The Choices We Face

The ideology that orients the current right-wing offensive is in many ways a ghost of the 1920s: antistatist, emphasizing the hegemony of the entrepreneur, portraying popular consumption as inimical to national interests, and based on the belief in the rationality of the market and in the autonomous importance of money. Yet what is new in this ideology is the dominant role played by technical economic theory. In the 1920s, deflationary policies and the principles of the gold standard and of balanced budgets were justified as an accumulated wisdom derived from experience. The only abstract basis for these principles was the quantity theory of money. The ideological appeal was couched in terms of popular values, such as thrift, responsibility, and common sense. The spokesmen for this ideology were typically officials of the Treasury and the bankers. In the 1970s, in contrast, the justification is derived from seemingly technical theories: “monetarism,” “la nouvelle économie,” and “rational expectations” are all being offered as scientific reasons why everyone will be better off if the state withdraws from the economy and capitalists are allowed to accumulate without distributional considerations. Even the most naked program for an upward distribution of income – Reagan's economic policy – is masked as a “supply-side theory,” with a concocted Laffer curve as its main theoretical mainstay.

It was Keynes who transformed macro-economics from a frame of mind into a theory: a deductive method for analyzing the determinants of national income and for evaluating alternative policies.