Politicians clamouring for cuts in public spending do not cite Chicago University economists. They talk about the need to restore “confidence in the markets”. The argument here is that deficits do positive harm by destroying business confidence. This collapse of confidence may come in several forms -- fear of higher taxes, fear of default, fear of inflation. Deficits thus delay the natural (and rapid) recovery of the economy. If markets have come to the view that deficits are harmful, they must be appeased, even if they are wrong. What market participants believe to be the case becomes the case, not because their beliefs are true, but because they act on their beliefs, true or false.
Any society that has contented itself to depend on business surely won't want to lose its confidence! Why, we do positive harm to ourselves by appearing as anything other than the most viable conduit through which money may be converted into its maximum yield. And these are the political arguments made by people who, unlike investors, will eventually face an electorate! The political class is more afraid of organized capital than an unorganized public, for the simple reason that organization confers power. This tells us what we need to know about "representative democracy," insofar as one class gets represented to the exclusion of all others!
Old man Skidelsky is very good to summarize the arguments presently in vogue. For example: it doesn't matter whether investor perceptions are correct, only that they have them. Markets "must be appeased, even if they are wrong." Because, when you get down to it, human history is the story of appeasing those who must be appeased, even if they are wrong. To depart from that narrative would be utopian!
Naturally, Skidelsky's hero in all of this is John Maynard Keynes, the economic technocrat who, in my uninformed opinion, was a narrowly intelligent dude who was also a product of his socialist-influenced times. Skidelsky likes him because the combined effect was to produce someone who was a not complete moron, who "stood out against the herd." Without even reading the remainder, one can conclude that what the world needs now are more John Maynard Keyneses coming out of elite institutions and entering into public life -- just like we need more FDRs and a replacement Obama.
Liberalism's problem is that it attributes past successes to whatever elite personalities attended them, rather than to whatever it was ordinary people were doing to bring those successes about -- in fact, the only way liberalism has ever worked, at least to the degree that people still think positive things about it. People were doing shit in the 1930's that contested the relationship between society and investors, and this led to that period of prosperity which made the American "middle class" a reality. It wasn't because FDR had a magical personality, so all we have to do is help Obama find his inner FDR and he will summon the moral resolve to take on the people who own the country!
I repeat this complaint so often in response to all that liberalism has to offer, and insofar as the overtures are unending, as if Paul Krugman were life coach to the president. There is no technocratic solution to the fact that investors want limitless returns and society wants progress, just as there will be no "negotiation" between organized investors with concentrated resources and unorganized consumers whose commitments are diffuse: those with power must be appeased, even if they are wrong. If that is a principle worth objecting to, then people, not presidents, will have to register the dissent on their own terms.