 percent of existing industrial capacity is idle. And consumer credit and retail sales figures are so bad that some merchants are already guilty of the sin of despair regarding Christmas sales. The 89.9 percent of the work force that is employed seems to be saving (anti-social behavior in the circumstances) against a rainy day.
And how can government prime the pump without making matters worse? It already is borrowing too much, and there are risks in raising new revenues during a deep recession. When you canvass the available choices, the choice the president has made seems as defensible as the others. He has chosen to trust the slowing of inflation, and the slowing of the growth of government claims on private-sector wealth, to stir the nation's economic energies.
Because all the choices are so dicey, there is a temptation to vent frustrations against foreign devils. Japan- bashing seems to be gaining favor, even with Walter Mondale who, regarding humanity generally, has a heart the size of a hotel. I take a lenient view of what candidates say when intoxicated by presidential ambitions, but Mondale overdid it when he recently told some steelworkers: "Today, when you go around the world, you need an FBI investigator to find a product made in the United States."
A recent study notes that Coca- Cola is the largest selling soft drink in Japan, and Schick is No. 1 in the razor market.
But Mondale is right to say that Japan's trade policies are often predatory, and America's response should be, as Mondale says, "tough." However, the toughness required of presidents is not shown by persons who will not disabuse steelworkers of the idea that the future will be like the past, or the idea that present problems are in significant measure the fault of foreigners.