In 2009 the British Prime Minister David Cameron made a speech about "the Age of Austerity". This speech is the justification for governments all over the world, to cut public spending and impose high unemployment and hardship onto the people. Everyone in politics seem to be singing from the same hymn sheet, claiming that austerity is needed, but a economist from the past, John Maynard Keynes, would strongly disagree with the present economic policies of our world.
I was taught Keynesian economics at school in the 1950s, and we were told it was by far, the best economic system ever devised. Even as late as the 1970s President Nixon famously said, "we are all Keynesians now". Yet in a few years Keynesian economics was done away with and every Western country adopted Monetarist economics, claiming it was the new economics. (There is nothing new about Monetarism it is the economics of the 1920s that brought about a worldwide depression). Today Keynesian economics is no longer taught in schools and Universities and if you go on the internet you will not find anyone having a good word about it, unless you find a very heavy academic web site that most people won't bother to read.
So what is the problem with Keynesian economics? The problem is that it gives too many advantages to the working class and undermines the power of the rich. In the time of the Depression of the 1930s, Keynesian pointed out that countries can come out of the Depression by artificially creating full employment. If everyone is employed and has money in their pockets, they will spend it in shops. This will create demand, and factories that make these goods will suddenly find they have a bigger market and have to employ more people to meet this demand. The result will be a larger manufacturing output, which will boost the whole economy.
It was Keynesian economics that created worldwide growth from the end of WW2 and the late 1970s. So if this economics system was so successful why get rid of it? The reason is that Keynesian economics demand that the government keeps full employment, and full employment give all the advantages to unions and the working class. The reason for this, is that if a employee doesn't like the pay he is receiving or likes the way the boss treats him, he is free to go and get another job. So if employers want to keep their workers, they have to pay them well and not upset them. So under this pressure, the gap between rich and poor greatly decrease in the 1950s,60s and 70s because of Keynesian economics.
Then in the 1980s Monetarism was adopted in all Western Countries, this is the economics of high unemployment, where governments take money out of the economy to ensure unemployment remains high. Unemployment is a very powerful weapon to use against the working class. This is because if a worker doesn't like the pay or doesn't like the way his boss treats him, in a time of high unemployment, he cannot easy find another job. So the choice he has, is to accept low pay and the way the boss treats him, or be unemployed. So under this pressure the gap between rich and poor greatly increased.
Another criticism of Keynesism is that it creates high inflation, and people today tell you how bad this is. But I can remember living with high inflation in the 1950s, 60s and 70s and it wasn't a real problem as our living standard was always rising. Keynesism causes high inflation because the bosses are forced to give in to the wage demands of the workers. When governments today say, "We have to squeeze inflation out of the economy", what they mean is they are going to increase unemployment.
So by using the weapon of high unemployment against the working class, the rich can ensure that the poor get poorer and the rich get richer. The fact that by pursuing a policy of high unemployment will create a large underclass of people with no hope of every being employed doesn't seem to be a problem to the rich men who pursue these policies.
So why did the rich allow Keynesian economics to be used in the years after WW2 up until the end of the 1970s? The reason is because of the cold war. Capitalists greatly fear Communism. We can see this in the 1930s.
Because of the Versailles Treaty after the First World War, Germany was made to pay 24 billion pounds to the Allies. Keynes resigned this position in the British Treasury, over this, pointing out that German wouldn’t be able to pay this sum, as it would ruin them. Then because of the widespread poverty this caused in Germany, people began to support extremist political parties. The biggest was the Communist, and it looked as though Germany would become a Communist state. So wealthy men in the USA like Henry Ford, supported another extremist party, the Nazis, to prevent a communist takeover of Germany. With their financial backing the Nazis managed to get voted into power, where they were able to crush the Communists. The Nazis also fixed their economy using Keynesian economics, though one of the ways they brought about full employment was by greatly increasing arms manufacturing.
The support of the Nazis backfired as Hitler decided to settle old scores and conquered Europe before he attacked the USSR. This made the Nazis a greater enemy than the Communists and the Capitalist ended up fighting with the Communists against Hitler. The result was that at the end of WW2 the Communist were stronger than before the war. This was made worse when China also had a Communist revolution. The Communist block then began to try and export Communism to the rest of the world by supporting Communists guerrillas in places like in Vietnam, Malaysia, and South America.
In the USA they attacked their homegrown Communists through McCarthyism, but the Capitalists knew they had to do more than this, to stave off a Communist revolution. They also had to win the hearts and minds of the common person and they could only do this while the working class were better off living in a Capitalist system than under Communism. So they were forced to adopt Keynesian economics and keep unemployment low.
From the time of the end of WW2 in 1946, to end of the 1970s, the gap between rich and poor in all Western countries greatly decreased. As Harold Macmillan, the British Prime Minster in the 1950s was to say to the voters, “you never had it so good”. With full employment the workers were free to leave their jobs to look for better pay, and employers dare not upset their workforce, because they could quickly lose their workforce. The unions exploited this situation and in many cases abused their position of power.
But it wasn’t to last, in the 1970s it became clear the Soviet Union was failing. To match the arms race with the West in the Cold War, they were spending 50% of their GNP on the military. They just couldn’t keep this up and was falling behind in the arms race with the USA. Also in 1976 the Communist leader of China, Mao Tse-Tung died and those who followed him were a lot less interested in promoting Communism to the rest of the world.
So with Communism failing, the road was clear to ditch Keynesian economics and engineer high unemployment. This very quickly destroyed the power of the unions in the 1980s and ever since the gap between rich and poor has greatly increased. Without no competition from Communism, the rich and powerful are now free to design the economy so they keep their positions of power and keep the working class poor and powerless. For instance, in the recent banking crises where governments were forced to bail out banks to prevent them from failing. The burden of doing this fell to the ordinary person in the street, but the bankers who caused the crises in first place, continued to receive their million dollar bonuses every year.
Unfortunately the rich have control over all mainstream political parties, so it doesn’t matter whom the ordinary person vote for, the politicians will always do the bidding of their paymasters. The rich also control the media and this is why they are able to censor all references to Keynesian economics. They only way things can change is through the internet where people can access information not completely controlled by the rich and powerful.