The new business cycle
- this new prolonged
expansion attributed to either the new monetarism or Reaganomics
- can be more understood in terms of Keynes. John
Maynard Keynes was
a British big guy - they dub 'Sir' - who in the Great Depression
era proposed that a nation-state, which controls the production
of money anyhow, could borrow up the kazoo and spend it in ways
that would get businessmen off their tuffs and their machines
cranked up and people back at work and everybody would be happy
again. At that time, though, it took Hitler to get politicians
off their tuffs first. This time around it took Ronald
Reagan.
Reagan himself,
of course, praised 'supply-siders' - it would be investors who
led the expansion, he promised. But investors themselves relied
on a large federal deficit and low interest rates to create a
huge sum of money to invest. As long as wages are kept down,
and it isn't taxed, most of it remains as profit to be reinvested
again and again at a feverish pitch, raising - as we have witnessed
- a lot of bull in the stock markets.
Theoretically,
Keynes is quite right. If one conceives of a national - or, presently,
a global - economy as a vast economic machine, like a table saw
or tractor, it is quite logical to borrow to buy that machine
provided it can produce enough money to pay back its loan and
hopefully make a little extra. In this same way, a
huge federal deficit feeding a rising stock market creates
more taxable revenue which, even at reduced tax rates, can pay
off that debt and maybe earn a little extra. But, as with the
table saw or tractor, a prudent businessman would hope to do
so before it is junk. This is where the notion of business cycle
is so important.
We have, as a
nation-state, reached the level in this economic expansion -
this business cycle - that we no longer have to borrow to charge
it up. On the basis of these higher earnings, the President and
the collective Congress are able to put forth annual budgets
which are approaching some balance - but we have yet to reach
a point where we begin to pay it off. The critical factor in
this grand enterprise is its duration, after which we again have
to borrow to 'prime the pump.' Being so heavily invested in automobiles
and warheads, we should consider this cycle not, as is the basis
of election year strategists, as lasting 5 - 20 years, but consider,
as did the Nathan Forrester model, in terms of century
or two.
Many commentators
today have taken to speaking of the business cycle as if it had
its own life of its own, like a god or demon. But in fact it
is a composite of many factors - technology, which is to say
a particular mix of capital and labor, geopolitical stability
or lack thereof, and environmental
constraints. An ill or illiterate population, for example,
would likely have an affect on economic production, as would
a polar meltdown.