Macro Economics, End of Work Climate Change

Robert Skidelsky is emeritus professor of political economy at Warwick University. His numerous, award-winning books include Keynes: The Return of the Master (2010), a discussion of John Maynard Keynes and the urgent relevance of his ideas in the wake of the 2008 financial crisis, and How Much is Enough? The Love of Money and the Case for the Good Life (2012), co-written with his son Edward Skidelsky. A member of the House of Lords since 1991, Skidelsky was elected a Fellow of the British Academy in 1994. His most recent book is Money and Government (2018) in which he argues against the orthodoxy of small-state neoclassical economics in favour of Keynes’ “big idea”.

Interview by Masoud Golsorkhi

Masoud Golsorkhi You say in the preface to Money and Government that the whole of macroeconomics is up for grabs in view of the poor recovery after the 2008 crash, yet throughout, you draw a picture of economics as being gripped by ideology. In response to the pandemic the government has shown it is prepared to ignore its own best advice. Do you feel vindicated? Do you feel Keynes is vindicated?
Robert Skidelsky I think so, but it all depends how deep the conversion is. If it’s just thought of as an emergency and that life will return to normal pretty quickly, then the chances are that we’ll try and get back to what was there before. If, on the other hand, economists start realising that there is a chronic condition in the capitalist system of today and it’s not just an emergency, then I think there’s some chance that the state will re-emerge as a major player in the management of economies. They’ll start rethinking the role of independent central banks as the only agents of stabilisation. They’ll start thinking more about inequality and the role it plays.

MG Do you suspect that we will have to bring the deficit back down again?
RS The deficit is one of those hugely irrational and irrelevant things that people talk about. The deficit depends on the state of the economy. If you have a programme that can bring the economy back to health, then the deficit will automatically come down. If, on the other hand, you say the deficit is important in itself and start cutting it, then you’re cutting the economy at the same time. The deficit is supporting the economy; if you cut it, you’re removing one of the economy’s main supports. So just to concentrate on the deficit is to put the cart before the horse. That was the mistake they made really in 2009 and 2010 – they prematurely started cutting the deficit in Britain and in the United States as well, and as a result, the recovery was seriously incomplete.

MG Do you think they’ve learned their lesson?
RS No, but there’s more weight behind the kind of things I’m saying now than there was in 2008 and 2009, because we’ve had two shocks. The first shock was endogenous to the economy; it was the shock to the financial system. The shock of the pandemic is external, but the effects have been fairly similar. More and more economists are saying, we must redo the economics profession. Paul Krugman in his latest book says this, and [Joseph] Stiglitz has been saying it. People who have been called heterodox like me now feel a bit more mainstream because so much has gone wrong with the new Keynesian-neoclassical synthesis.

MG Overall, do you think that the imbalance between the creditor and the debtor class, which is a political question, is likely to be addressed in the UK and elsewhere?
RS It’s being addressed a bit. What you’re doing is asking one of the oldest questions in economic life: who is mainly responsible for paying the debt? Who is responsible for incurring the debt and who’s responsible for paying it back? The orthodoxy is that you get into debt through voluntary decision, through over-optimism or just plain profligacy, and it’s your duty to pay it back. If you can’t pay it back, traditionally, you went to prison. They don’t do that now, but I think it’s a big issue because the other side is why do you make loans to people who are not creditworthy? This arose,
of course, in the subprime crisis. There was a whole lot of bad loans being taken out by people at teaser rates, which then went up – all because financial institutions saw that they could make a profit. So there’s always a tendency to overlend. On the other side, we live in a culture where you must have everything you want now, so there’s a tendency to get into debt. Getting into debt isn’t just a matter of greed on the part of the debtor however; it’s also often a matter of necessity. When you have such a huge quantity of poor people in our kind of society, in the UK and elsewhere, then of course, they actually need to get into debt in order to survive. Then they’re saddled with a debt they can’t repay. It’s a larger question than just creditors and debtors; it’s about the distribution of income and wealth within the society.

MG Would you be able to explain one of the problems that potentially awaits us after this period, namely, stagflation? How did it come about at the end of the golden years between 1950 and 1975? Can it happen again?
RS Towards the end of the “golden period”, governments were trying to maintain full employment, which led to inflation. Governments weren’t the only cause of this inflation; there were also very, very powerful unions that felt they were secure because the government would never give up on them. So you had an inflationary tendency and periodic attempts to curb it, which would lead to rises in unemployment. The recoveries that followed would then show a greater increase in inflation than in employment. The result was called the “misery index” with simultaneous rises in inflation and unemployment. That’s when Milton Friedman steps in and says, “Well, the explanation of this situation is that governments are printing too much money and trying to keep unemployment below its natural rate.” Yet that was a very, very partial narrative of what went wrong; it’s ridiculous to say that inflation was simply the result of the government’s attempts to maintain too high a level of employment. What about the Vietnam War? What about the huge, huge inflation that was unleashed globally by the United States in the 1960s? What about supply? What about the quadrupling of the oil prices? There was a combination of factors that would have defeated almost any kind of economic policy at that time. When you have four or five things going wrong simultaneously, it’s very, very hard just to pick out one and say this is the cause of everything that’s gone wrong. You have an interaction of events and the policy becomes extremely difficult. Taking one as the cause of all that went wrong led to monetarism and the abandonment of any attempt to maintain full employment. You ended up with austerity, which did the reverse, and we’ve never really recovered properly from that. We’ve had periods when things haven’t been too bad, but we haven’t recovered properly from it either in terms of a demand for labour or in terms of equality, because those societies were also more equal than ours. The union push wasn’t just a push for full employment; it was an equalising force on income. Now we’ve had automation, but no push to share the fruits of it among the population at large. You have huge profits accruing to a very, very small group of people and an increase in poverty, which is now permanently established.

MG The point that Thomas Piketty makes is that big chunks of capital have vanished from the productive stage of the world economy. Would you agree with that?
RS They have vanished from the productive stage of the world economy, but they haven’t gone to sleep. They have gone into what Keynes called “financial circulation”, which is to say, assets are swapped, which then pushes up their price. One important feature of the capitalist economy as it now operates is the financial bubble. It could be any kind of asset, yet that doesn’t mean that the assets trickle down into the real economy. Some do, but many don’t. They just churn around until they crash. So unless we achieve some new way of stabilising economies at a proper level, we’re going to have more and more of these asset bubbles and their crashes, which could happen anywhere.

MG Is this a symptom of what they call the financialisation of the whole economy?
RS It is what’s called the financialisation of the economy quantitatively. It simply means that the financial sector relative to any other sector is now much larger than it was. That’s defended on the grounds of the services that the financial sector renders the rest of the economy. They like to present themselves as intermediaries that facilitate financial borrowing and lending, saving and investing and make it safer because the more diversified and the more securitised their lending, so it is argued, the less risky for everyone. Of course, all that is not true. I agree very much with something Adair Turner said soon after the last crash: a lot of financial activity is simply social waste. So how do you stop it? The old way was called financial repression and operated in the heyday of the Keynesian system: you would stop the export of capital and put restrictions on its movement. So it was no longer really free to roam the world in search of the largest profit and confined to your own country. Keynes said that the financial system shouldn’t be larger than the political system – that was the principle behind it. We need some new financial repression, but how do you do it? You can do it through taxes of one kind or another. The well-known Tobin tax, for example, named after an economist called James Tobin, taxed short-term financial transactions. In other words, you can make it illegal to hold assets too briefly. There’s also a question of ethics involved and a lot of people want to restore ethical banking. You can also stop bubbles by some sectoral allocation of capital. But remember, the central banks in all countries have been given control of what’s called financial stability. It’s become one of the responsibilities of central banks to maintain financial stability, which wasn’t the case before the crash of 2008 and 2009. Before that they only had a responsibility for inflation because the financial system was assumed to be fairly stable. Now they have a specific responsibility and they’re talking about how best to carry it out. There are all kinds of stress tests. There are lots of things you could do to make banking safer than it now is. Whether these will happen, I don’t know, because the banking lobby is very, very powerful. There’s also the huge question of shadow banking and how its financial institutions can escape the scrutiny of regulators. There are lots of things you could do, but you’ve got to have the political will and support to do them.

MG What do you think about the idea of growth? Keynes didn’t have sight of the melting ice caps, but we do. Is the idea of growth something that we can abandon or reframe like Mariana Mazzucato or Ann Pettifor propose, and can we recondition capitalism to deliver something other than growth?
RS They want green growth by cutting down on one type of growth, but not cutting down on growth itself. The more radical proposition is degrowth. Obviously some countries have to go on growing. They’re very poor and within the so-called abundant economies, they don’t feel that they have reached a stage of abundance. The problem with the notion of abundance is it’s a very macro term, and you always want to ask: abundance for whom? How much is enough? My son and I wrote a book together called How Much is Enough?, which tackles exactly this problem of abundance. How much do you need to lead a good life? And the answer is, of course, that it’s very hard to put a figure on it. First of all, you have to decide what a good life is and once you’ve got an idea of what a good life is or might look like, then you can answer the question of how much material resources you want. If you go back to the classical Greeks, people like Aristotle, they said enough is a sufficiency to enable you to develop fully your capacities, but we’ve become very greedy and we want more and more. And of course, the whole profit-making momentum is designed to feed our desire for more and more and more so that we can never cut it off at any point. That does bring one, as you rightly say, to the planetary limits. We’re simply depleting bit by bit the planet’s capacity to support us, and that has to be tackled. You can’t have a simple growth agenda anymore because you’ve got a supply constraint looming up – it’s as simple as that. ◉