by the Sandwichman
Forget about Bear Stearns. It's the long term fallout from the credit crisis that people should be worried about. In a word: unemployment. Somebody has to pay to clean up the mess the financial oligarchy has made.
You know who.
Ultimately, the only way to underwrite the Fed's bailout activity is through wage cuts for ordinary working people. Massive wage cuts. For structural and historical reasons, such cuts can't occur smoothly and easily. So the first round of real wage cuts takes the form of inflation combined with a freeze of nominal wages. We've already seen the beginning of steep increases in food and energy costs. The credit crisis will supply the motivation for capping employment earnings.
There's just one problem (or several): the erosion of dispoable income, combined with an end to easy credit will work its way through the system to depress effective demand for commodities. And don't look to Keynes for a solution. For one thing, it's the long run -- he's dead. For another, Keynes never offered a magic solution for indefinitely continuing to stimulate demand in an already credit and inflation bloated system.
Keynes's answer -- applicable long before we would have gotten to this point -- was essentially the same as Marx's: limit the hours of work.
In a letter to the poet, T.S. Eliot, dated April 5, 1945, Keynes identified shorter hours of work as one of three “ingredients of a cure” for unemployment. The other two ingredients were investment and more consumption. Keynes regarded investment as "first aid," while he called working less the "ultimate solution." A more thorough and formal presentation of his view appeared in a note Keynes prepared in May 1943 on "The Long-Term Problem of Full Employment." In that note, Keynes projected three phases of post-war economic performance. During the third phase, estimated to commence some ten to fifteen years after the end of the war, "It becomes necessary to encourage wise consumption and discourage saving, –and to absorb some part of the unwanted surplus by increased leisure, more holidays (which are a wonderfully good way of getting rid of money) and shorter hours."