Consider the newspaper industry. An essential source of in-depth news and reportage. Essential because a well-informed populace is the prerequisite for a healthy democracy. In their day, newspapers would sell in vast numbers, most homes would have a daily paper delivered, sometimes two, and many cities had evening newspapers. But now newspapers are struggling to survive and there is much anguish over new business models such as charging for online access, or using celebrity bloggers to pull in the readers while at the same time slashing costs and sacking trained, experienced journalists. The industry is in turmoil and sales of printed papers are a fraction of what they used to be.
How would Keynesians deal with this problem?
Well, first of all, I’m not a Keynesian, and secondly, it’s not a problem. It is simply progress and the natural effect of supply and demand in a free market economy. People aren’t buying newspapers in such great numbers any more because they don’t want to; they have found other sources of news and information. As someone who believes in democracy I am worried about where they are getting that news and information from now, but that’s a different problem. Instead, I want to explore the Keynesian approach because a market fluctuation of this magnitude is something they consider to be a problem and I’d like to examine their solutions because there is a pattern to them.
Keynesians would want to see newspaper production raised to its previous high, to safeguard jobs and to preserve a part of the economy intact in what is, to them, a cyclical event. We would once more see vendors on every street corner shouting “Extra! Extra! Read all about it!”, we would once more have newspapers delivered to every home. They just wouldn’t be bought at the same volumes as before because the consumer has already made his choice. However, since they’re being printed at excessively high volumes there is an unsustainable shortfall in revenue, to pay for which the Keynesians would give the newspaper barons huge subsidies until the market stabilises again.
Is that the problem solved then? Not really. We need to ask, “Where does the money come from?” It’s not free money. It’s not even the government’s money. It’s taxpayers’ money and in the past that fact was obscured by sleight-of-hand, by pretending the government had ‘reserves’ or could reallocated expenditure from one area to another. Taxpayers are getting wise to those old tricks and they are increasingly asking the same question. They know that extra government spending means higher taxes and that means less money in their own pockets. So what do they do to compensate? They cut back on spending, not buying things they would have preferred to spend money on.
Let’s imagine for the sake of argument that everyone cuts back their spending on the same thing. Let’s imagine that up and down the country people stop going to football matches. Every Saturday teams run out onto the pitch and play their games in front of empty stadia, while at home millions of former football fans spurn the subscription fees on television and watch soap operas on freeview instead. The government of the day becomes very unhappy because now instead of talking about football with their friends, everyone is talking about how useless the government is. The government are reminded of bread and circuses, something Roman emperors would only forget at their peril.
So they turn to their Keynesian advisors again, the ones who fixed the newspaper problem, and ask them to fix this problem too. Well, as they say, if all you have is a hammer every problem looks like a nail. So the Keynesians look at this problem and see another business cycle that needs to be hammered flat. So they pummel it with taxpayer subsidies to keep the star players and their WAGS in champagne and tasteless mansions and all is well with the world again. Except for the taxpayer. He now has this subsidy to pay for as well and his taxes go up again and the cycle repeats itself: The taxpayer must make economies in some other area of expenditure. Perhaps bread?
Of course it doesn’t work like that in the real world. In the real world people make individual choices and cut out expenditure that is less important to them. This aggregates across all market sectors and results in a general decline in economic activity proportionate to the money being squandered. It also results in a loss of crowd wisdom in ferreting out obsolete goods or inefficient services because the free market is now being manipulated and distorted for political purposes. We can be sure that whatever part of the economy is impacted by consumers making free market choices, Keynesians will step in with taxpayers’ money to smooth out that particular business cycle.
You can read all about it in the newspapers.