On April 16, columnist Tibor Machan charged that “we have serious fascist elements to how American government is handling the current economic fiasco, I have in mind mainly that the president and his team are acting unpredictably, wielding power and being very vague about why they are doing this rather than that, as well as their economics teacher, Keynes, was in fact sympathetic to economic fascism.”
Machan correctly describes fascism as “a governmental system led by a dictator having complete power, forcibly suppressing opposition and criticism.” Yet, how he can arrive at the ridiculous claim that President Obama and economist Keynes have fascist leanings remains a mystery. Neither Obama nor Keynes ever favored dictatorial government or the stifling of opposition and criticism. Whatever power President Obama has been wielding so far is derived from the Constitution and numerous acts of Congress. Unpredictability and vagueness have always troubled government faced with a severe economic crisis.
Machan comments about John Maynard Keynes are vague or misinformed. During the years of the Great Depression from 1929 to 1939, the British economist advocated that governments should use fiscal and monetary measures to mitigate the adverse effects of extreme ups and downs in the business cycle. The way to reverse recessions was to increase investment by reducing interest rates and by government investment in infrastructure. Investment by government is to expand aggregate demand and spending. This in turn is to stimulate more production and investment and to cause still more income and spending.
The initial stimulation thus starts a cascade of subsequent stimuli so that the total increase in economic activity amounts to a multiple of the original investment. A ten-billion-dollar increase in government spending, for example, could cause total output to rise by fifteen billion dollars. Keynesians call this the “multiplier effect.”
Since prices--and wages in particular--tend to respond slowly to changes in supply and demand, periodic shortages or surpluses of labor are prone to occur. In contrast to classical capitalist economics, Keynes did not believe that there is a mysterious “invisible hand” moving output and employment toward full employment levels. He rather called for proportional changes in aggregate demand, by government if necessary, to achieve the largest short-run effect on output and employment.
While Milton Friedman and the Chicago School of monetary economics see the business cycle as the “efficient market response” to attractive or unattractive opportunities, Keynesians see the cycle’s ups and downs as the big socio-economic problems which they want to minimize with an activist stabilization policy.
Keynes emphasized and actually foresaw the need for international coordination of economic policies and for international economic institutions. He also showed how economic forces could lead to war or promote peace.
In properly calibrating the government’s response to the ongoing recession, the Obama administration is handicapped by the lag between the time that a change in policy is required and the time when the government recognizes this need. Then a lag tends to follow between the time when the government recognizes that a change in policy is required and when it takes action, particularly when President and Congress must first agree on the recommended changes. Finally, another lag is certain to occur between the time the policy is changed and the changes impact upon the economy.
Neither Keynes nor Obama ever said that free private enterprise might not be an ideal economic system. When it fails, however, often due to the actions of incompetent and greedy entrepreneurs, government intervention, at least temporarily, in the interest of the suffering masses is as yet the best remedy available.