The Keynesian moment passes

Rick Kuhn
CHECK OUT ESSAYS IN Jonathan P. Goldstein and Michael G. Hillard (eds) Heterodox Macroeconomics: Keynes, Marx and globalization I have PDF; Lapavitsas on money in Saad-Filho Anticapitalism I have PDF The illusion that the global financial crisis opened a new era of social democratic possibilities, with state intervention to tame capitalism and promote fairness, is dissolving. Nobel Prize winning economist Paul Krugman wrote about The Keynesian moment in 2008. Keyness ideas had dominated the economics profession until the 1970s when it became clear they had failed to predict, prevent or solve the slump that ended the long post-war boom. Krugman now gloated that in the long run, it turns out, Keynes is anything but dead.1 Joseph Stiglitz, another Nobel recipient, observed that the revival of Keynesianism, [a]t one level, is a triumph of reason and evidence over ideology and interests.2 In February 2009, then Prime Minister Kevin Rudd wrote that it now falls to social democracy to prevent liberal capitalism from cannibalising itself. In contrast to the neo-liberal policies that led to the economic crisis, he argued that a new era was opening, drawing on Keynesian economics and social democratic traditions, a system of open markets, unambiguously regulated by an activist state, and one in which the state intervenes to reduce the greater inequalities that competitive markets will inevitably generate.3 In his first parliamentary speech as Labor leader, in 2006 Kevin Rudd had made a similar point We have always seen our role as what we can do to civilise the market. That is where we come from as a tradition.Why do you think Keynes and the rest of them were called upon to try to save market capitalism from itself after the Great Depression? Because social democrats believed that you had to have constraints placed around the market, otherwise it becomes too destructive indeed. So, when it comes to our Labor values of equity, sustainability and compassion, we do not just believe that these in themselves are self-evident and worthy of being pursued; we also hold that they are values necessary to enhance the market itself.4 In an unguarded moment during his 2008 election campaign for the presidency of the United States, Barack Obama even said I think when you spread the wealth around, its good for everybody.5 Keynesian fiscal policy was apparently vindicated as governments started to boost spending and expand their budget deficits to overcome the global financial crisis. Huge sums were spent on bailouts for failing banks. Stiglitz presciently warned of the danger that the new Keynesian doctrines
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Paul Krugman, The Keynesian moment, New York times, 29 November 2008, http://krugman.blogs.nytimes.com/2008/11/29/the-keynesian-moment, accessed on 25 May 2011. Joseph E. Stiglitz The triumphant return of John Maynard Keynes, Project syndicate, 5 December 2008, http://www.project-syndicate.org/commentary/stiglitz107/English, accessed on 25 May 2011 Kevin Rudd, The global financial crisis, The monthly, February 2009, p. 25, 29. Kevin Rudd Commonwealth of Australia, Parliamentary Debates, House of Representatives, Hansard, 5 December 2006, p. 43, www.aph.gov.au/Hansard/reps/dailys/dr051206.pdf, accessed 1 February 2009. Charles Hurt Obama fires Robin Hood warning shot New York post 15 October 2008, p. 6 http://nyp.st/jd9mnH, accessed on 24 May 2011.

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will be used and abused to serve the interests of firms operating in financial markets, which had already benefited from neo-liberal deregulation.6 In Iceland, Britain, Ireland and, in practice, the USA, this included nationalisations. In his very useful Zombie economics John Quiggin in 2010 observed that the global financial crisis forced policy makers to relearn the basic lessons of Keynesian economics. Economies can collapse to a point where only large-scale monetary expansion and fiscal stimulus can revive them. He also detected a shift towards policies that promoted a more even distribution of wealth and income. His implausible evidence for this shift was a 2004 statement by John Howard in Australia, the British Labour Governments taxation and spending policies whose result was to slow, though not to reverse, the rapid growth of inequality, George Bush the lessers subsidy for prescription medicines and President Barack Obamas 2010 health care reforms.7 The Keynesian logic behind increases in public spending in rich countries was that the financial crisis had led to collapses in both individual expenditure and business investment. The financial system was in a mess, no-one wanted to lend to anyone else because it was unclear who held how many assets, especially real estate derivatives, which might turn to vapour and bankrupt their owners. Market interest rates went up, businesses could not borrow to invest and, in any case were reluctant to expand or update their machinery, equipment and buildings for fear that they wouldnt be able to sell their products. As unemployment rose, consumers were fearful about their future and cut back on their purchases too. Many governments borrowed or expanded the money supply not only to prop up banks but also to boost demand. So they subsidised increased household consumption by giving away money, through direct payments (including tax rebates), tax cuts, and rebates on purchases, for example of home insulation in Australia and fuel-efficient carscash for clunkersin the USA and Germany. They funded construction of school buildings, roads and other infrastructure. An aspect of many stimulus packages was some redistribution of income from the rich to the less well off, who were more likely to spend rather than save the extra money. But this was not their main purpose. By racking up large budget deficits to sustain demand, governments wanted to create a safety net for profits, plummeting because of chaos in the financial system. Of course those who got the cash benefited, though the point of the exercise was that the producers of the goods they bought and the retailers who sold them did too. At least initially, social democratic politiciansprime ministers Kevin Rudd, Gordon Brown in Britain, Jos Luis Rodrguez Zapatero in Spain and George Papandreou in Greecefavoured Keynesian measures. The actions of conservative governments were no less Keynesian. The George Bush initiated stimulus spending in the United States, that coupled payouts to low income earners with tax cuts for the rich and a variety of other measures. Germanys stimulus spending was also very substantial and emphasised tax cuts, although it included subsidies for workers whose hours have been reduced. Chinas rulers, conservative despite their communist label, dramatically increased public spending. They could draw on revenues accumulated during many years of rapid growth and were even more fearful than liberal democratic governments about the consequences if growth slowed much and unemployment rose: uprisings rather than just electoral defeats. In the short term, the Keynesian approach had some success, in countries which could afford it.

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Stiglitz The triumphant return of John Maynard Keynes. John Quiggin Zombie economics: how dead ideas still walk among us, Princeton University Press, Princeton 201, pp. 33, 169-170.

The Keynesian moment passes

The inability of Keynesian economics to explain the implementation of Keynesian policies

There is no connection link between Keynesian economic management and the promotion of greater equality. For social democrats like Rudd and Quiggin and liberals like Obama, both may be desirable but one does not necessarily entail the other. And, when it comes to the crunch Keynesian policies to save capitalism trump more equal distribution of wealth and income, let alone eliminating the class differences between bosses and workers that grow out of power relations at work. There is a missing link, profitability, that fundamentally connects them. But they are neither positively nor negatively correlated. The underlying cause of the economic crisis is neither movements in effective demand nor unbridled financial frenzies, though these have been important symptoms. It is declining profit rates. As the value of machinery and equipment grows, compared to outlays on employing workers who create new wealth, there is a long term tendency for the rate of profit to fall. This tendency can be offset in various ways. Companies can squeeze more work out of employees or gain access to cheaper raw materials and other inputs. Businesses that have bought assets at a discount during an economic crisis can achieve a higher rate of profit than the previous, but now bankrupt, owners of the very same productive resources. Governments can reduce taxes on profits in the form of the revenue of corporations or wealthy individuals. An individual firm can boost its own profits by investing in new, more efficient technologies than its rivals use, although this also reduces profit rates across the industry. Low profit rates in productive enterprises led to a spectacular rise in the financial gambling that creates no new value and simply redistributes wealth to those who are lucky or who have inside knowledge. This speculation gave rise to the Global Financial Crisis. It was intensified, but not caused, by the lax regulation of banks, hedge funds and other enterprises that have no interest in the creation of real, let alone useful, commodities. They traded and still trade in exotic securities, like credit default swaps and collateralised debt obligations, as well as currencies and vital commodities, like oil, food and minerals, leading to wild fluctuations in prices.8 From a Marxist perspective, the aspects of stimulus spending during the crisis that redistributed income from the top down was a minor refund of surplus value back to workers, as a quick way of saving some sectors of capital and making chains of corporate collapses less likely. In the longer term it is counterproductive from the point of view of the capitalist class as a whole. So these measures were not ongoing. What is more, policies justified as neo-liberal liberation of markets, especially labour markets, could be very favourable for capital. They boosted profits. Attacking trade unions and workers ability to organise made increases in the rate of exploitation possible. Reducing the public sector and making and reduced the drain on private sector profits represented by taxes on corporations and the rich that help fund public health, education and welfare spending.

Chris Harman The slump of the 1930s and the crisis today International socialism, 121, 2009, http://bit.ly/jxJTnd, accessed on 25 May 2011; Chris Harman Zombie economics: global crisis and the reklevance of Marx, Bookmarks, 2010; Andrew Kliman A crisis of capitalism (not neoliberalism, financialized capitalism, or low wages) paper prepared for The economic crisis and left responses conference Pace University, New York City, 6 November, 2010, http://bit.ly/jptO9m, accessed on 25 May 2011; Andrew Kliman The Persistent Fall in Profitability Underlying the Current Crisis: New Temporalist Evidence Marxist Humanist Initiative, New York, 2010; David McNally Global slump: the economics and politics of crisis and resistance PM Press, Los Angeles 2010.

Political Economy Department Seminar Paper 30 May 2011

Hence the debates over the balance of economic policy among rival defenders of the capitalist order, from the outset of the global financial crisis. Some gave greater weight to short-term measures to prop up effective demand and failing banks. Others emphasised attacks on wages and public spending. Some conservativesChancellor Angela Merkel in Germany, the French President Nicolas Sarkozy, and Australian opposition leader Tony Abbott (with the advantage of being in opposition) were early, strong advocates of austerity and reverted to neo-liberal ideology to justify their positions. Merkel, soon presiding over a strong German economic recovery and concerned to maintain its competitive edge put together a tough savings package in 2010. She opposed stimulus spending by weaker countries in the European Union, which would be underwritten by Germany. In fact, she and, in a hyena chorus, the German ruling class demanded austerity in the weaker economies so that they could honour their massive debts, a large proportion of them to German financial institutions. Continuing economic stagnation prompted returns to neo-liberal policies in several countries. Out of favour with public and private international financial institutions, the Greek Socialist government, the Irish coalition led by the nationalist conservatives of Fianna Fil and including the Greens succeeded by the harder right Fine Gail; the Socialist governments in Portugal (until March 2011) and Spain simply could no longer afford to prop up economic activity through public spending. While the choice is between the conservative right and the social democratic left, the case of Ireland suggests that changes in governments are likely to lead to relatively seamless continuity in economic policy. Large private lenders, the IMF and European Central Bank (behind which stood the German and French governments) have demanded austerity. With unemployment already skyrocketing, the governments of these economically weak countries would not get funding or guarantees for further loans to roll over public debt unless they slashed public spending. The British economy was not in such bad shape, even though it had been badly wounded by financial crisis because so much speculative activity was undertaken by institutions based in the City of London. But the Gordon Browns Labour Government had signalled the need for severe cuts. Then the victory of the Tory-Liberal Coalition of David Cameron and Nick Clegg, in March 2011, marked a very sharp shift to harsh austerity measures. ElsewhereAustralia, Germany and the USAimprovements in growth rates opened the way to neo-liberal policies. In Australia, prime minister Julia Gillard and treasurer Wayne Swan made deficit reduction a matter of honour and electoral credibility. While promising to cut the corporate tax rate they are holding down government spending and imposing new penalties on the unemployed, single mothers and other recipients of welfare benefits. Obamas 2011 State of the Union address was a further step in his migration to neo-liberal policies, designed to raise profits at workers expense. He had already extended Bushs tax cuts for the rich and announced a two year freeze on federal public servants salaries. In a bid for partnership with the Republicans who have won control of Congress, he now wanted to lower the corporate tax rate for the first time in 25 yearswithout adding to our deficit, while committing to hold discretionary spending steady for five years, that is to reduce it in real terms, and foreshadowing cuts in health and welfare outlays too.9 His subsequent budget proposals included cuts in welfare and health spending.10 That the Republicans want even deeper cuts is not a
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Barack Obama State of the Union Address, 25 January 2011 http://www.whitehouse.gov/the-pressoffice/2011/01/25/remarks-president-state-union-address, accessed on 25 May 2011. Robert Greenstein Statement: Robert Greenstein on President Obama's Deficit-Reduction Plan, Centre on Budget Policies and Priorities, 13 April 2011, http://www.cbpp.org/cms/index.cfm?fa=view&id=3469, accessed on 25 May 2011.

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The Keynesian moment passes

justification for measures designed to redistribute income upwards. Meanwhile US State governments, Republican and Democratic are clear-felling many of their outlays, targetting public servants pay, conditions and union rights, in particular. The trajectory of the chainsaw has not shifted in the transition from Republican Arne Schwartzengeger to his successor as governor of California Jerry Brown.11 The social democrat Gillard and the liberal Obama have intoned the same dirge about budget deficits as the conservative Merkel, Sarkozy and Abbott, and the gnomes of the Australian Reserve Bank, European Central Bank and International Monetary Fund. So the boundary between neoliberalism and Keynesianism is no Israeli apartheid wall. And it certainly does not pass between the likes of Julia Gillard and Wayne Swan.12 Keynesian arguments or, as Farrell and Quiggin prefer to put itdemonstrating their macho credentials in competition with neo-liberalshard Keynesianism, can be deployed to justify precisely the same kinds attacks that conservatives prefer to rationalise in neo-liberal terms: The larger the deficits governments want to run during [crises], the larger the surpluses they must run in booms.13 Krugman recently argued that at least some wage cuts are necessary in the indebted European periphery to rebalance the Eurozone, if the Euro is to survive. He believes that, contrary to the policies of the European Central Bank, most of the rebalancing should be through inflation in the strong economies rather than deflation in the weak.14 But he doesnt understand exploitation let alone how imperialism works.15 The rulers of powerful states (in and outside Europe) are imposing solutions to their problems at the expense of the working class at home and abroad, and, to some extent, the rulers of less powerful states. The extraction surplus value has to be increased; claims on flows of surplus value from abroad, in the form of bond holdings, have to be respected; and robust corporations, mainly based in and backed by powerful states, should be able to wrest control of public assets that are accumulated surplus value, from weaker states which serve the interests of more fragile peripheral capitalists. Since 2010, the Rudd and particularly the Gillard Governments have made the Keynesian case for cruel cuts in their budgets. Their treasurer, Swan has spelt it out: once growth and prosperity have been restored, [governments] have an equal responsibility to restrain public expenditure, budget for surpluses and reduce debt16 This reflects the consensus within the ruling class that its time for belt tightening (for us, not them). The only points of debate are how many notches and how quickly. The government responded to their demands by declaring that the public sector will take in more
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Shane Goldmacher, In major cuts, Gov. Jerry Brown slashes services for poor, sick and elderly, Los Angeles times, 25 March 2011, http://articles.latimes.com/2011/mar/25/local/la-me-state-budget-20110325, accessed 21 May 2011; Michael Leachman, Erica Williams and Nicholas Johnson Governors are proposing further deep cuts in services, likely harming their economies, Centre on Budget Policies and Priorities, 21 March 2011, http://www.cbpp.org/cms/index.cfm?fa=view&id=3389, accessed on 25 May 2011. Cf the distinction I wanted to make between Gillard (total embrace of neoliberalism) and Swan (Keynesian but not Keynesian enough), John Quiggin Labors conservative tilt 15 April 2011, http://johnquiggin.com/2011/04/15/labors-conservative-tilt, accessed on 25 May 2011. Henry Farrell and John Quiggin, How to save the Euro-and the EU: reading Keynes in Brussels, Foreign affairs 90 (3), May/Jun 2011, pp. 96-103; John Quiggin Some propositions for chartalists, John Quiggin, 9 May 2011, http://johnquiggin.com/2011/05/09/some-propositions-for-chartalists-wonkish, accessed on 24 May 2011; Quiggin refers to the enforced austerity of any recovery period, Zombie economics p. 169. Paul Krugman Why people say eeh! when they learn about the ECB, New York times, 8 April 2011, http://krugman.blogs.nytimes.com/2011/04/08/why-people-say-eeh-when-they-learn-about-the-ecb, accessed on 24 May 2011. Paul Krugman Why arent we all Keynesians yet? Fortune, 17 August 1998, accessed at http://money.cnn.com/magazines/fortune/fortune_archive/1998/08/17/247057/index.htm, on 24 May 2011 Wayne Swan, Keynesians in the recovery, Australian Fabian Essay, April 2011, http://bit.ly/jyGCzr, accessed on 25 May 2011.

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money than it spends. No surprise that Swans essay Keynesians in the recovery contained no mention of equality. Labor has held fast to its promises, made while Rudd was leader, to make the personal income tax system less progressive and to cut the corporate tax rate. Tax lawyer John Passaint highlighted the opportunity for the government to increase the tax on the mining companies obscene profitsbut it wimped out. Labor could have gone after the $58 million profit BHP turns every day, clamped down on tax avoidance, or cut corporate tax deductions and exemptions. Instead it has watered down Kevin Rudds far from revolutionary Resource Super Profits Tax into the pathetic Minerals Resource Rent Tax and eliminated a tax deduction for students on Youth Allowance.17 In this respect the ALP Governments behaviour has matched Merkels. The recent experience of the cycle of Labor Keynesianism has Australian precedents going back a long way. In 1937, the testimony of W. Brian Reddaway, a star pupil of Keynes, in favour of a pay rise during the Arbitration Courts basic wage hearings in, seemed to confirm the value of Keynesian economics to the labour movement. During World War II and the second half of the 1940s, the Chifley Government held down wages in the name of this self-same framework.18 Theres more than one way to achieve a budget surplus. Tim Battin, a particularly left Keynesian, has pointed out, expenditures could be maintained or expanded, if there was a compensating increase in revenue, especially from taxation.19 In the same spirit, Stiglitz has reminded us that the bulk of the increased public debt around the world resulting from the crisis is not due to the stimulus but to the downturns and the bank bailouts.20 But his arguments that left Keynesian policies are in the interests of all but a small group of financial speculators wont persuade governments committed to the interests of the much wider layer of capitalists. Macro-economic policy is not a technical question, perhaps complicated by sectional interests that undermine the common good, but one of class power and the extraction and distribution of surplus value.21 As Hugo Radice has put it the real reason for the attacks on state borrowing and state expenditure lies not in economics, but in politics, or more specifically in class warfare.22 Only practical resistance on the streets and in workplaces has a chance of rolling back the strategy of austerity, countering class war from about with class war from below. Keynes, Krugman and Rudd have been absolutely explicit in their rejection of such a perspective and their support for capitalism. Keynes addressed the issue in 1925

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See John Passant Economic rent is ripe for tax Australian financial review, 12 January 2011, p. 46; Johnn Passant Cut spending on business, not us, En Passant, 12 April 2011, http://enpassant.com.au/?p=9946, accessed on 26 May 2011. Alex Millmow, W. Brian ReddawayKeynes emissary to Australia, 19132002, Economic record, 79 (244), March 2003, pp. 1368; Rick Kuhn, Paradise on the installment plan: the economic thought of the Australian labour movement between the Depression and the long boom, PhD thesis, Sydney University, Sydney, 1985, pp. 12251. Tim Battin, Why Wayne and Julia are hooked on deficit fetishism, The conversation, 5 May 2011, http://theconversation.edu.au/articles/why-wayne-and-julia-are-hooked-on-deficit-fetishism-1562, accessed on 25 May 2011. Joseph Stiglitz, To choose austerity is to bet it all on the confidence fairy, Guardian, 19 October 2010, http://www.guardian.co.uk/commentisfree/cifamerica/2010/oct/19/no-confidence-fairy-for-austerity-britain, accessed on 26 May 2011. Also see Joseph E. Stiglitz, Principles and Guidelines for Deficit Reduction, The Roosevelt Institute Working Paper 6, 2 December 2010, http://bit.ly/l5yRts, accessed on 26 May 2011 Farrell and Quiggin How to save the Euro-and the EU. The critique of neo-Ricardian approaches to economic policy by Ken Cole, John Cameron and Chris Edwards also applies to many Keynesians, Why economists disagree: the political economy of economics, Longman, London 1983, pp. . Hugo Radice, Cutting government deficits: Economic science or class war?, Capital & class, 35 (1), 2010, pp. 132.

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Ought I, then, to join the Labour Party? Superficially that is more attractive. But looked at closer, there are great difficulties. To begin with, it is a class party, and the class is not my class. If I am going to pursue sectional interests at all, I shall pursue my own. When it comes to the class struggle as such, my local and personal patriotisms, like those of every one else, except certain unpleasant zealous ones, are attached to my own surroundings. I can be influenced by what seems to me to be justice and good sense; but the class war will find me on the side of the educated bourgeoisie.23 According to Krugman By my reckoning, Karl Marx made about as much of a contribution to economics as Zeppo Marx made to comedy. Or as John Maynard Keynes more elegantly put it, Marxian Socialism must always remain a portent to the historians of Opinionhow a doctrine so illogical and so dull can have exercised so powerful and enduring an influence over the minds of men, and through them, the events of history.24 The preface to Kevin Rudds reasurance to big business about Labors civilising mission, when he took over as Labor leader, quoted above was Our movement for a century fought against Marxism, if you bother to read your history. We have had nothing to do with Marxism and madness.

Austerity in Australia?
Growth in the Australian economy is currently 2.7 per cent a year and is predicted to be 4 per cent next financial year. The greatest mining boom in Australian history is delivering hundreds of billions of dollars in profit to multinational mining firms ($10.6 billion to BHP alone in the first half of this financial year). Corporate profit as a share of GDP is at historic highs. The country has a record number of billionaires and multi-millionaires sharing the spoils of the boom. Around three quarters of a million people still cant find work. About ten per cent of the labour force are unemployed, employees who want more hours or jobless people who are not on unemployment benefits but want a job. According to the Department of Education, Employment and Workplace Relations, the total number of advertised vacancies across the country was only 240,000 in March. Nevertheless the proportion of the working-age population in paid employment is the highest in over 30 years and headline unemployment is figure was relatively low in April 2011, less than 5 per cent. Given the impressive performance of the Australian economy, the cuts in the recent budget are rather modest compared with Gillard Government rhetoric about tough economic policies and boasting about cuts in public spending to achieve a budget surplus. If the analysis in previous sections is right, why wasnt the 2011 Australian budget much harsher? The budget included the brave step of forcing unemployed young people who live on a measly $34 dollars a day into work, training or off benefits and comparable measures for teenage mothers, disability support pensioners, and the long term unemployed. Humiliating work tests and interviews with overworked case officers will force people to experience the dignity of work in low paid, menial jobs in dictatorial workplaces. Income management will also be expanded to the poorest suburbs across the country, and the age at which workers are eligible to receive the dole has been raised, following the Rudd governments increase in the pension age. Labor bumped up the efficiency dividend from 1.25 to 1.5 per cent of spending by public service departments and other agencies. This means arbitrary decreases in staffing and heavier workloads to squeeze more work out of public servants. Last year, safeguarding profits meant spending; this year
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John Maynard Keynes Am I a Liberal in Essays in Persuasion, Macmillan, London, 1931 [1925], p. 324 Paul Krugman Why arent we all Keynesians yet? Fortune, 17 August 1998, accessed at http://money.cnn.com/magazines/fortune/fortune_archive/1998/08/17/247057/index.htm, on 24 May 2011

Political Economy Department Seminar Paper 30 May 2011

it means restraint. Swan boasted that Labor will keep the real growth in government outlays down to an average of one per cent a year, well below the forecast rate of GDP growth.25 Yet Australian government outlays will actually grow. The modesty of the governments attacks is not due to any commitment to fairness or equity, let alone the working class. If these were its real concerns it would not be holding fast to John Howards industrial relations reforms and would be increasing taxes on the rich and corporate profits to fund better public services and higher welfare benefits. The impressive pace of growth has meant that there is less pressure to boost profits through urgent and fierce assaults on working class living standards, in the form of cuts in public services or wages. The ruling class is not yet demanding the savagery we see in parts of Europe and the US. The Australian economy is operating at two speeds: resources in fourth gear, most other sectors in second. Close to half the profits of Australias largest corporations were made by just four mining companies during the six months to the end of 2010. At that time, the mining sector produced only 9 per cent of Gross Domestic Product. But the appreciation of the Australian dollar due to the mining boom has undermined the competitiveness of other sectors. Hence conservative economist and stock market pundit Alan Kohlers concerns that the return to surplus might be too rapid.26 The budget is designed to give the mining giants whatever they need to make the highest returns possible. It also tentatively introduces austerity policies that shift even more income from workers to employers. This lays the basis for more extreme measures in the future if the rest of the economy outside the mining sector booms too or, more likely, if commodity indices tumble because Chinese growth falters. The minority Gillard government cant confidently adopt the standard tactics of the political budget cycle: cut in first budget after winning or retaining office, so there is more scope for spending closer to the next election. Already seriously behind in the polls, Labor does not want to make the situation worse in the hope of rebuilding popularity later, when the timing of the next election may not be in its hands. Further, after a series of broken promises, Labor cant afford another backflip. So returning the budget to surplus is now their Holy Grail. The government doesnt want to provoke the ruling class, already sour over the carbon tax, into mobilising for an early election because it is incapable of kicking a few heads in the good times. Headlines like Not tough enough and So little horror its scary, are reminders of this threat. By embracing the rhetoric about public debt and the importance of a budget surplus, the Gillard government has signalled the likelihood of more savage cuts in the future, either when the minerals bonanza ends or after the next election, whoever wins it. In Australia and across the developed world, governments are raising the age at which people are eligible for pensions, trying to cut public spending especially by reducing outlays on social security and targeting wages. This is occuring in countries with economies that are growing rapidly and in others which are stagnant. Across the planet, counter-cyclical spending to bail out banks and other financial institutions has dwarfed the short-term measures that boosted the incomes of workers and the poor. The Keynesian vision of macro-economic management and greater equality is evaporating.
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Wayne Swan, Budget speech 2011-12, 10 May 2011, http://www.budget.gov.au/201112/content/speech/html/speech.htm, accessed on 26 May 2011 Alan Kohler, Budget surplus promise has to go, The drum, 2 May 2011, http://www.abc.net.au/news/stories/2011/05/02/3204860.htm, accessed on 26 May 2011.

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Keynes is literally and metaphorically dead. John Quiggin argues that neo-liberal ideas are zombies, but they are animated by, in Chris Harmans words, zombie capitalism which will walk and spread misery under workers drive a stake through its heart. The Arab revolution has already brought down two of the ugliest defenders of zombie capitalism, in Tunisia and Egypt, and its demands that are not only democratic but also economic and social. The capacity of ordinary people for mass organisation and initiative demonstrated by the upsurges in the Arab world and beyond suggest the possibility of production that is not geared to profit-making and sustained by national or workplace dictatorships.