Skip to content

Janet Yellen’s Keynesian Recipe: Interventionism and Increasing National Debt

Janet Yellen

Leer en Español

[Leer en español]

There are so many misrepresentations about the success of the theories of Marx and John Maynard Keynes that it would be hard to say which is the most absurd. However, an oft-repeated fallacy is the idea that economic crises occur as a result of a fall in the profitability of investments, caused by the excessive accumulation of capital and wealth in a few hands and insufficient demand from buyers.

This is the old lie of consumption that both Marx and his disciple Keynes wielded to analyze the cycles of the capitalist market society and justify state interventionism in the economy.

What is the new crisis invented by the Democrats? COVID-19. The perfect alibi for Biden -and the circle of power that moves around Obama and the Clintons- to appoint Janet Yellen as head of the U.S. Treasury, a dazzled supporter of Keynesianism.

The appointment comes as a surprise to no one. At the height of the influence of Marxist theories to achieve precarious balances between the inflation rate and the unemployment rate, Yellen was president of the Federal Reserve between 2014 and 2018, in the service of the Obama administration.

When in 1999, during a lecture at Yale University, Yellen asked the audience “Can capitalist economies operate at full employment in the absence of routine intervention?” her answer surprised no one: “Of course not.” A philosophy totally at odds with that of the Chicago school.

Obviously, Yellen’s prescription passes inexorably through public intervention which, in her opinion, is the only possible way to pull a country out of a severe economic recession.

To justify this intervention, Democratic economists invariably use the same story: the economic crash of 1929, followed by the most catastrophic depression in U.S. history, was due to a stock market failure that led to massive unemployment, second only to Roosevelt’s New Deal policies.

But the reality was quite different. Only in the mid-1930s did the unemployment rate fall from 9% to 6.3% with the first major federal intervention under Hoover. Thereafter, both Hoover and Roosevelt, contrary to the opinion of many economists, intervened in the economy on an unprecedented and widespread scale.

New New Deal with more debt

The cure was worse than the disease. Throughout the 1930s, the number of unemployed reached record highs. Even in 1932, the United States recorded the largest drop in GDP at 27% year-on-year with a 50% decline in industrial production. Under this frightening scenario, unemployment reached 25% in 1933.

Before the Great Depression, no American government had claimed the role of pulling the economy out of a crisis with interventionist policies. In fact, in 1921, President Warren G. Harding opted to reduce public spending to correct an annual unemployment rate of 11.7%.

Is the Biden administration looking to repeat a new New Deal?

Everything seems to indicate that it is. To justify it, Janet Yellen will turn to her favorite intellectual mentors. Marx, an expert in social dramatization, warned how economic depression in Capitalism only generates the pauperization of the masses and an army of unemployed workers. For his part, Keynes went further by asserting that recessions become a permanent state from which the market is unable to extricate itself. The solution for both lay in the interventionist machine of the Nanny State to control the lives of citizens.

Totalitarian do-gooderism repeats itself. Yellen hopes to solve the debt crisis with more public debt. The figures do not lie. The Biden administration in just 100 days has already approved a stimulus package worth 1.9 trillion dollars within a gigantic spending program that represents a cumulative bill for the next generations of 108.68 % of GDP (2019 data), which places the country at the level of indebted economies such as Greece, Italy and Japan.

In line with the extremist sector of the left, Yellen believes that only with public stimuli, the United States could revive the economy. The Treasury Secretary’s argumentation is far from executive solvency. Her explanation is that more short-term borrowing is needed for economic revival, even without precise plans for repayment.

Yellen is confident that interest rates will remain low for the foreseeable future, providing room to finance borrowing in a more feasible way. But should inflation and unemployment rise, Yellen’s argument could fall on its own. Something that is not too difficult to happen as a result of the contraction of the economy in states like New York and California due to the arbitrary shutdown of economic activity during COVID-19.

The pocket at the service of ideology

Perhaps in other times, when government debt was not so out of control, recklessness would not be so relevant. But this is not the case now. For some leading economists, the one-off debt overhang is not a problem; the main thing is getting Americans back to work amidst all the public subsidy and health confinement.

In reality, what the American public fears is that politicians will use the COVID-19 crisis as a pretext to intervene in the economy, managing all kinds of businesses with a magnifying glass and redistributing income according to the dictates of advisors like Bernie Sanders and Ocasio Cortez, to whom Biden owes half the Oval Office seat.

Can government spending really improve the state of the economy in a situation like the current one?

Of course not. The increase in public debt means more taxes for families and businesses, greater difficulty in refinancing short-term burdens, a decrease in investor savings and a considerable decrease in capital available for investment, which could divert part of the capital that can finance short-term operations (inventories, commercial operations) through the issuance of commercial paper.

One of the things that incites the left to raise the specter of recession is to justify any interventionist operation of the Biden administration in the economy.

Therefore, investors and businessmen have every reason to be concerned about possible future tax hikes, presumably predictable economic regulations, or nationalizations (disguised as bailouts) and preferential public aid in states governed by Democrats.

Yanet Yellen’s totalitarian utopia at the helm of the Treasury is a recycling of the kind of New Deal policy and rhetoric that perpetuated the Great Depression to this day with more state interventionism, more degeneration of unions to party ideology, and more government spending pacting with captive pocketbooks.

The time has come for people to ask themselves why it is necessary to accept these fallacies, if we all have to pay for them with our salaries or by pawning the future welfare of our children.

Juan Carlos Sánchez, journalist and writer. His columns are published in different newspapers in Spain and the United States. He is the author of several books and is preparing the essay "Nación y libertad en el pensamiento económico del Conde Pozos Dulces" // Juan Carlos es periodista y escritor. Sus columnas se publican en diferentes diarios de España y EE.UU. Autor de varios libros, tiene en preparación la obra de ensayo “Nación y libertad en el pensamiento económico del Conde Pozos Dulces”

Leave a Reply