The conservative news website Washington Examiner wasted no time pointing out that left-wing superstar Rep. Alexandria Ocasio-Cortez mixed up Milton Friedman with John Maynard Keynes in a recent YouTube video. Friedman and Keynes are considered to be on opposite sides of the standard political spectrum, but this common reading is, of course, wrong. Friedman was on the far right, yes, but Keynes was not on the far left (he was center right). The system Keynes devised in the 1930s was devoted to saving capitalism during a period of great (red) danger, the Great Depression. This rescue mission, which proved successful between the years 1947 and 1972 (the Golden Age of Capitalism), required that we break with orthodox economics (now called neoliberalism) and construct an economic program that had the features of socialism (increased government social spending, the regulation of the markets, and so on), but preserved the core of capitalism, which is the endless expansion and private ownership of profits.
That AOC, who studied economics at Boston University, mixed up the first name of the most celebrated economist of the first half of the 20th century with the first name of the most celebrated market cheerleader of the second half of that century (one could hardly call Milton Friedman an economist) is not at all interesting. Of much greater importance in her YouTube video is the exposure of a flaw in all current US socialist or social democratic thinking and why it will have (if not corrected) catastrophic consequences for progressive programs like the Green New Deal.
Let's begin with this important point about Lord Keynes: He was no socialist; indeed he hated Marxism. The same cannot be said for his most-brilliant student Joan Robinson. She and other economists associated with the Cambridge School (Piero Sraffa, Michał Kalecki, and the like) were sympathetic to Marx and promoted an economics that dis-embeds capitalism from the center of society and replaces it with a socialism that does not aspire to communism. With post-Keynesians, socialism ends with socialism. We now call this school post-Keynesian, and it should not be confused with neo-Keynesianism (Paul Krugman, Janet Yellen, and so on), a school that is distinct from orthodox (or pro-market, or strictly neoliberal) economics in two key ways: One, for neo-Keynesians, markets often fail, and two, government intervention is needed to correct these failures.
Neo-Keynesianism was established in 1937 when British economist John Hicks introduced a model (called IS-LM) that reconciled Keynes' general theory, which was fundamentally historical, with the Walrusian equilibrium theory, which was fundamentally mathematical. (Investopedia provides a clear explanation of
As for Milton Friedman, the priest of Reaganomics? Nothing of interest or value can be said about him. His way of thinking cannot be distinguished from theology, a fact that is obvious to anyone who has spent a little time with Joan Robinson's masterpiece Economic Philosophy, a 1962 book that solved the puzzle of "the mysterious way metaphysical propositions, without any logical content, can yet be a powerful influence on thought and action." Friedman simply believed that the market was always right and government, always bad. The crash in 2008 demolished the legitimacy of this four-decade-long market absolutism. And it now persists not as a living or logically viable economic theory but, as the Australian post-Keynesian John Quiggin put it in 2012, as zombie economics.
Now back to AOC. The essay she mentions in the YouTube video is by John Maynard Keynes and is called "Economic Possibilities for our Grandchildren" (PDF). It's short. It was published in 1930. It is a work of science fiction in the Utopian tradition. He imagines that by the 2030, the economics profession will become as practical as dentistry, and, due to the abundance of capital, that the problem of scarcity, which is the root of poverty, will be replaced by a new problem: what to do with free time.
...for the first time since his creation man will be faced with his real, his permanent problem—how to use his freedom from pressing economic cares, how to occupy the leisure, which science and compound interest will have won for him, to live wisely and agreeably and well.
Keynes fears that if this issue is not addressed (what to do with all the free time flowing out of every pore and hour of post-capitalist society) right now, the humans of a future that for us in 2020 is right around the corner (2030) may suffer nervous breakdowns:
To use the language of today, must we not expect a general “nervous breakdown”? We already have a little experience of what I mean—a nervous breakdown of the sort which is already common enough in England and the United States amongst the wives of the well-to-do classes, unfortunate women, many of them, who have been deprived by their wealth of their traditional tasks and occupations—who cannot find it sufficiently amusing, when deprived of the spur of economic necessity, to cook and clean and mend, yet are quite unable to find anything more amusing.
This is the text AOC is talking about on YouTube. She believes that, in essence, Keynes was right. We actually did achieve a society that has, one, way too much capital and, two, the technology to abolish material scarcity. But if this is the case, why do we live in a world that's still plagued by poverty? Even here in Seattle, a city stuffed to the gills with surplus cash, there are people living on the streets.
But here is the thing. Keynes made a huge mistake in “Economic Possibilities for Our Grandchildren." He assumed that capitalism had, from its inception, the noble project of alleviating the scarcity of itself, capital. Meaning, he thought that the death of capitalism was its ultimate goal; meaning, "money makers" had this one purpose, by a kind of "ruse of reason": "to carry all of us along... [to] the lap of economic abundance." And once this purpose was fulfilled, we could finally, in the year 2030, treat "the love of money" as a "disgusting morbidity, one of those semicriminal, semi-pathological propensities which one hands over with a shudder to the specialists in mental disease."
Indeed, this kind of thinking was what the neoclassical economists of the 19th century universally believed to be the case. They told the public (the poor, the hungry) again and again, that they had to wait for capital to accumulate to such an extent that it erased all wants. The best system to do this was capitalism. And all that it needed was enough time. It is this metaphysical concept that justified the concentration of capital in a few hands. Those who had it did not blow it. And as a consequence, they should be rewarded for waiting, an idea pushed in an economic textbook by John Maynard Keynes's teacher, Alfred Marshall.
But all of this was just a bunch of nonsense. What was missing in Keynes's utopia was a realistic idea or picture of capitalism. It's not about producing the necessaries of life, but generating, at every opportunity, luxuries, and marketing new wants. Capitalism does not want to die, which is what would happen if it met all of our needs, and all of our needs are not that hard to meet. This point is brilliantly made by the Israeli theorist Noam Yuran in his 2014 book, Money Wants: An Economy of Desire.
As an example of the orthodox concept of the economy, we can [turn] to Keynes’s paper “Economic Possibilities for Our Grandchildren.” Almost a century after the writing of this essay, we cannot avoid the question of how this great thinker was so naive as to believe that in our time humanity would have freed itself from the problem of scarcity. An answer can be found in the paper itself. Keynes distinguishes between two types of needs: absolute needs, which are unrelated to the situation of our fellow human beings, and relative needs, which drive us to feel superior to our fellows. Keynes acknowledges the fact that the latter type of needs, in contrast to the former, has no theoretical possibility of satisfaction. Yet, he claims that with reference to absolute needs “a point may soon be reached [. . .] when these needs are satisfied in the sense that we prefer to devote our further energies to non-economic purposes.” This conclusion rests on the commonsensical idea that absolute needs are prior to relative needs. That is to say, people toil to have what they absolutely need and, once they have it, may try to have more than others (but being rational, they will tend to give up on this goal). In other words, Keynes’s prediction rests on the idea that having is logically prior to having more.
What Yuran is getting at here is very deep. And if it is not grasped, I fear we will not understand how something like the Green New Deal could go terribly wrong. Capitalism is not, at the end of the day, based on the production of things we really need (or absolute needs), for if it was, it'd be a thing of the past by now (the year 2030 would actually be the year 1930, if not earlier). For example, housing could easily be solved (an absolute need or demand—meaning, every human needs to be housed). But what do you find everywhere in a very rich city like Seattle? No developments that come even near to satisfying this huge demand for the absolute need of housing. This fact should ring the alarm in your head. Why is it nearly impossible to build affordable homes? Is it market failure? Can the government intervene and just correct the market?
No, the market simply can't do it—make homes for the people. Why? Because it's a system that's geared not for absolute needs, but relative ones, or, put another way, marginal differences, or, put in another way, what Jean Baudrillard called "inessential differences" in his first book, 1967's System of the Object.
The fact is that at the level of the industrial object and its technological coherence the demand for personalization can be met only in inessentials. The sole way to personalize cars is for the manufacturer to take a serially produced chassis, a serially produced engine, then change a few external characteristics or add a couple of accessory features. A car cannot be personalized in its essence as a technical object, but only in its inessential aspects.
It's not that you need a car (to begin with), or even a red car, or even a car with warming seats. It is that these inessentials can be endlessly added to cars, which makes them ideal for capitalism. What can you add to a bus or a train? Not that much. The potential for the marginal differences presented by shared forms of transportation is severely limited. No one cares that much that a subway train is red or black or green. The essence of mass transit (absolute need) is easily met if given the chance: getting from point A to point B safely.
When AOC and other social democrats call for increased distribution of surplus wealth or a New Green Deal, they must not assume that the flaws in and waste generated by capitalism can somehow be brought to an end with the application of reason (something Keynes believed and promoted in his general theory). A completely different system is needed for problems at the social and world-historical scale: universal housing, universal health care, mass transportation, and the maintenance and protection of vital ecosystems.