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What would Keynes do?

What the 20th century’s most influential economist can teach us about rebuilding the US economy.

Party of One Studio for Vox

The novel coronavirus — and America’s disastrously inept response — has shuttered the economy, leaving factories quiet, businesses closed, workers unable to do their jobs. Pulling out of this hole will require an economic effort unlike anything in recent history. We don’t just need a bit of stimulus. We will need a remobilization. But toward what end?

This is the first episode in a four-part series on The Ezra Klein Show exploring how to rebuild the economy after Covid-19. Future episodes will look at a Green New Deal, a children-centric economy, and a universal basic income. But I wanted to start at the beginning. What can the government do? What is the economy for? Why should we trust politicians, rather than markets, to allocate resources on this scale?

Zach Carter is a senior reporter at HuffPost and the author of a new book, The Price of Peace: Money, Democracy, and the Life of John Maynard Keynes. The book, which has widely been hailed as one of the year’s best, is a remarkable biography animated by a question many of us have forgotten Keynes asked: What values should guide an economy? What are the higher purposes economic policy should serve?

An edited transcript from our conversation follows. The full conversation can be heard on The Ezra Klein Show.

This story is part of The Great Rebuild, a project made possible thanks to support from Omidyar Network, a social impact venture that works to reimagine critical systems and the ideas that govern them, and to build more inclusive and equitable societies. All Great Rebuild coverage is editorially independent and produced by our journalists.

Subscribe to The Ezra Klein Show on Apple Podcasts, Spotify, Stitcher, or wherever you get your podcasts.

Ezra Klein

What is the purpose of economics?

Zach Carter

If you ask John Maynard Keynes, he would have said economics is the tool through which we achieve social justice and a harmonious society. I think if you ask most economists today, they would say it’s a way to prevent governments from running out of money or a way to prevent financial crises.

Keynes was first and foremost a philosopher, so he was interrogating these economic questions as part of a broader philosophical project. He’s really the last of the economists to be doing that kind of project. After Keynes, economics becomes very technical and divorced from these moral questions. It gets some of its prestige from the idea that you could solve economic questions independently of social and moral questions.

For Keynes that would have been bewildering — that’s just not the way that he looked at the world. Keynes thought economics was trying to solve war and inequality.

Ezra Klein

Opponents of Keynes were very effective in saying, you don’t want to trust the government to define the good life for you. It’s better to just have the government trying to keep unemployment low and then we give you your money back in tax cuts. And if what you want to do is buy a TV and watch Celebrity Apprentice, go ahead.

That to me is still the fundamental challenge Keynes poses. It’s not just about how much deficit spending you should do.

Zach Carter

It’s a fundamental question of political modernity. For Keynes, there’s always something outside of consumer preferences that they need to align with. There’s always a good life and a good society that we’re trying to guide society towards. He believes there are objectively good things in the world, that not everything is relative, that not everybody’s preferences are equal. That is a paternalistic approach, as you note.

The way that his successors who take him seriously as a philosopher try to resolve this — and I think [John Kenneth] Galbraith is the most successful in this — is to say this is what democracy is for. We don’t want to have big, bad, terrible monarch telling us what to do. But in a democracy people can express their preferences politically. And using the market as an alternative to democratic politics is signing us up for a particularly bad life.

I think it comes down to whether the economy is something that’s supposed to be used by democracies to further the goals of democratic peoples or whether the economy is itself the expression of democratic will. Milton Friedman just says the market is the expression of the democratic will, so the less government you have in the market the better. I think a lot of the people today are broadly comfortable with Friedman on that basic point and very uncomfortable with the implications of Keynes’s point.

Keynes himself was uncomfortable with the implications of it. He could never really make up his mind about where he was on the question of socialism, but it was very clear to him by the end of his life that large sections of the economy had to be socialized if we were going to realize the type of good life that he wanted realized. In the States, we think of him as this guy who legitimizes deficit spending. In the UK, he has a very different legacy: his most significant policy achievement in the UK is socializing British medicine. He’s the financial architect of the National Health Service.

Ezra Klein

I want to bring us to the present moment. We’re in a position now where we have very high unemployment. We have an economy in which it is unsafe for people to do many of the things they did before. And by the time that is no longer true in America, a lot of businesses will have failed.

So even when we’re ready to reopen the economy, you’re going to have a lot of people who won’t be able to go back to work because the business they are part of will be gone. And it takes a lot of time to start up new businesses and rebuild clienteles and all of that.

What do you think Keynes looking at the situation would tell the next president? What would his prescription be?

Zach Carter

First and foremost, you will not get your economy back until you deal with the public health crisis. We went through this weird period where people were talking about reopening the economy because we wanted to prevent all of the deaths of despair that happen from high unemployment. That’s an important thing to keep in mind whenever you’re talking about economic policy. But the idea that there was some clear trade-off between economics and public health was just silly. We’re seeing now that if you don’t have the public health problem under control, the economy does not recover. So you need to deal with a public health problem first and foremost, and you have to restore people’s faith in the ability of the government to handle that public health problem.

But after that, we have all these other social problems in the United States. Keynes was deeply worried about inequality because he felt like it prevented societies from hanging together. And I think he’d look at the United States and say, this is a country that does not seem to be hanging together particularly well right now.

Some guy wrote this book called Why We’re Polarized about how we’re polarized across all these different metrics — that almost any way you look at American society, we’re breaking into two or three different societies that don’t really seem like they’re engaged in the same social project. So you’ve got to find a way to create a sense of national purpose. That’s an idea that I think liberals in particular are very uncomfortable with the United States. It’s something that we associate with conservative jingoism with the war machine and the invasion of Iraq.

Right now, the country is fundamentally divided in these different ways that I think are very dangerous. And Keynes would’ve said we can attack that first with economic policy by closing these enormous disparities of wealth between the super rich and the poor. That’s not just about getting people to a better standard of living — it’s about making sure that they’re engaged in the same political project. So that’s something that I think Keynes would be talking about.

Ezra Klein

I want to pick up on two threads in that and then frame what strikes me as a very potent choice here.

I think something Keynes contributes to this discussion is that if your economy is not producing at its capacity — if you have people, if you have machines, factories, buildings that could be utilized and are not being utilized — the government has a real role where it can step in, particularly amidst massive amounts of uncertainty.

But that’s where you get into something really tricky, which goes back to our consumer preferences versus social purpose discussion. There are broadly two ways you could respond to this: One is to say we are going to offer more stimulus checks that are going to go out every three months as long as unemployment is above 6.5 percent. That’s just getting money into people’s hands. And here, there’s a debate over how much money to give, but no real debate over what you’re doing with the money.

The second is to say, we have all these people were sitting around at home. We have all of these folks who had jobs who don’t have them anymore. And we have this unbelievably pressing need to decarbonize our economy. So, let’s put those things together and announce a massive Green New Deal investment plan.

On the one hand, that has the value of building something with that money — you’ve chosen a social purpose and you’re using the government to mobilize resources in its pursuit. And on the other hand, in addition to all the debates you’d have over stimulus checks, you also have this fight over the purpose. Is global warming a thing? Is the Green New Deal just like a plot to bring socialism to America? And that’s true for anything. If we said we don’t have enough affordable housing in this country, so let’s have a massive mobilization on building housing, you would have all these fights about that as a purpose.

My read of Keynes is that this is an incredibly potent time for the mobilization of national economic resources tied to a public purpose. But also polarization makes this a very hard time to get people to agree on a public purpose. So it’s much easier in some ways to default to just handing out money to people because it creates less fights.

I’m curious how you think Keynes would parse that distinction.

Zach Carter

I certainly agree with you that [Keynes] would look at the climate crisis as an absolute emergency — the way that he looked at German reparations as an absolute emergency after World War I. I think he would also look at the breakdown of these international organizations as an emergency. I think the loss of credibility that the WTO has had in the pandemic would bother him. I think the breakdown of the European Union would be very distressing to him. I think that the deterioration of the relationship between the United States and China would really bother him. And I don’t think he would believe that you could fix those problems with a tax cut.

I think he would be in favor of putting money in people’s pockets just to make them feel like they were they were taken care of. But I don’t think he would believe that was a way of addressing the crises that faced us. And frankly, I don’t think putting people putting money in people’s pockets is a way of addressing the social crisis that we face in the United States over things like race. Putting money in people’s pockets doesn’t end segregation.

So giving out money is an important part of building credibility in the broader project, but that alone is not going to do the trick. Then you have to spend that credibility, that political capital, on the broader social project.

You can you can only cut checks for so long, and checks can only can only accomplish so much. And I think we’ve seen all that already in the pandemic. People have gotten checks in the pandemic, but they’re pissed off. They’re really angry. You know, they’re not just in the streets over the killing of George Floyd. Those types of killings happen all the time in American society. We don’t see uprisings unified across every American city as a result.

People don’t feel like they’re being treated like full citizens. They feel like some people are being treated does real more equal than others. That’s not just a question of money. Money is necessary but not sufficient. The glue that keeps society together is a little more complex.

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