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On Economics And Democracy

High unemployment is extremely dangerous.

In many respects the Democratic Party of 1931 is similar to the Republican Party of 2021. Today’s Democrats spend a lot of time pointing out that Republicans have become hostile to democracy and can’t get a majority behind their lunatic view of the world. That’s true. But they probably could if they changed their economic agenda. If Democrats do not get there first, they will lose much of what is left of the existing Democratic coalition.

The rejection of elite-favored laissez-faire in favor of a widely popular agenda focused on the interests of working people can meaningfully be labeled populism. But populism in this sense needs to be distinguished from the anti-intellectualism and xenophobia that is also frequently associated with the term.

FDR was not a cheap demagogue throwing red meat to the masses that he knew would be counterproductive. He was not an economist or a political theorist, but he was smart enough to recognize that the policy program that had spawned The Great Depression was probably not all it was cracked up to be. And he surrounded himself with a very famous Brain Trust – a coterie of intellectuals who had different, but in many ways related theories of why and how the Depression had happened.

Early on, FDR impressed a particular British economist named John Maynard Keynes, who admired both FDR’s spirit of experimentation and his insistence that defeating the Depression was about more than economic data. Keynes and Roosevelt believed that the Great Depression had put democracy itself on trial, and both were almost desperate to vindicate it.

They did. After Keynes published The General Theory of Employment, Interest and Money in 1936, his ideas became an unofficial philosophy for the New Deal, espoused by top FDR confidants at the Federal Reserve, Treasury and the White House itself. This set of ideas included, of course, Keynes’ famous theory that government deficit spending is the only reliable way to end a recession, but it also included much more.

The Keynesian economic paradigm was built on the belief that financial markets are not a natural state of human affairs, but rather something created by the state that must be maintained and regulated to function at all. Keynes also emphasized that the problems economists were accustomed to dealing with were essentially problems of efficiency and scarcity – how to make more with less. But these were not the pressing economic issues of the day. The Depression wasn’t caused by a shortage of food or a sudden burst of laziness among American workers. It was caused instead by the market’s inability to sustain public demand for the products the market produced. Keynes was willing to pay attention to what was actually happening in the economy and acknowledge when it didn’t fit with tidy textbook theories.