Chomsky on Keynes

Dear Noam Chomsky

I would like to ask you about the different economical theories of post-war world. You have said that there has not been capitalist states after the 1930's, only state-capitalist societies. But still nowadays the keynesian macro-economical theories are not popular anymore. For example a marxist writer Adam Przeworski has said that the left cannot trust anymore to keynesian theories. Still you think that the economies of the developed capitalist societies can survive only on state-intervention, for example with military-keynesianism. Are you a keynesian on economics (I mean what you call short term goals) and how can you justify this ? Are you in principle for a statist form of socialism (again in short term) and does keynesian and similar theories represent these ideas ? What do you have to say to socialists or social democrats who do not trust these theories anymore ?

Reply from NC,

My own view, which I've discussed a fair amount in print, is that there were also no capitalist societies in anything like a useful sense of the word pre-1930; rather, a number of varieties of state capitalist societies. In the modern world, from Britain, to the US, to the other "developed" societies, state intervention has played a major role from the outset. There are flirtations with markets, but for temporary advantage, for the most part.

I think people are very wise not to "trust" Keynesian theories, or any others. Rather, they should evaluate them. If they do, I think they will discover that the international economy is only "dimly understood" (as Harvard's Jeffrey Sachs observed recently), and that we should approach its properties "with humility" (to borrow from the Bank for International Settlements -- sometimes called "the central bank of central bankers," the ultimate in "respectability"). Particularly with regard to financial markets, a dominant force in the contemporary world, understanding is very thin, and models change very fast. An illuminating recent study is Robert Blecker's "Taming Global Finance." On such crucial matters as the factors in economic growth, have a look, say, at the recent comments of Robert Solow, who won a Nobel Prize for his pioneering work on this topic, in the current issue of "Challenge," a good economics journal -- one of several assessments of the state of the art by leading economists. His conclusion, reasonable to my knowledge, is that little is understood. On Keynesian views vs. current orthodoxies with regard to financial markets and their behavior, there are (in my view) outstanding papers by David Felix, who argues (pretty persuasively I think) that they Keynesian assumptions are much better supported by the empirical data of the last quarter-century of financial liberalization.

I don't think that "military Keynesianism" is a necessary component of developed state capitalist societies, though it has been a major component for several centuries, dramatically so in the past half-century. The reasons, in part, are not economic: rather, that's the easiest way to disguise from the public the fact that costs are being socialized while profits are privatized. Truman's Air Force Secretary Stuart Symington put the matter rather accurately, when he said that the word we should use is "security," not "subsidy." Computers, the internet, and info. tech. generally are illustrative current examples. But other methods can be used as well. The biotech. industries, for example, are publicly subsidized by other devices ("a war on cancer," etc.). On the side, whether these ways of using public funds are a good idea or a bad idea is a different topic: the question here is who decides.

What do I prefer in the short term? There's no way to answer that in general. Depends what you have in mind. Are you thinking, say, of Social Security (keeping it as is, making it less regressive, privatizing it?). If those are the choices, I'd take the first over the third, and the second over the first. Some other question? Then we have to know what it is. On "principle," I think state socialism and state capitalism are rotten systems at the core, and that it's not necessary to wait for "the long run" to work on dismantling them in favor of preferable alternatives.

Noam Chomsky

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