helicopter drop, Kalecki, and Lenin

To fix the economy, let's print money and mail it to everyone by Dylan Matthews

Interview with Brown political economist Mark Blyth and hedge fund manager Eric Lonergan

Mark Blyth: There was a brilliant piece in 1943 by the Polish economist Michał Kalecki. It was a critique of full employment policy. He said a problem with Keynesian macroeconomics is that if we get away with it, if you have permanently full employment, two things happen. One, job switching becomes costless and employers no longer have the whip hand. There will be a political revolution, employers will find economists who'll say it's unsustainable, and they'd try to overturn it. He wrote that in 1943, and that was basically the neoliberal revolution foretold.
Two, capitalism embodies an ethic that you must earn your crust, and if you create an economy whereby the crust is there without being earned, it's deeply disturbing on some political, ideological, and moral level. The other thing, besides the vested interest of employers in stopping full employment, is the idea that there must just be something wrong with doing this. 

Deep down inside, many people refuse to accept something simple: central banks, in a fiat money system, are just printing. There's no corresponding liability besides the balance sheet convention of listing cash as a liability. There's nothing claimed against anything else like gold. All that matters is the credibility of policy — that the place is reasonably well-run — and that you have the intergenerational ability to tax. If you have both of these things, you're just printing. So instead of printing it, shoving it through the banking system and hoping some of it trickles down after it's blown the stock market up to 15,000, why not just give people the cash?

And as Chris Dillow wrote:

I agree with Steve that the rich hate inflation not least because it creates uncertainty. (There's also the historical point that the inflationary 70s also saw the nadir of the fortunes of the 1%: this might be just coincidence, but why risk it?) 

This alone creates a bias to tighten. What amplifies this bias is that the rich can tolerate mass unemployment. Nick's parallel with the 1930s is, I think, irrelevant. Back in the 30s, mass unemployment was a threat to the rich because workers could see a plausible alternative to the existing order in communism. Today, by contrast, there are no big feasible alternatives to capitalism and so unemployment is not a political danger - which means it is more tolerable. 

This answers Peter's question: why has the Keynesian coalition vanished from modern politics? It's because it is no longer politically necessary. It was not Keynes who convinced capitalists of the need for full employment but Lenin.

The timeline is a little off. The Soviet Union didn't collapse until the earlier 90s, but basically things turned in the 70s. America destroyed Vietnam in order to save it and Nixon turned the Chinese Communists against the Soviets. Then Reagan and Thatcher came in the 80s as Mitterand's Socialists buckled under pressure from the bond vigilantes.