Economics and Society 101: Keynesian and Marxist perspectives on the US crisis


The United States economic crisis of 2008 illustrates that while the US prescribes laissez faire or free trade, the US actually implement a corrupted or bastardized version of Keynesian economics in its homeland. Adam Smith originally formally prescribed laissez faire or free market economics in his book, The Wealth of Nations.

However, throwing aside the flowery words or capitalist niceties, it is not through laissez faire but through arms that the US and many capitalist countries accumulated the wealth that they enjoy today. Colonialism and neo-colonialism are actually monopolies or oligopolies on trade and economies of colonies and semi-colonies. In the colonies and semi-colonies, the economies dominated by monopolies and oligopolies are misrepresented by capitalism as free markets.

Monopolies refer to markets dominated by a single firm or entity while oligopolies refer to markets dominated by a few. The single firm or the few firms are actually a firm or firms of the colonizers enjoying privileges from the elite of developed countries. On the other hand, free markets are supposedly economies in which no firm exercise effective monopoly or influence on prices. In economic parlance, all economic agents in a free market are supposedly “price-takers.”

Leading analysts believe that today’s US economic crisis will become a difficulty, worse than the US great depression of the 1930s. In the 1930s, real US gross national product (GDP) at their 2000 values went from $865.2 billion in 1929 to $790.7 billion in 1930, to US$739.9 billion in 1931, to US$643.7 billion in 1932, and to US$635.5 billion in 1933.

As a US government response, US President Hoover created the Reconstruction Finance Corporation to boost economic activity by lending money in 1932. In 1935, US President Roosevelt created the Home Owners’ Loan Corporation to buy $3 billion in bad mortgages from the banks. Many believe the actions were instrumental in arresting the downward slide of the US GDP such that GDP in 2000 value increased to US$704.2 billion in 1934, and US$766.9 billion in 1935.

GDP increased to their 1929 value only in 1936. Thus, it can be said that in spite of the US government bailouts in 1932 and 1933, the crisis took at least seven years to be arrested (here we are not even talking of GDP per capita). We can infer therefore that even if the US$700 bailout really materialize, US recovery from today’s crisis may take seven years because the current US crisis is described as a crisis worse than the Great Depression.

The dominant paradigm in today’s theoretical economics has been the New Classical perspective also known as the “rational expectations” economics. However, what is implemented during times of crises is a corrupted version of Keynesian economics. John Maynard Keynes, in his 1930 book, prescribed that state action to promote economic growth can range from the use of fiscal policy, organization of investment, and policies that alter the distribution of income.

The original Keynesian prescriptions has been bastardized or corrupted: modern economists twisted the teachings of Keynes on state action into something limited only to the use of fiscal and monetary policies. In short, government actions are only limited to policies involving government spending and interest rates and do not cover the organization of investments or improving the distribution of incomes which are also Keynesian prescriptions.

Many of the early Keynesians were even mistaken as communists. T he early Keynesians were not communists, of course, as they were staunch defenders of private property. Keynesians believe that private business is inherently not stable because business outlook can be affected by self-fulfilling prophecies. For example, if private businesses have a bleak outlook on the future, the future can actually be bleak as businessmen become afraid to invest. For Keynesians, governments must lead and wake up the “animal spirit” among investors so economic activity can be propped up. For the early Keynesians, the government can organize and lead private business but business must remain private.

On the other hand, a Marxist perspective to the crisis holds that the US crisis emerged because of the inherent nature of capitalism to overproduce or oversupply. Competition leads capitalism to a situation where goods and services are way beyond that can be absorbed by the market. Marxists hold that crises in capitalism are systemic and recurring because of the concentration of wealth and production in the hands of a few. For Marxists, crises of capitalism are actually crises of overproduction even if the immediate origin can be self-fulfilling prophecies. Further, the root of crises is politico-economic rather than purely economic.

Meanwhile, although the country’s financial system may be insulated from the crisis because only less than 1% of the banking system has been exposed to the crisis (but the US crisis can also escalate and its effect on the Philippines can likewise escalate), the country will be significantly by the crisis as more than 23% of Philippine exports are marketed to the US and a significant client of call centers are US firms. Further, a large part of overseas contract workers are employed in the US. This being the case, the expectation is that the Philippines will be hardly hit by the crisis even if Philippine economic growth will be at 3.9% for 2008 (expected earlier at 6%) and 3.4% for 2009 (expected earlier at 6.2%). The economic growth rates, however, will not mean that millions of people will not be hard up. Millions of people in the country will continue to suffer from extreme poverty.

The author maintains a blog at and can be contacted through and +63927-536-8431. #


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