Speech on the Autumn Statement 29 November 2022

My Lords, the Chancellor’s Autumn Statement is designed to reassure the markets of the sustainability of the public finances. That is, the Chancellor accepts as binding the views of the City of London, whether they are right or wrong. It is what the markets think that matters, not how matters really are—a nice intrusion of post-modernist thinking in what is supposed to be the hard science of economic policy-making.

It is pretty obvious why the Government should pay such attention to the financial markets. For decades, the financial sector has propped up the UK’s hollowed-out economy. Financial flows into the City of London allowed the country to neglect production and trade and artificially maintain a higher standard of living than its productive capacity warranted. Now we are paying the price.

Instead of starting to repair this long-term damage, the Autumn Statement is designed to repair the so-called “black hole” in the budget, in the belief that doing so will, by some magical process, produce an automatic surge in output and growth. In other words, it concentrates on shrinking the numerator, the budget, while ignoring the effects of that shrinkage on the denominator, which is GDP growth. Even in terms of maintaining investor confidence, that is misguided, as the noble Lord, Lord Eatwell, pointed out. How does the Chancellor imagine foreign creditors reacting if his spending cuts produce, or deepen, a recession?

Politics should be based on some theory, at any rate, but there is no explicit theory to be found in either the Autumn Statement or the OBR forecast. The Chancellor sets fiscal targets to reassure the markets. The OBR is there to reassure the markets that the Government’s targets are consistent with its own forecasts. The Treasury and the watchdog cling to each other for mutual protection behind a barrage of statistics that claim far more than they are entitled to.

If there is an implicit model behind both Treasury targets and OBR forecasts, it is the one known as financial crowding-out. There is assumed to be a fixed supply of capital, so the Government’s increased demand for funds puts upward pressure on interest rates. The rise in interest rates will “crowd out” any stimulus afforded by additional borrowing. That is why the less the Government borrow, the more growth you will get. That is simply a restatement of the “Treasury view” of the 1920s, explained by the then Chancellor of the Exchequer, Winston Churchill, who said that

“when the Government borrows in the money market it becomes a new competitor with industry and engrosses to itself resources which would otherwise have been employed by private enterprise, and in the process it raises the rent of money to all who have need of it.”—[Official Report, Commons, 15/4/29; col. 53.]

Presumably, Jeremy Hunt would subscribe to that hoary doctrine, though doubtless in less orotund language. It is as though the Keynesian revolution had never happened; we are just back to pre-Keynesian orthodoxy. It is all embellished in various ways and tweaked here and there, but the substance is exactly the same. However, as the economist Rob Calvert Jump wrote in a recent article:

“There is now a consensus amongst economists that austerity does significant damage to an economy’s potential, undermining growth, as the experience of the last decade in Britain has shown us. Further austerity will do far more damage than a ‘fiscal hole’ that disappears with tweaks to models or accounting rules. The ‘fiscal hole’ is a dangerous fiction compared to the hard facts of austerity’s impact.”

The last point is particularly worth emphasising. How many people realise that the notorious “fiscal black hole” is the product of shifting definitions of net public sector debt?

Theory alone cannot provide us with all the answers; in fact, all the macro models are in more or less of a mess. I will give three examples. The first is the rise in the inactivity rate. There has been a fall of 227,000 in employment since a year ago. So we have a tight labour market with unemployment at 3.6%, a strong demand for labour and a falling labour participation rate. How can that be explained?

Secondly, there is the notorious productivity puzzle. No one has much of a handle on this. What we know is that the forecasts suggest there will be a dramatic fall in living standards, by about 7.1% over the next two years. How will creating a depression stimulate enterprise, innovation or investment, which are the drivers of productivity?

Finally, inflation is expected to peak at 11% in the first quarter and then fall. Again, the discussion really makes no advance on the old discussion about the causes of inflation, whether due to excess demand or cost push—there are, of course, cost-push factors. I think everyone understands that the UK’s support of Ukraine has pushed up energy prices. That is why the Government are now explicitly asking the public to save energy to beat Putin, using crude, World War II-style “Dig for Victory” messaging. What is much less understood is that the UK has a special problem: gas is particularly expensive here, due to our chronic lack of gas storage and our inefficient and exploitative energy distributors.

To conclude, I am strongly in favour of balancing the budget, but not by any mixture of cutting spending and raising taxes. The approach I would favour in present circumstances revives the almost forgotten Keynesian idea of a balanced budget multiplier. A contemporary version of this would suggest a windfall tax or excess profits tax on energy producers, the proceeds of which would be spent by the Government on maintaining investment and consumer demand in the face of the economic downturn.

Too Poor for War


Decades of deindustrialization have hollowed out the UK economy and made it woefully ill-prepared for wartime disruptions. As the financial speculators who funded its current-account deficits turn against the pound, policymakers should consider Keynesian taxes and increasing public investment.

LONDON – A wartime economy is inherently a shortage economy: because the government needs to direct resources toward manufacturing guns, less butter is produced. Because butter must be rationed to make more guns, a war economy may lead to an inflationary surge that requires policymakers to cut civilian consumption to reduce excess demand.

In his 1940 pamphlet “How to Pay for the War,” John Maynard Keynes famously called for fiscal rebalancing, rather than budgetary expansion, to accommodate the growing needs of the United Kingdom’s World War II mobilization effort. To reduce consumption without driving up inflation, Keynes contended, the government had to raise taxes on incomes, profits, and wages. “The importance of a war budget is social,” he asserted. Its purpose is not only to “prevent the social evils of inflation,” but to do so “in a way which satisfies the popular sense of social justice whilst maintaining adequate incentives to work and economy.”

Joseph E. Stiglitz recently applied this approach to the Ukraine crisis. To ensure the fair distribution of sacrifice, he argues, governments must impose a windfall-profit tax on domestic energy suppliers (“war profiteers”). Stiglitz proposes a “non-linear” energy-pricing system whereby households and companies could buy 90% of the previous year’s supply at last year’s price. In addition, he advocates import-substituting policies such as increasing domestic food production and greater use of renewables.

Stiglitz’s proposals may work for the United States, which is far less vulnerable to external disruption than European countries. With a quarter of the global GDP, 14% of world trade, and 60% of the world’s currency reserves, the US can afford belligerence. But the European Union cannot, and the UK even less so.

While the UK has been almost as aggressive as the US in its response to Russia’s actions, Britain is far less prepared to manage a war economy than it was in 1940: it makes fewer things, grows less food, and is more dependent on imports. The UK is more vulnerable to external shocks than any major Western power, owing to decades of deindustrialization that have shrunk its manufacturing sector from 23% of gross value added in 1980 to roughly 10% today. While the UK produced 78% of the food it consumed in 1984, this figure had fallen to 64% by 2019. The British economy’s growing reliance on imported energy has made it even less self-sufficient.

For decades, the financial sector propped up the UK’s hollowed-out economy. Financial flows into the City of London allowed the country to neglect trade and artificially maintain higher living standards than its export capacity warranted. Britain’s current-account deficit is now 7% of GDP, compared to a current-account surplus of 1.3% of GDP in 1980. Until recently, the British formula had been to finance its external deficit by attracting speculative capital into London via the financial industry, which had been deregulated by the “big bang” of 1986.

This was brilliant but unstable financial engineering: foreigners sent the UK goods that it otherwise could not afford, Britain sent them sterling in return, and foreigners used the pound to buy British-domiciled assets. But this was a short-term fix for the long-term decline of manufacturing, enabling the UK to live beyond its means without improving its productivity.

In his 1930 Treatise on Money, Keynes distinguishes between “financial circulation” and “industrial circulation.” The former is mainly speculative in purpose. But an economy that depends on speculative inflows experiences financial booms and busts without any improvement to its underlying growth potential. The UK’s strategy echoed this observation: it did little to develop exportable goods that could improve the current-account balance, and its success depended on foreigners not dumping the pound.

But the speculator’s logic, as George Soros explains, is to make a quick buck and get out before the crash. Relying on speculators is like a narcotics addiction: a temporary high becomes a necessary crutch. The energy crisis brought on by the Russia-Ukraine war was the equivalent of cold-turkey withdrawal, blowing an even larger hole in the UK’s trade balance. The current-account deficit is expected to increase to 10% of GDP by the end of 2023, providing short-term investors with a strong incentive to sell their sterling-denominated bonds.

The pound’s ongoing decline will make UK imports more expensive. And since import prices will likely rise faster than export values, the decline in the sterling’s exchange rate will probably widen the current-account deficit, not least because the country’s diminished manufacturing sector depends heavily on imported inputs. As the pound depreciates, the price of these imports will increase, resulting in even greater erosion of living standards.

This leaves policymakers with few good options. The Bank of England has already raised interest rates to maintain inflows of foreign capital, but high interest rates will likely crash housing and other asset markets that have become addicted to rock-bottom rates over the past 15 years. Taking steps to balance the budget may temporarily calm markets, but such measures would not address the British economy’s underlying weakness. Moreover, there is no evidence that fiscal consolidation leads to economic growth.

One possible remedy would be to revive government investment. UK public investment fell from an average of 47.3% of total investments between 1948 and 1976 to 18.4% between 1977 and 2007, leaving overall investment dependent on volatile short-term expectations.

The only way the UK could “pay for the war” is to implement an industrial strategy that aims to increase self-sufficiency in energy, raw materials, and food production. But such a policy will take years to bear fruit.

All European countries, not just Britain, face an energy crisis as a result of the disruption of oil and gas supplies from Russia, and policymakers are eager to increase energy inflows. But any deal with Russia as it wages its war on Ukraine with apparent disregard for human life would carry enormous moral and political costs.

One possible way forward may be to reach an agreement to ease economic sanctions in exchange for a resumption of gas flows. Given its special economic vulnerability, and following Brexit, Britain is well placed to explore this idea on behalf of – but independently from – the EU.

A limited agreement could ease Europe’s energy crisis while allowing continued military support for Ukraine. But it should be conditional on Russia reducing the intensity of its horrific “special military operation.” Negotiation of a limited energy-sanctions deal could, perhaps, open the door to a wider negotiation aimed at ending the war before it engulfs Europe.

As for the UK, in the short term it will remain dependent on City-generated financial inflows to prevent a catastrophic near-term collapse of the pound, forcing the new British Chancellor, Jeremy Hunt, to scramble to “restore confidence” in the British economy. In lieu of Keynesian taxes or public investment, that will most likely mean drinking more of the austerity poison that caused Britain’s current malady.

Reinstating fiscal policy for normal times: Public investment and Public Jobs Programmes



This paper upholds the classical Keynesian position that a laissez-faire market economy lacks a spontaneous tendency to full employment. Focusing on the UK case, it argues that monetary policy could not prevent the economic collapse of 2008-9 or achieve full recovery from the Great Recession that followed. The paper then outlines the case for fiscal policy to regain a permanent status of primacy in modern macroeconomic management, beyond the pandemic emergency. It distinguishes between public investment and automatic stabilisers, reducing discretionary actions to a minimum. It presents the case for re-empowering the State’s public investment function and for reforming the system of automatic counter-cyclical stabilisers by means of public jobs programmes.

1. Introduction

Even before the advent of the pandemic crisis, economic policy had begun to inch back to the use of fiscal instruments after decades of belief in the efficacy of monetary policy to maintain the lowest possible –i.e. non-accelerating inflation –rate of unemployment (NAIRU). Already in an October 2019 speech, former ECB Chairman Mario Draghi was talking about “fiscal policy playing a more supportive role alongside monetary policy.”This reappraisal followed the failure of quantitative easing (QE) to providethe promised recovery in prices and output after the Great Recession. Conventional economic theory could not explain why trillions of QE assets remained stuck in bank deposits offering negative real rates of return. Even the very same Central Banks that have implemented unconventional monetary policy programmes have recently admitted that “important knowledge gaps remain” over the “technical understanding of QE” (Bank of England, 2021b).Disappointment over monetary policy has coincided with a much more positive reading of the global fiscal boost in 2008-9, and a much more negative interpretation of Europe’s subsequent espousal of fiscal ‘consolidation’. A notable turning point was the rehabilitation of fiscal multipliers in 2013 by the IMF Chief Economist (Blanchard and Leigh, 2013), whose findings have been recently confirmed and extended (Fatas & Summer, 2018; Brancaccio and De Cristofaro, 2020). This reflected both disappointment with the results of monetary policy and the reduced costs of fiscal policy opened up by interest rates stuck at the zero lower bound. In short, the economic crisis of 2008 exposed long-standing muddles in conventional macroeconomic theory, with vicious interrelated consequences (Gabellini and Gasperin, 2019). However, no generally agreed vision exists for future conduct of macroeconomic policy. While monetary policy is generally viewed as insufficient to safeguard macroeconomic stability, the demand for fiscal ‘help’ is still far from being a principled discussion, more in the nature of a temporary emergency response to an unexpected shock, as championed by IMF Chief Economist Gita Gopinath (2020) or by the Governor of the Bank of England Andrew Bailey (2021), who merely sees fiscal policy as “helping to spread the cost of this [Covid-19] shock over time”. During the COVID-19 lockdowns, governments have run up deficits and debts unprecedented in peacetime, without abandoning the consensual theory of what constitutes fiscal prudence in the long term.Our proposition is that fiscal policy should be reinstated as part of a coherent and permanent framework for macroeconomic policy. In fact, the economic recovery that will follow the gradual resolution of the pandemic emergency will leave economies with higher debt-to-GDP ratios.A return to fiscal consolidation, without any consideration to the actual level of activity, must be avoided.1 This paper sketches the principles of a new fiscal policy approach, which would allow the maintenance of employment and output as near as possible to their optimal levels, while minimising the scope for discretionary spending driven by special interests. The focus is on the UK case.Section 2 of the paper outlines the main features of pre-crash orthodoxy. Section 3 shows how monetary policy failed in practice to stabilise the economy, both before and after the crash. Section 4 explains the causes of this failure. Section 5 outlines the case for reinstating fiscal policy. Section 6 discusses the importance of public investments in protecting against cyclical shocks and improving the long-run performance of the economy. Section 7 proposes a strengthening of the system of automatic fiscal stabilisers, embracing the introduction of a public sector job programme. Section 8 summarises the elements of theproposed fiscal approach.

2. Pre-crash macroeconomic orthodoxy

Pre-crash macroeconomic orthodox policy was essentially underpinned by the following beliefs:

(1) The belief in optimally self-regulating markets, with the supposed existence of a ‘natural’ rate of unemployment to which the economy automatically converges.This is associated with the rational expectations revolution of the 1970s, championed by Robert Lucas and Thomas Sargent. In their models (Lucas, 1972) there is no uncertainty, only risk,and wages and prices are flexible. The ‘New Keynesians’ pointed out that the existence of sticky nominal prices and wages prevented the economy from being optimally self-adjusting (Mankiw and Romer, 1991), but mainstream policy saw this fact as an invitation to de-regulate product and labour markets. It was, therefore, the economics of Lucas and his school which provided a theoretical underpinning for the Thatcher and Reagan liberalisations and labour market reforms of the 1980s. On top of this, Eugene Fama’s (1970) ‘efficient market hypothesis’ rationalised financial de-regulation and justified the expansion of banking, as giving a promise of uninterrupted liquidity.

(2) The control of inflation is a necessary and normally sufficient condition for macroeconomic stability. This is attributed to Milton Friedman’s (1968) elegant demonstration that competitive market economies2would be stable at their ‘natural rate of unemployment’ provided the rate of inflation was kept low and constant.

(3) Monetary policy is superior to fiscal policy for stabilisation purposes. This also followed from Milton Friedman’s argument3that fiscal policy operates only with ‘long and variable lags’, so that government interventions are likely to have their impact in the wrong phase of the business cycle.

(4) Stabilisation policy should be carried out by independent central banks,4insulated from political interference and applying mechanical rules. In contrast, the vote-seeking propensity of politicians would infallibly lead them to overheat the economy by running budget deficits at full employment.

(5) The State is less efficient in allocating capital than the private sector. Although Adam Smith ([1776] 1976) recognised the State’s responsibility to provide public goods such as transport and education, this was downplayed by his successors. David Ricardo (1817) notably remarked that only ‘productive industry’ could generate useful capital. This kind of reasoning underpinned the marginalisation of the State’s investment function from the 1970s. It also fed the idea that State budgets should be balanced at the lowest feasible level of taxes and revenues to prevent them from ‘stealing’ productive resources from private industry.

In summary, orthodox theory held that fiscal policy should have little or no influence either on the economy’s level of output or upon the allocation of capital.The year 1976 represented the symbolic point of hegemonic transition from Keynesian fiscal to Friedmanite monetary policy, particularly in the UK.That year James Callaghan, Labour’s prime minister, told his party conference5 (quoted in Skidelsky, 2018, pp. 169-170):“We used to think that you could spend your way out of a recession, and increase employment by cutting taxes and boosting government spending. I tell you in all candour that that option no longer exists, and that in so far as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step. Higher inflation followed by higher unemployment…That is the history of the last twenty years.”

Economists will recognise this as the death sentence ofPhillips Curve Keynesianism (Phillips, 1958). Prime Minister Callaghan’s account, which echoed Friedman’s narrative of the 1960s, ignored the fact that the average inflation rate in the UK was lowerin the 1960s than it had been in the 1950s, while in the United States it was about the same (table 1). The record shows that full employment and low inflation –coinciding with a low ‘Discomfort Index’, the sum of the rates for inflation and unemployment popularised later by the McCracken Report (OECD, 1977) -were perfectly compatible with intelligent Keynesian fiscal policies. In contrast, the golden age of macroeconomic monetarist management (i.e. the 1990s) recorded higher Discomfort Indexes, due to the inability to reduce unemployment down to the levels of the 1950s and 1960s. Moreover, the relative importance of those two macroeconomic objectives shifted away from the full-employment commitment of the Keynesian era to the univocal obsession with inflationtargets, embedded in the policy approach of major central banks during the 1990s.6What these figures also show is that the so-called ‘fiscal theory of inflation’ -the theory that the government would always use inflation to meet its budget constraint -is at the very least vastly exaggerated. Although inflation was starting to rise at the end of the 1960s it really only took off in the 1970s, under the influence of a coordinated world boom (which caused a dramatic rise in commodity prices), the first oil price shock and the breakdown of the international monetary system (Skidelsky, 2018, pp. 164-167).

Friedman’s explanation of the higher rates of inflation over the 1970s is thus seriously incomplete. As confirmed by Benati (2008, p. 123): “the Great Inflation was due, to a dominant extent, to large demand non-policy shocks, and to a lower extent ―especially in 1973 and 1979 ―to supply shocks.”

Nevertheless, the stagflation period continued to be considered as the empirical demonstration that demand-management fiscal policy was ultimately ineffective –if not deleterious –as a tool of macroeconomic stabilisation.The withdrawal of the State from stabilisation policy was matched by the shrinkage of its role in allocating capital to guide the investment decisions of private business. Since the mid-1970s, public investment as a share of total investment has steadily fallen indeveloped countries. The UK’s record is illustrative (figure 1): from an average of 47.3% in the years 1948-1976, the public investment share fell to 18.4% in the years 1977-2007. This has left total investment unduly dependent on volatile short-term expectations.

3. The weakness of monetary policy during the Great Moderation and its failure after the 2008 crisis

The case for reinstating fiscal policy as the main instrument for macroeconomic stabilisation rests on the limitations of monetary policy. Monetary policy has had a prolonged trial, from the 1980s to the present day. The evidence is consistent with two conclusions.First, central bankers’ achievement of their target rates of inflation during the Great Moderation, which lasted from the mid-1990s to 2008, was more the result of external factors than of good policy, as Roger Bootle argued in The Death of Inflation(1997). Likewise, Mervyn King (1998, p. 2) talked about a “benign environment” for monetary policy during the Great Moderation. Second, since the economic downturn of 2008-9, central banks have been trying in vain to restore the pre-crash trend rate of economic growth. In other words, monetary policy has had much less direct influence on the real economy than orthodox monetary theorists believe, and inflation outcomes are more the result of real-economy developments than their cause.In the immediate post-crash years (2008-2010), monetary and fiscal policy acted together to halt the downturn resulting from the 2008 financial crisis. “Deficits saved the world” declared Paul Krugman (2009). In the UK, government deficit relative to GDP increased above the 9% level in the years 2009-2010, keeping the economy afloat. Subsequent monetary expansion on its own failed to offset the effects of the fiscal consolidation started by the Chancellor of the Exchequer George Osborne in his budget of June 2010 (figure 2).

With conventional interest rate policy disabled, as official rates hit the zero lower bound, central banks resorted to ‘unconventional monetary measures’ in the form of quantitative easing, or buying government securities. In the UK, three rounds of quantitative easing (QE) in 2009-10, 2011-12, and 2016 injected into the British economy about £435 billion of ‘high-powered’ money corresponding to 21.8% of GDP in 2016. These measures did not achieve the recovery of prices one would associate with a strong upward movement of the business cycle (figure 3). Most importantly, the main failure of unconventional monetary policy was its inefficacy in revamping economic growth (figure 4). In the post-crisis years (2010-2019), real GDP growth was more than 1 percentage point lower than during the Great Moderation period (1997-2006).

QE was supposed to work through two main transmission channels. First, buying government debt held by banks would cause them to lower interest rates, making it cheaper for households and businesses to borrow money. Secondly, buying both public and commercial debts from non-financial companies, would stimulate investment “by boosting a wide range of

financial asset prices” (Bank of England, 2021a). However, this did not happen as quickly as foreseen, given that total business investment (in real terms) in 2014 was still below its pre-crisis level, with large variations among sectors: already in 2011 investment in real estate was close to its 2007 value, while it took until 2015 for the manufacturing sector to recover its pre-crisis value, confirming the relatively small impact of expansionary monetary policy outside housing (Krugman, 2014).7Slashing the official Bank Rate and implementing an unconventional programme of large-scale purchases of government bonds did lower short-term and long-term interest rates (figure 5), without spurring bank lending and business investment. The only clear impact was on government’s borrowing costs: interest rates on 10-year Gilts fell from 4.02% to 0.83% at the end of 2019, creating a fiscal bonus for extra primary spending.

The underlying expectation of monetary authorities, based on the theory of the money multiplier, was that an increase of base money M0 would lead to a multiplied expansion of broad money M4.8 In fact, as figure 6 shows, the relationship between these two variables in the period 2009-2015 was inverse.

This meant that QE failed to unblock the two expected transition channels from money to output and prices: the demand for bank loans did not respond to the lower structure of interest rates enabled by QE and asset owners (i.e. households and businesses) did not increase their spending (see Author, 2018, pp. 258-273). It was not the scarcity of liquidity that stopped businesses from investing, but rather a lack of demand, reinforced by the concurrent implementation of contractionary fiscal policy.

4. Theoretical shortcomings of monetary policy

The mediocre results achieved by monetary policy point to a key theoretical weakness: the scant attention paid to the causes and existence of what Keynes ([1936] 2018) called the “speculative-motive” or demand for money. In expecting QE to generate increased business

investment, the Bank of England ignored the possibility that the cash proceeds of the Bank’s bond sales would be ‘hoarded’, rather than spent. The United Kingdom Economic Accounts compiled by the ONS show that total currency and depositsof non-financial corporations in the UK increased from £ 428 billion in 2009 to £ 750 billion ten years later.The emergence of ‘idle balances’ was a well-established explanation of business downturns before Keynes. It was stated clearly by Hawtrey in 1925 (p. 42):

“When trade is slack, traders accumulate cash balances because the prospects for profit for any enterprise are slight, and the rate of interest from any investment is low. When trade is active, an idle balance is a more serious loss, and tradershasten to use all their resources in the business.”

Keynes took hold of the idea of ‘liquidity preference’ in the General Theoryand ran with it. First, he thought of it arising not just in moments of anxiety but as a normal condition of capitalist economies, given the inherent uncertainty about the future. It is his basic explanation of long-run underemployment equilibrium. Second, he thought of the rate of interest as the ‘price’ of dishoarding, not the reward for saving. Savings could not therefore be treated as ‘loanable funds’, whose rate of return had only to come down for investment to pick up. Third, absent official intervention, the liquidity premium attaching to money would prevent the establishment of a long-run rate of interest consistent with continuous full employment. Fourth, Keynes distinguished clearly between the cost of capital and the demand for capital. Central Bank policy can influence the financing of credit, but not the decision to invest which ultimately depends on the expected returns from the investment. QE adds to the liquid reserves of banks and corporations, it does not automatically reduce ‘risky’ lending rates or increase the marginal efficiency of capital.The Bank of England also ignored the distributional effects of its bondbuying policy. Its assumption was that, by raising asset prices, QE would automatically deliver the ‘wealth effect’ of increased consumption. Nevertheless, given the different class propensities to consume, this ‘effect’ turned out to be too small to stabilise consumption, with much of it being hoarded by wealthier individuals. Summing up this line of argument, the quantity of money is not an independent variable that affects lending and spending activities. The causality is rather the opposite: money circulation through the lending process depends on the level of economic activity (McLeay et al., 2014). How much QE-generated purchasing power is spent producing output depends on business expectations, and these ultimately depend on the state of effective demand, that is, having ‘consumers at the door’.

5. The need for fiscal policy and the conditions of its reinstatement

The Keynesian case for macroeconomic policy rests on the claim that a market economy lacks any efficacious internal mechanism for reaching and maintaining full employment. Moreover, because of radical uncertainty, investment is subject to sudden collapses. Such downturns, far from triggering V-shaped recoveries via flexible wages and prices, lead to a more general decline in aggregate demand. Monetary policy on its own is relatively powerless to prevent the collapse of business expectations or to counter the ensuing fall in aggregate demand.

This leads to the case for reinstating fiscal policy as a ‘necessary’ and ‘permanent’ tool of macroeconomic management.9The prime objective of fiscal policy should be to influence the level of aggregate demand in order to eradicate involuntary unemployment, accommodating the highest growth potential of the economy. A distinction needs to be made between capital and current spending.10Although both play a part in influencing demand, their functions are partly different. The role of capital spending is to help equip the economy with the infrastructures and the capital goods it needs for achieving better productive capabilities and a superior growth rate of the economy. The role of current spending is to provide the necessary resources for the government to carry out its ordinary functions, such as the provision of goods and services to the population, especially when it comes to offsetting short-term collapses, as in the recent case of the COVID-19 crisis.Following from these distinctions, fiscal policy should be reinstated in its double aspect of steadying total investment and offsetting cyclical disturbances through more automatic mechanisms.

6. The role of public investment

The return of macroeconomic policy management in normal times requires a permanent public investment function for the State. In the final chapter of his General Theory, Keynes ([1936] 2018, p. 336) stated the logic behind it as follows: “It seems unlikelythat the influence of banking policy on the rate of interest will be sufficient by itself to determine an optimum rate of investment. I conceive, therefore, that a somewhat comprehensive socialisation of investment will prove the only means of securing anapproximation to full employment;though this need not exclude all manner of compromises and of devices by which public authority will co-operate with private initiative.” The State should therefore determine the volume, and influence the direction,of investment by its own capital spending, and not just seek to influence the price(i.e. the interest rate) of investment through monetary policy.This was fully recognised in the Keynesian era, when the large share of public investment over total investment contributed to reducing the inherent volatility of private investment (figure 1). The logic of this argument is that public investment level should be partly independent of the business cycle and based on “long views and on the basis of the general social advantage”11(Keynes, [1936] 2018, p. 143). When the economy slows down, public investment programmes should be maintained, independently from short-term public financing needs. A guaranteed flow of public projects would provide the expectational foundation of a growing economy, by reducing the scope for violent fluctuations in overall investment (Kalecki, 1971).12This is now increasingly supported by recent empirical evidence, which seems to confirm that ‘Schumpeterian’ public investments have sizeable multiplier and accelerator effects (Deleidi and Mazzucato, 2019). For a sample of eleven Eurozone countries (1970-2016), Deleidi et al. (2020, p. 354) have found that “fiscal multipliers tend to be larger than one and an increase in public investment engenders a permanent and persistent effect on the level of output”. Similar results are obtained with respect to public investment and military spending by Gechert & Rannenberg (2018), based on a collection of 98 existing studies. Estimates of this long-term ‘supermultiplier’ effects (Deleidi et al., 2019) for the US economy (1947-2017) report multiplier values on GDP to be 2.12 for direct public investment (including R&D), up to 7.76 for non-military R&D public investment. Public investment is performed by central and local governments or by government-controlled entities. In the first case, investment spending is often contracted out to the private sector, which assumes the responsibility for implementing the single investment projects. This normally increases the cost effectiveness of investment projects, while affecting the planning capacity of the State when it comes to promptly executing its investment programmes (Kattel and Mazzucato, 2018).Alternatively, public investment projects could be ‘internalised’,by making use of dedicated public agencies, which represent a more direct tool of policy intervention and state planning. In the UK, a significant share of public investments is performed by public corporations, whose investments are accounted separately from other business investments.13However, the share of public investments performed by public corporations in recent decades have been significantly lower than in the post-war years. The average share of investments made by public corporations from the early 1950s until the late 1970s was 44.5%, while it only represented 18.4% in the 1980-2016 period.14This is mostly explained by the privatisation of previous State corporations, operated throughout the 1980s, which compromised the capacity of the BritishState to directly orient public investments in a more targeted way. A more effective role for the State in planning its investment programmes does not necessary imply the re-nationalisation of large chunks of the economy. Nevertheless, the macroeconomic efficacy of public investment can be reinforced with a further internalisation of investment projects within existing public entities and with a greater involvement in the coordination of investments performed by private businesses, as notably advocated decades ago by the Nobel Laureate James Meade (1970).

7. The role of public jobs programmes

The normalisation of fiscal policy as a tool to reach and maintain full employment is complemented by the role that automatic fiscal stabilisers play in taming thebusiness cycle. These can be further strengthened by means of public sector job programmes, which would directly offset cyclical variations in employment.According to Paul Samuelson (1948, pp. 332-334): “the modern fiscal system has great inherent automatic stabilizing properties.” When the economy turns down, government tax receipts fall and spending on unemployment benefits and other transfers rise, creating an automatic deficit which offsets the fall in private spending (or in terms of the national income identity offsets the rise in private sector saving). When the economy recovers the budget automatically re-balances. Following on from Minsky’s early theorisation of the government as “an employer of last resort” (1986; 2013), and in line with the existing policy research from the Levy Institute in the US15(Wray et al., 2018), this paper advocates a Public Job Programme (PJP). This is tailored for the UK economy, but can readily be applied in other countries. It would not only restrict discretion overfiscal policy, but it would also constitute a much more powerful –and modern –counter-cyclical stabiliser than the system described by Samuelson.

7.1 Earlier versions of public job programmes

Far from being a revolutionary innovation, the PJP idea is “plain common sense” as Keynes and Henderson (1929, p. 10) put it when backing Lloyd George’s programme of loan-financed public works to reduce the then high level of British unemployment.The Lloyd George plan did not see the light in the UK, but it would soon find its most famous realisation in the New Deal programmes under US President Franklin D. Roosevelt. Reflecting on the Works Progressive Administration (WPA), a programme that was employing 3.3 million workers in 1938, Donald S. Howard wrotein 1943 (p. 126):“An enumeration of all the projects undertaken and completed by the WPA during its lifetime would include almost every type of work imaginable […] from the construction of highways to the extermination of rats; from the building of stadiums to the stuffing of birds; from the improvement of airplane landing fields to the making of Braille books; from the building of over a million of the now famous privies to the playing of the world’s greatest symphonies.”Similarly, the Civilian Conservation Corps (CCC) was designed to provide young unemployed men (around 1 million) with work on projects that included (Merill, 1981, p. 197):“The prevention of forest fires […] plant pest and disease control, the construction, maintenance and repair of paths, trails and fire-lanes in the national parks and national forests and such other work […] as the President may determine to be desirable.”Its rationale was later succinctly stated by the US National Commission on Technology, Automation and Economic Progress in 1966 (p. 110):“With the best of fiscal and monetary policies, there will always be those handicapped in the competition for jobs by lack of education, skill, experience, or because of discrimination. The needs of our society provide ample opportunities to fulfilthe promise of the Employment Act of 1946: ‘a job for all those able, willing, and seeking to work’. We recommend a program of public service employment, providing, in effect, that the Government be an employer of last resort, providing work for the ‘hard-core unemployed’ in useful communal enterprises.”The Humphrey-Hawkins Act of 1978 authorised the US Federal government to create a ‘reservoir of public employment’ to balance fluctuations in private spending. The reservoir would automatically deplete or fill up as the economy waxed or waned, creating an ‘automatic stabiliser’. However, the Humphrey-Hawkins Act was never implemented. It represented the last gasp of New Dealism. In later decades, sporadic attempts to implement a job guarantee policy have struggled against the orthodoxy that unemployment resulted from labour market inflexibility and that reforming the labour market was key to lowering the ‘natural’ rate of unemployment. Very limited examples of public job programmes can be found in Europe. In 1997, European Prime Ministers pledged a job or training guarantee to all newly unemployed workers within one year of losing their job (Layard, 2011, p. 174). Only Denmark, The Netherlands and Hungary (Matolcsy and Palotai, 2018) have sought to implement that pledge, albeit in very limited forms. Outside Europe, India has experimented the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) in 2005 (Gosh, 2015), while Argentina introduced its Plan Jefeemployment policy in 2002 to address the consequence of the unfolding financial crisis (Kostzer, 2008).

7.2 An outline of a modern Public Job Programme

How would a modern public work programme be conceived? In our sketch for a Public Job Programme (PJP), the government would guarantee a job to any job-seeker of working age who cannot find work in the private sector, at a fixed hourly rate which would not be lower than the national minimum wage rate. Some other elements need to be considered:1. PJP should not target aggregate output, but labour demand. This eliminates the problem of having to calculate output gaps. It is less analytically and practically complicated to target employment than output. Definition of full employment can be made quite precise and uncomplicated: it exists where all who are ready, willing, and able to work are gainfully employed at a given base wage. This corresponds to the absence of ‘involuntary’ or ‘unwanted’ unemployment.162. The PJP pool acts as a labour buffer-stock, which expands and contracts automatically with the business cycle, reducing discretionary variations in spending. It is analogous in that sense to the unemployment insurance fund, which also automatically depletes and replenishes, but is a more powerful automatic stabiliser than the latter (see below for an analytical explanation). 3. A PJP would maintain employability better –an important factor in economic recovery and growth prospects. As Pavlina Tcherneva (2018, p. 17) puts it: “it continues to stabilize economic growth and prices, using apool of employed individualsfor the purpose rather thana reserve army of the unemployed.” It is worth emphasising that maintaining ‘employability better’ is a comparative term: the comparison is not between a PJP job and a ‘good’ job, but between a PJP job and no job.4. PJP workers would be paid at a fixed rate. This can be set at any level the government wants above unemployment benefit. A fixed wage sets a floor for private firms’ wages. If the PJP wage was set at the national minimum wage, no minimum wage legislation, with all its attendant compliance costs, would be needed, since private employers would always have to pay at least the PJP wage if they were to attract workers, and in periods of strong private sector demand they would have to bid for scarce labour at above the PJP wage. The aim of paying PJP employees a fixed minimum wage is both to set a floor to the aggregate fall in income in a downturn and to prevent employers from undercutting the legislated minimum wage in ‘normal’ times.17 For many, PJP wages may be lower than those they had previously earned, but the comparison should not be between PJP and market employment, but between PJP and no employment at all.5. PJP job champions attach great importance to Keynes’s stress in 1937 ([1978], p. 385) on the “need today of a rightly distributed demand than of a greater aggregate demand”. A satisfactory average level of employment can be consistent with some parts of the economy overheating and others under-heating, as Minsky (1965) noted. The implication of this is that orders for work should be placed in areas experiencing, or most vulnerable to, high unemployment. A PJP programme can be used to influence the structure of employment as well as its level -it can thus be made consistent with advocacy for a ‘Green New Deal’.6. Consistently with the above, a PJP could be administered locally, by a variety of agencies: local governments, NGOs, and social enterprises. Their goal would be to create ‘on the spot’ employment and training opportunities where they are most needed, matching unfulfilled community needs with unemployed or underemployed people. To ensure that projects can be ‘shovel-ready’ -rolled out on demand -inventories of communal needs should be prepared and kept by ‘job banks’ and job centres. They could fall under three main heads:18 a) care for the environment; b) care for the community; c) care for people. This does not imply that ‘caring’ will only be done when unemployment is heavy. A PJP placement should not replace, it should complement, existing public sector care provision. For instance, a PJP placement could use nursing facilities and schools to create needed-on-the-job training and credentialing opportunities to facilitate transition to private sector jobs as private sector employment opportunities pick up.

7. The fiscal resource for a PJP would come initially from current taxation, just like normal unemployment benefits. In case of a recession, the extra-spending required to pay for the newly unemployed workers could come either from taxes raised progressively fromhigher incomes –exploiting the expansionary effect of the balanced-budget multiplier (Haavelmo, 1945) –or from borrowing, or by a combination of both.A first objection against PJP is based on the idea that it would lead to inflation spiralling out of control. On the contrary, the ‘automaticity’of the programme makes it less prone to be inflationary than discretionary management of the business cycle. It provides two further built-in barriers to inflation: (a) sensitivity to the regional distribution oflabour demand and (b) maintenance of employability in the downturn, which would relieve the ‘bottleneck’ of skilled labour in the upturn. To prevent the private sector rather than the public sector becoming the source of inflationary pressure, the government could be mandated to raise anti-inflation taxes automatically to prevent inflation rising above a stated rate. If counter-cyclical policy can be made sufficiently automatic, there is much less need for governments to ‘outsource’ anti-inflationary policy to central banks.A second common objection is that PJP employment is bound to be ‘pretend’ work, in the spirit of paying people to dig holes and fill them up again. This is one reason why some ofthose sympathetic to a job guarantee favour subsidising private sector employers to retain labour in a downturn. Theoretically, this would have the same effect. However, it would be extremely difficult to prevent private sector employers claiming the subsidy under false pretences (as it has happened to some extent with the Furlough schemes of 2020). The chief defect of financial incentives for people to seek work is that they may incentivise the unemployed to look for jobs but provide no assurance whatsoever that they will find them. PJP would eliminate this obvious structural flaw. 7.3 The automatic countercyclical macroeconomic impact of a PJP programmeThis section aims to provide some analytical support to the intuition that the implementation of a PJP would represent a more effective form of countercyclical fiscal policy than the traditional system of unemployment benefits (UB). In particular, the comparison is performed with respect to the mitigating element of ‘automatic stabilisation’ that the two alternatives represent, when a recession occurs. Duringthe negative phase of the business cycle, government deficit increases as a result of two factors: a fall in revenues due to the diminished level of economic activity and an increase in public expenditure in the forms of payments to the newly unemployed workers. In the PJP case, the unemployed worker, instead of receiving a monetary compensation for the loss of his/her private job, is offered a public job, and remunerated at the minimum national wage. In simple Keynesian model of a closed economy, national income equals the sum of aggregate consumption, investment and government expenditure:


The consumption equation takes this form:


Where 𝐶0 is autonomous consumption and 𝑐𝑌 is the part of consumption which is explained by the level of national income. 𝑐 represents the marginal propensity to consume, and it assumes any value between 1 (all national income is consumed) and 0 (all national income is saved).Investments are supposed to be dependent on exogenous factors (i.e. expected profitability or ‘animal spirits’):


Government spending is autonomous:


Inserting the functional forms of 𝐶,𝐼 and 𝐺 in the expenditure identity, and rearranging, gives the typical Keynesian dynamic income equation:


Every variable within parenthesis represents an autonomous component of aggregate demand. Therefore, with a variation in one of these (e.g. fiscal expansion +∆𝐺0), the expression 1/(1−𝑐) captures the value of its multiplier effect on 𝑌. What could happen in the case of a downturn, driven for instance by a sudden fall in investment 𝐼0? While the income component of consumption 𝑐𝑌reacts immediately and proportionally to a recession (i.e. a fall in aggregate national income 𝑌), the autonomous consumption component 𝐶0 relates to other psychological conditions. It seems reasonable to assume that, during a recession, 𝐶0 falls because people will expect to earn less in the future and they would reduce extra expenditures in favour of more precautionary savings. However, under the PJP scenario, not only would the wage compensation be immediately higher, but it would remain permanent as long as the worker is employed under the PJP. Moreover, the employability of the worker under a PJP scheme would be higher than the medium to long-term unemployed worker under UB, thus increasing the prospect of a better-paid private sector job in the future. This would positively influence the aggregate autonomous component of consumption during a recession: under a PJP scenario it would nonetheless fall, but by a lower amount than in the UB case:


Secondly, the aggregate marginal propensity to consume 𝑐(i.e. the sum of all individual marginal propensities to consume, ∑𝑐𝑖𝑁𝑖=1) would differ under the two different scenarios. The expansion of spending on PJP during a recession could also imply a redistribution of income from higher to lower earners (or not at all earners, as the unemployed worker would be), if the first were to be taxed more in order to finance extra public jobs.19 Two forces would then be at play.

First, the redistribution of income itself would have a positive impact on the aggregate propensity to consume. At the same time, the relatively higher stability of earnings and job prospects in a PJP scenario would reduce the incentive to save a higher rate of nationalincome, therefore increasing the marginal propensity to consume. It is reasonable to conclude that these parallel dynamics would have a more positive impact on the aggregate marginal propensity to consume in the PJP case than they would have under a simple UB system of less-than-compensating income transfers:


The crucial result arising from the distinction between the two systems is that, when considering an identical expansion in public expenditure following a recession, recovery under the PJP would be stronger. Finally, both the UB and PJP approaches should be conceived on a per capita basis. They would apply to the same number of newly unemployed. Given that PJP would amount to a full and permanent minimum wage, while the UB would represent a lower and progressively reducing disbursement, the overall increasein public expenditures relative to this automatic stabilisation mechanism would be higher in the case of the PJP. Per capita expenditure under a PJP scenario would always be higher, because providing a permanent UB at the minimum wage level (or close to) would be unfeasible, as it would generate perverse incentives for low-skilled job seekers. In order to address the same number of unemployed people, the PJP will initially imply a higher deficit but one which will rapidly fall in response to the higher boost to demand, which will increase the tax revenues (via the enlargement of the tax base) and reduce expenditures on unemployment.

8. Concluding remarks

This paper has attempted to discuss the following propositions: first, a laissez-fairemarket economy is cyclically unstable and liable to settle down to a long-term underemployment equilibrium. Second, macroeconomic policy management is required to reach and maintain continuous full employment. Third, fiscal policy is a much more effective tool to achieve this than monetary policy by itself. Fourth, an effective approach to fiscal policy would separate and reinforce the practical use of capital and current expenditure, while limiting the discretionary element in old-style Keynesian demand management. Anew fiscal policy approach can be outlined, based on a combination of long-run public investment and short-run public job programmes (table 2).

Public investment –investments in general, as noted by Sylos Labini(1964) -directly impacts on the demand for capital goods (macroeconomic impact), while increasing the productive and innovative capacity of the economy (microeconomic impact). Similarly, public job programmes impact on the demand for consumer goods via workers’ wages (macroeconomic impact), while increasing their employability (microeconomic impact).The investment component of demand is affected directly by public investments acting as a catalyser of private investment, and indirectly by public job programmes because they better preserve the income expectations of workers. Higher nationalincomes coming from PJP wages positively impact on consumption.The two pillars jointly support a full employment level of economic activity, the public investment programme by protecting total investment against the fluctuations of private investment, and the PJP by strengthening the automatic stabilisers.Leaving to one side the important issue of coordination of fiscal and monetary policy, the financing source of public investment should be based on borrowing, while PJP can be financed by a combination of both borrowing and taxation, with a progressive taxation system that, by redistributing income, maximises the multiplier effect via a higher aggregate marginal propensity to consume. The priorities for public investment, classified as capital expenditure, would be centrally planned, in order to reduce coordination problems, but their implementation should take into account the role of local business and public authorities. By contrast, public job programmes can be planned and implemented locally, with precise attention to the needs of local communities.

The employment target of public investment lies in the creation of jobs via the multiplier effect of public investments on private business, while public job programmes address the reduction of unemployment through the direct creation of work.In conclusion, the two pillars of the proposed fiscal policy constitute the sketch for a modern Keynesian demand management policy based on the primacy of fiscal policy. Moreover, far from resuscitating fiscal policy as a mere emergency measure for extraordinary times –e.g. financial crises, natural disasters, pandemic events, etc. –they promote its continuing validity as the most effective and reliable instrument for reaching and maintaining a full-employment level of economic activity. This will becomeparticularly important when the COVID-19 crisis is over, leaving the scars of higher unemployment levels, business insolvencies and losses in industrial production. The trauma of the ongoing crisis will not be overcome if fiscal policy is set to turn ‘orthodox’ –that is, cease to exist as a macroeconomic tool. It is important for governments to understand that fiscal policy is for ‘normal’ times.


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1 For instance, the Italian Treasury in October 2020 was already outlining its long-term budgetary programme with the aim to set a reduction trajectory for the debt-to-GDP ratio to the pre-pandemic levels by 2031. Its ‘Budget Note’ does not include a single mention of any employment target (Ministero dell’Economia e delle Finanze, 2020).

2 This belief in the inherent stability of product markets anchored in stable inflationary expectations underpinned the succinct policy pronouncement of Nigel Lawson, then Chancellor of the Exchequer (quoted in Skidelsky, 2018, p. 192): “It is the conquest of inflation, and not the pursuit of growth and employment which […] should be the objective of macro-economic policy. And it is the creation of conditions conducive to growth and employment, and not the suppression of [inflation] which […] should be the objective of macroeconomic policy.” Such conditions typically included de-regulating labour and product markets, nationally and globally.

3 Friedman (1960) believed that a monetary policy that targeted interest rates was equally unreliable. That is why he favoured a money growth rule: the monetary authority should increase the money supply by a fixed percentage each year. Post-Friedman’s monetary policy approach rejected Friedman’s rule, but substituted a different rule –the Taylor (1993) rule –whereby central banks raise or lower their lending rates by a certain percentage in response to deviations from their inflation targets.

4 In his book Unelected Power(2019), Paul Tucker endorses the case for delegation of macroeconomic policy to central bank technicians, given the lack of ‘credible commitment’ by politicians to govern in the public interest. He does though raise the issue of the legitimacy of the decisions of banking technocrats.

5 The famous passage was written by his then Friedmanite son-in-law Peter Jay.

6 Notably, Article 2 of the European Central Bank’s Statute claims “the primary objective of the ESCB shall be to maintain price stability”.

7 ONS Data.

8 Broad money aggregate M4 is a measure of money supply in the UK. According to the classification made by the Bank of England, M4 comprises: holdings of sterling notes and coin by the private sector (other than monetary and financial institutions); sterling deposits (including certificates of deposit); commercial paper, bonds, floating rate notes and other instruments of up to and including five years’ original maturity issued by UK monetary and financial institutions; claims on UK monetary and financial institutions from repos; estimated holdings of sterling bank bills; 35% of the sterling inter-MFI difference.

9 It is important to emphasise this necessity, as recent academic literature has implied that were monetary policy not ‘constrained’ by the zero lower bound, it would be superior to fiscal policy. See Blanchard et al. (2020), Furman & Summers (2020).

10 The theoretical distinction between capital investment and current expenditure is well recognised in public finance theory (Sargent, 1981, pp. 23-24): “A pure current account expenditure is for a service or perfectly perishable goods that gives rise to no government-owned asset that will produce things of value in the future. A pure capital account expenditure is a purchase of a durable asset that gives the government command of a prospective future stream of returns, collected for example through user charges, whose present value is greater than or equal to the present cost of acquiring the asset. A pure capital account budget would count as revenues the interest and other user charges collected on government-owned assets, while expenditure would be purchases of capital assets. On these definitions, government debt issued on capital account is self-liquidating […]. Government debt issued to finance a pure capital account deficit is thus not a claim on the general tax revenues that the government collects through sales and income taxation. The principles of classical economic theory condone government deficits on capital account.”

11 For instance, public investment should be financed at the central government level and directed to the long-term objective of securing an adequate supply of public goods. The concept of public goods can be considered in a rather extensive way, ranging from the very restrictive textbook definition of a good “which can be enjoyed by everyone and from which no one can be excluded” (Samuelson & Nordhaus, 2009, p. 36) such as basic infrastructures to the more comprehensive aim “to do those things which at present are not done at all” (Keynes, 1926, p. 46), like investment in projects developing new technologies.

12 In our presentation, we deliberately abstract from additional reasons for public investment deriving from the existence of public goods or the possibility of enhancing the productive capacity of the economy. For instance, Mazzucato (2013) has shown that public investment in R&D has had an instrumental role in the development of new technologies in consumer electronics, renewable energies and pharmaceutical products.

13 A notable difference with respect to other countries, in which investments performed by State-owned enterprises are not distinguished from ‘private business investments’ even if these entities are classified as ‘public corporations’ (See United Nations’ System of National Accounts, 2008).

14 Author’s elaboration on ONS data

15 The idea of job programmes became also quite popular in Europe in the immediate post-war period, as a very direct way to eradicate the conditions of poverty that wereafflicting several European economies. In Italy, for instance, the consensus around this proposal stretched across thinkers with very different ideological orientations: from the proposal of the social-liberal Ernesto Rossi (1977), to the 1949 ‘Piano del Lavoro’ of the communist trade union CGIL (Annali Fondazione Di Vittorio, 2014), to the Catholic social teaching of Giorgio La Pira (1951), who would later put into practice a scheme of public works during his years as Mayor of Florence (1951-1957).

16 In our definition, involuntary unemployment includes forced underemployment: those in work for less hours than they would wish.

17 A PJP wage set at above the minimum wage, as recommended by American advocates (see Minsky, 2013 and Tcherneva, 2020), would also have a beneficial distributional effect, by substituting an upward for a downward pressure on wages. It would thus bring a single instrument to bear on the interrelated problems of unemployment and poverty. A public sector job guarantee might be built round the aim of reducing poverty. However, this is not its main macroeconomic objective.

18 Key areas of activity in the Hungarian programme are: use of organic and renewable energy; repair of public road networks inside rural settlements; elimination of illegal waste dumps; increase of local food sufficiency.

19 The redistribution of income happens if higher income earners are taxed more to finance more PJP workers, but the overall distribution of income become less unequal as more people retain a higher income flow compared to the UB case. In fact, the distributional comparison has to be made between the two different scenarios: in the UB case, incomes end up being less equally distributed than in the PJP case.

House of Lords Speech on the Public Order Bill

My Lords, it is very cold in this House; I wonder what has happened to the heating. It certainly has a chilling effect on debate.

I am not a lawyer like the noble Lord, Lord Sandhurst, nor a policeman like the noble Lord, Lord Paddick. I am driven to take part in the debate because I have become increasingly concerned at the wide powers of surveillance and control being claimed by Governments in the name of public order and national security—powers that, in their structure though not yet in the scale of their implementation, resemble those in countries such as Russia and China.

I recall that George Orwell wrote in 1939 about

“whether the ordinary people in countries like England grasp the difference between democracy and despotism well enough to want to defend their liberties. One can’t tell until they see themselves menaced in some quite unmistakeable manner.”

People feel menaced in different ways; I myself have been woken up by one such menacing experience. I hope also to bring some historical perspective to the topic we are discussing.

The traditional aim of public order Acts, starting in 1936, was to prevent violent clashes on the streets. A famous common-law precedent was Wise v Dunning in 1902. Wise, a rabid anti-Papist, whose habit of speaking and dressing in a manner offensive to Catholics in Liverpool had led to fights at previous meetings, was bound over to keep the peace. The principle was clear enough: freedom of speech, procession and assembly must not be carried to the point where it caused violence on the streets.

As most noble Lords have pointed out, we already have plenty of Acts designed to prevent disruptive behaviour. Why do we need more? As the noble Lord, Lord Paddick, said, it is not because many of these measures have been demanded by the police. The noble Baroness, Lady Chakrabarti, suggested an answer that I find extremely convincing. This Bill brings peaceful, if inconvenient, protest and incitement to violence and terrorism into the same legal framework, implying in principle that the first is as culpable as the second. This argument is used to extend the powers of the state in dangerous ways, which have been charted only in despotic systems. That is why I talk about an Orwellian creep and cited George Orwell at the beginning.

I take up just two matters from Parts 2 and 3 of the Bill, consequential on this false identification between peaceful protest and violence and terrorism. The first, which other noble Lords have alluded to, is the extension of the police’s stop and search powers. In the past, stop and search powers have been used to prevent only the most serious offending, such as serious violence or reasonable suspicion of terrorism—for example, if people were suspected of carrying knives, guns or explosives. This was seriously open to racial discrimination and was highly controversial, but I can see a justification for the power itself. However, the Bill would extend the same powers of stop and search to the protest context. 

Someone can be stopped and searched for being suspected of being linked, however peripherally, to non-violent purposes or conduct. To stop and search someone suspected of carrying a bomb is one thing; to stop and search someone suspected of carrying a bicycle lock seems to me, to put it mildly, disproportionate—and, in fact, mad.

This leads me to my second point, to which I can hardly do justice in a short speech, namely the extremely worrying spread of arrest and detention where there is no reasonable suspicion that the person may be involved in proscribed behaviour, or where there is merely a balance of probabilities—I want to come back to that term—that they might be.

Clause 11 creates a new suspicion-less stop and search power, whereby the police will have the power to specify that, in a particular locality and for a particular period of time, they do not need to have reasonable suspicion—in other words, an objective basis for suspicion based on evidence—that a protest-related offence will be committed, before stopping and searching people for a prohibited object. This is similar to powers contained in anti-terrorist legislation. Let me quote from the public information leaflet issued to explain Schedule 3 of the Counter-Terrorism and Border Security Act 2019:

“Unlike most police powers, the power to stop, question, search and, if necessary detain persons does not require any suspicion … The purpose is to determine whether a person appears to be, or to have been, engaged in Hostile … activity.”

Leave to one side the draconian powers being asserted here; it is surely fantastic to apply the same reasoning and powers to someone who might or might not be carrying a paintbrush.

Almost as bad as suspicionless stop and search is Clause 20, which authorises serious disruption prevention orders. Many noble Lords have talked about these. They allow a court to ban a person from attending demonstrations and protests for up to two years, not on conviction of any offence but on a balance of probabilities that, on at least two occasions in the previous five years, they have carried out activities related to a protest or caused or contributed to someone else carrying out a protest. Failure to comply with SDPO conditions is a criminal offence, subject to 51 weeks’ imprisonment.

The balance of probabilities means that the court must think that it is 51% likely that the person concerned has carried out such activities. If it thinks that it is only 49% likely, they get off free. What sort of evidence is needed to make that kind of calculation? I would be grateful if that could be explained. The essential point is that Clause 20 allows standards of proof appropriate in civil cases to be used for imposing criminal sanctions, such as electronic tagging, on individuals convicted of no criminal offence.

Any serious analyst of these measures would need to trace not only the growth of novel forms of protest, which is acknowledged, but the way that concepts such as dangerousness and mens rea—guilty mind—have penetrated into the heart of our criminal justice system, creating a large and growing area of law in which you do not have to have done anything criminal to have been deprived of large chunks of your liberty.

It would be very difficult to amend the Bill to make it compliant with the European Convention on Human Rights. I therefore agree with those noble Lords who want to reject Parts 2 and 3 and seriously amend Part 1.

Gorbachev’s Tragic Legacy


Admired in the West but loathed by his countrymen as a harbinger of Russia’s post-Cold War misfortune, Mikhail Gorbachev fully grasped the immense challenges of reforming the ailing Soviet Union. Today’s Russia largely reflects the anti-Western grievances stemming from his failure.

LONDON – Mikhail Gorbachev, the Soviet Union’s last leader, was buried last month at the Novodevichy Cemetery in Moscow next to his wife Raisa and near fellow Soviet leader Nikita Khrushchev. To no one’s surprise, Russian President Vladimir Putin did not attend the funeral. Novodevichy, after all, is where “unsuccessful” Soviet leaders had been consigned to their final rest.

Putin’s snub reminded me of a conversation I had two decades ago during a midnight stroll through Red Square. On impulse, I asked the army officer stationed in front of Lenin’s Tomb who was buried in the Soviet Necropolis behind it, and he offered to show me. There, I saw a succession of graves and plinths for Soviet leaders: from Stalin to Leonid Brezhnev, Alexei Kosygin, and Yuri Andropov. The last plinth was unoccupied. “For Gorbachev, I suppose?” I asked. “No, his place is in Washington,” the officer replied. 

Ironically, Gorbachev has been lionized in the West for accomplishing something he never set out to do: bringing about the end of the Soviet Union. He was awarded the Nobel Peace Prize in 1990, yet Russians widely regarded him as a traitor. In his ill-fated attempt at a political comeback in the 1996 Russian presidential election, he received just 0.5% of the popular vote

Gorbachev remains a reviled figure in Russia. A 2012 survey by the state-owned pollster VTsIOM found that Gorbachev was the most unpopular of all Russian leaders. According to a 2021 poll, more than 70% of Russians believe their country had moved in the wrong direction under his rule. Hardliners hate him for dismantling Soviet power, and liberals despise him for clinging to the impossible ideal of reforming the communist regime.

I became acquainted with Gorbachev in the early 2000s when I attended meetings of the World Political Forum, the think tank he founded in Turin. The organization was purportedly established to promote democracy and human rights. But in practice, its events were nostalgic reminiscences where Gorbachev held forth on “what might have been.” He was usually flanked by other has-beens of his era, including former Polish leaders Wojciech Jaruzelski and Lech Wałęsa, former Hungarian Prime Minister Gyula Horn, Russian diplomat Alexander Bessmertnykh, and a sprinkling of left-leaning academics. 

Gorbachev’s idea of a “Third Way” between socialism and capitalism was briefly fashionable in the West but was soon swamped by neoliberal triumphalism. Nonetheless, I liked and respected this strangely visionary leader of the dying USSR, who refused to use force to resist change.

Today, most Russians cast Gorbachev and Boris Yeltsin as harbingers of Russia’s misfortune. Putin, on the other hand, is widely hailed as a paragon of order and prosperity who has reclaimed Russia’s leading role on the world stage. In September, 60% of Russians said they believe that their country is heading in the right direction, though this no doubt partly reflects the tight control Putin exercises over television news (the main source of information for most citizens). 

In the eyes of most Russians, Gorbachev’s legacy is one of naivete and incompetence, if not outright betrayal. According to the prevailing narrative, Gorbachev allowed NATO to expand into East Germany in 1990 on the basis of a verbal commitment by then-US Secretary of State James Baker that the alliance would expand “not one inch eastwards.” Gorbachev, in this telling, relinquished Soviet control over Central and Eastern Europe without demanding a written assurance

In reality, however, Baker was in no position to make such a promise in writing, and Gorbachev knew it. Moreover, Gorbachev repeatedly confirmed over many years that a serious promise not to expand NATO eastward was never made

In any case, the truth is that the Soviet Union’s control over its European satellites had become untenable after it signed the 1975 Helsinki Final Act. The accord, signed by the United States, Canada, and most of Europe, included commitments to respect human rights, including freedom of information and movement. Communist governments’ ability to control their population gradually eroded, culminating in the chain of mostly peaceful uprisings that ultimately led to the Soviet Union’s dissolution. 

Yet there is a grain of truth to the myth of Gorbachev’s capitulation. After all, the USSR had not been defeated in battle, as Germany and Japan were in 1945, and the formidable Soviet military machine remained intact in 1990. In theory, Gorbachev could have used tanks to deal with the popular uprisings in Eastern Europe, as his predecessors did in East Germany in 1953, Hungary in 1956, and Czechoslovakia in 1968. 

Gorbachev’s refusal to resort to violence to preserve the Soviet empire resulted in a bloodless defeat and a feeling of humiliation among Russians. This sense of grievance has fueled widespread distrust of NATO, which Putin used years later to mobilize popular support for his invasion of Ukraine. 

Another common misconception is that Gorbachev dismantled a functioning economic system. In fact, far from fulfilling Khrushchev’s promise to “bury” the West economically, the Soviet economy had been declining for decades. 

Gorbachev understood that the Soviet Union could not keep up with the US militarily while satisfying civilian demands for higher living standards. But while he rejectedthe Brezhnev era’s stagnation-inducing policies, he had nothing coherent to put in their place. Instead of facilitating a functioning market economy, his rushed abandonment of the central-planning system enriched the corrupt managerial class in the Soviet republics and led to a resurgence of ethnic nationalism. 

To my mind, Gorbachev is a tragic figure. While he fully grasped the immense challenges facing Soviet communism, he had no control over the forces he helped unleash. Russia in the 1980s simply lacked the intellectual, spiritual, and political resources to overcome its underlying problems. But while the Soviet empire has been extinct for 30 years, many of the dysfunctions that contributed to its demise now threaten to engulf the entire world.

Economy: The Growth Plan 2022

House of Lords Speech: 10 October 2022

My Lords, the twin problems to which the mini-Budget was addressed were near-zero growth and a relentless rise in prices. I doubt whether it will do very much for the first—certainly not in time to offset the second. In the short run, what we face is not a growth crisis but an inflationary crisis and that, of course, also means a currency crisis.

What was the growth strategy? I think it was based on Reaganomics—the idea that unfunded tax cuts, by incentivising the wealthy to work hard and invest more, would pay for themselves. That was a sort of Laffer curve idea, which was very popular in the 1980s. The British Treasury never bought it; it always thought that tax cuts to encourage the wealthy would need to be complemented by welfare cuts to incentivise the poor to “get on their bikes”, in the famous phrase.

Well, that is the basis of growth orthodoxy but it is very insecure. There is no evidence that tax cuts for the rich speed up the real rate of economic growth. What they do encourage is speculation in financial assets and real estate. Also, there is no correlation between the rate of growth and the size of the public sector. So the growth strategy is very insecurely based. As the noble Lord, Lord Eatwell, pointed out earlier, public investment, not public ownership, has been the main growth engine since the war.

Apart from its intellectual incoherence, the Chancellor’s mini-Budget sets out to tackle the wrong problem. The problem, as Keynes wrote in 1939, is not how to get growth but

“how to pay for the war”.

We have blundered inadvertently into a war situation, and that creates war problems. A war economy is inherently inflationary: too much consumer demand, too little supply. This is our situation. Excess demand is easy enough to explain. For over a year, from 2020 to 2021, the Government paid a large chunk of the workforce to not work. Pent-up demand exploded before supply could catch up.

That is one part of it but, in addition, Russia’s invasion of Ukraine has produced big supply shortages, reflected in the near doubling of wholesale energy prices. They would have trebled had it not been for the energy price cap. How long can the Government go on capping prices without raising taxes? Is the Minister expecting energy supply in Europe to increase over the next few years? Is he expecting Saudi Arabia to increase rather than reduce supply? The important point in these questions is that, when debt costs are rising, the Government should be reducing and not increasing their borrowing.

Today, we are significantly less able to run a war economy than we were in 1940. We make fewer things, grow less food and are more dependent on foreign supplies. Extensive deindustrialisation since the 1980s has made our standard of living dependent on the City of London’s ability to finance our twin deficits—budget and current account—which are rising towards 10% of GDP. The City attracts capital into London to engage in financial investment. The energy crisis has blown a hole in the current account. Banks have indicated that a 10% current account deficit will be very difficult for the City to finance. The second factor depressing sterling is, of course, the very high rate of inflation.

We need a credible currency to maintain our standard of living and there is nothing in the strategy of the mini-Budget that guarantees that. What we need is a co-ordinated policy that can communicate a clear path forward.

Requiem for an Empire


Since World War II, Britain’s influence in the world has relied on its “special relationship” with the United States, its position as head of the Commonwealth (the British Empire’s successor), and its position in Europe. The Americans are still there, but Europe isn’t, and now the head of the Commonwealth isn’t, either.

LONDON – Amid the many, and deserved, tributes to Queen Elizabeth II, one aspect of her 70-year reign remained in the background: her role as monarch of 15 realms, including Australia, New Zealand, and Canada. She was also the head of the Commonwealth, a grouping of 56 countries, mainly republics.

This community of independent states, nearly all of them former territories of the British Empire, has been crucial in conserving a “British connection” around the world in the post-imperial age. Whether this link is simply a historical reminiscence, whether it stands for something substantial in world affairs, and whether and for how long it can survive the Queen’s passing, have become matters of great interest, especially in light of Britain’s withdrawal from the European Union.

In the nineteenth-century era of Pax Britannica, Britain exercised global power on its own. The sun never set on the British Empire: the British navy ruled the waves, British finance dominated world markets, and Britain maintained the European balance of power. This era of “splendid isolation” – never as splendid or isolated as history textbooks used to suggest – ended with World War I, which gravely wounded Britain’s status as a world power and correspondingly strengthened other claimants to that role.

As the results of WWI were confirmed by World War II, British foreign policy came to center on the doctrine of the “three circles.” Britain’s influence in the world would rely on its “special relationship” with the United States, its position as head of the Commonwealth (the empire’s successor), and its position in Europe. By its membership of these overlapping and mutually reinforcing circles, Britain might hope to maximize its hard and soft power and mitigate the effects of its military and economic “dwarfing.”

Different British governments attached different weights to the three roles in which Britain was cast. The most continuously important was the relationship with the US, which dates from WWII, when the Americans underwrote Britain’s military and economic survival. The lesson was never forgotten. Britain would be the faithful partner of the US in all its global enterprises; in return, Britain could draw on an American surplus of goodwill possessed by no other foreign country. For all the pragmatic sense it made, one cannot conceive of such a connection forged or enduring without a common language and a shared imperial history.

Imperial history was also central to the second circle. The British Empire of 1914 became the British Commonwealth in 1931, and finally just The Commonwealth, with the Queen as its titular head. Its influence lay in its global reach. Following the contours of the British Empire, it was the only world organization (apart from the United Nations and its agencies) which spanned every continent.

The Commonwealth conserved the British connection in two main ways. First, it functioned as an economic bloc through the imperial preference system of 1932 and the sterling area that was formalized in 1939, both of which survived into the 1970s. Second, and possibly more durably, its explicitly multiracial character, so ardently supported by the Queen, served to soften both global tensions arising from ethnic nationalism, and ethnic chauvinism in the “mother country.” Multicultural Britain is a logical expression of the old multicultural empire.

The European link was the weakest and was the first to snap. This was because Britain’s historic role in Europe was negative: to prevent things from happening there which might endanger its military security and economic livelihood. To this end, it opposed all attempts to create a continental power capable of bridging the Channel. Europe was just 20 miles away, and British policy needed to be ever watchful that nasty things did not happen “over there.”

John Maynard Keynes expressed this permanent sense of British estrangement from the Continent. “England still stands outside Europe,” he wrote in 1919. “Europe’s voiceless tremors do not reach her: Europe is apart and England is not of her flesh and body.” The Labour leader, Hugh Gaitskell, famously evoked this sense of separation when he played the Commonwealth card in 1962, urging his party not to abandon “a thousand years of history” by joining the European Economic Community.

Britain’s policy towards Europe has always been to prevent the emergence of a Third Force independent of US-led NATO. Charles de Gaulle saw this clearly, vetoing Britain’s first application to join the EEC in 1963 in order to prevent an American “Trojan Horse” in Europe.

Although Prime Minister Tony Blair wanted Britain to be at “the heart” of Europe, Britain pursued the same game inside the EU from 1974 until 2021. The only really European-minded prime minister in this period was Edward Heath. Otherwise, British governments have sought to maximize the benefits to Britain of trade and tourism, while minimizing the dangers of political contamination. Today, it is not surprising that Britain joins the US to project NATO power in Eastern Europe over the stricken torso of the EU itself.

So, Britain is left with just two circles. In the wake of Brexit, the Queen’s legacy is clear. Through her official position and personal qualities, she preserved the Commonwealth as a possible vehicle for projecting what remains of Britain’s hard power, such as military alliances in the South Pacific. And whatever one may think of Britain’s hard power, its soft power – reflecting its trading relationships, its cultural prestige in Asia and Africa, and its multicultural ideal – is a global public good in an age of growing ethnic, religious, and geopolitical conflict.

I doubt whether the two remaining circles can compensate for Britain’s absence from the third. The question that remains to be answered is how much the Commonwealth’s durability depended on the sheer longevity of the late monarch, and how much of it can be preserved by her successor.

Mind the Policy Gaps


The widening gaps in policy formation nowadays reflect the division of labor and increasing specialization that has taken us from the sixteenth-century ideal of the Renaissance man. And today’s biggest policymaking gap has grown so large that it threatens global catastrophe.

LONDON – Just as the insistent demand for more “transparency” is a sure sign of increasing opacity, the current clamor for “joined-up thinking” indicates that the need for it far outstrips the supply. With its recent report on energy security, the UK House of Lords Economic Affairs Committee has added its voice to the chorus.

The report’s language is restrained, but its message is clear: Without a “joined-up” energy policy, the United Kingdom’s transition to net zero by 2050 will be “disorderly” (read: “will not happen”). For example, the policy aimed at improving home insulation is at odds with local authorities’ listed-building regulations.

In April, the government called on the Bank of England and financial regulators to “have regard to” energy security. What does this mean? Which institution is responsible for which bits of energy security? How does energy security relate to the net-zero goal? Never mind gaps in the data: The real problem is yawning chasms in thinking.

In a masterly understatement, the committee’s report says that “The Russian invasion of Ukraine has created global energy supply issues.” In fact, economic sanctions against the invader have contributed significantly to a massive energy and food crisis that threatens the sanctioning countries with stagflation and many people in developing economies with starvation.1

China provides key minerals for renewable-energy technologies, including wind turbines and solar cells, and supplies 66% of finished lithium-ion batteries. The report concludes that the UK must “not become reliant on strategic competitors, notably China, for critical minerals and components.” Moreover, the government “will need to ensure that its foreign and trade policies […] and its policy on net zero are aligned.” Quite a bit more joining up to do, then.

The widening gaps in policy formation reflect the increasing division of labor resulting from the relentless march of complexity. Today’s policymakers and their advisers know more and more about less and less, recalling Adam Smith’s description in The Wealth of Nations of a pin factory worker:

“The man whose whole life is spent in performing a few simple operations, of which the effects too are, perhaps, always the same, or very nearly the same, has no occasion to exert his understanding, or to exercise his invention in finding out expedients for removing difficulties which never occur. He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become.”

No one in Smith’s factory would need to know how to make a pin, or even what the purpose of producing one was. They would know only how to make a part of a pin. Likewise, the world is becoming full of “experts” who know only little bits of their subject.

The ideal of the “Renaissance man,” who could do a lot of joined-up thinking, did not survive the growing division of labor. By the eighteenth century, knowledge was being split up into “disciplines.” Now, subdisciplines sprout uncontrollably, and communication of their findings to the public is left to journalists who know almost nothing about everything.

Today’s biggest gap, one so large that it threatens catastrophe, is between geopolitics and economics. Foreign ministries and Treasuries no longer talk to each other. They inhabit different worlds, use different conceptual languages, and think about different problems.

The geopolitical world is divided up into “strategic partners” and “strategic rivals.” Borders are alive and well. States have conflicting national interests and pursue national-security policies. Economics, in contrast, is the science of a single market: Its ideal is economic integration across frontiers and a global price mechanism that automatically harmonizes conflicting preferences. Economics also tells us that commerce softens the asperities of politics, creating over time a single community of learning and culture.

The eighteenth-century English historian Edward Gibbon described history as “little more than the register of the crimes, follies, and misfortunes of mankind.” But the end of the Cold War led to hopes that the world was at last growing up; in 1989, the American academic Francis Fukuyama proclaimed the “end of history.”

Today, however, geopolitics is back in the saddle. The West regards Russia as a pariah because of its invasion of Ukraine; China, if not yet quite meriting that status, is a strategic rival with which trade in many areas should be shunned. At the same time, Western governments also insist on the need for global cooperation to tackle potentially lethal climate change and other existential dangers like nuclear proliferation and pandemics.

In 2012, for example, the University of Cambridge established the Centre for the Study of Existential Risk to help mitigate threats that could lead to humanity’s extinction. Sixty-five years earlier, atomic scientists from the Manhattan Project founded a bulletin to warn humanity of the possible negative consequences arising from accelerating technological advances. They started a Doomsday Clock, the time of which is announced each January. In 1947, the clock was set at seven minutes to midnight. Since January 2020, it has stood at 100 seconds to midnight, marking the closest humanity has come to Armageddon in 75 years.

The danger of nuclear proliferation, which prompted the clock’s creation, is still very much with us. As the bulletin points out, “Development of hypersonic glide vehicles, ballistic missile defenses, and weapons-delivery systems that can flexibly use conventional or nuclear warheads may raise the probability of miscalculation in times of tension.” Do those who urge the expulsion of Russian forces from Ukraine, by economic or military means, consider this risk? Or is this another “gap” in their knowledge of the world?

It is a tragedy that the economic basis of today’s world order, such as it is, is now being put at risk. That risk is the result of actions for which all the great powers share responsibility. The ironically named United Nations, which exists to achieve planetary security, is completely marginalized. Its virtual absence from the big scenes of international conflict is the biggest gap of all, and one which jeopardizes our common future.

Boris Johnson’s Fall – and Ours


Although words like “unprincipled,” “amoral,” and “serial liar” seem to describe the outgoing British prime minister accurately, they accurately describe more successful political leaders as well. To explain Johnson’s fall, we need to consider two factors specific to our times.

LONDON – Nearly all political careers end in failure, but Boris Johnson is the first British prime minister to be toppled for scandalous behavior. That should worry us.

The three most notable downfalls of twentieth-century British leaders were caused by political factors. Neville Chamberlain was undone by his failed appeasement policy. The Suez fiasco forced Anthony Eden to resign in 1957. And Margaret Thatcher fell in 1990 because popular resistance to the poll tax persuaded Tory MPs that they could not win again with her as leader. 

True, Harold Macmillan was undone in 1963 by the Profumo sex scandal, but this involved a secretary of state for war and possible breaches of national security. Election defeats following economic failure brought down Edward Heath and James Callaghan in the 1970s. Tony Blair was forced to resign by the Iraq debacle and Gordon Brown’s impatience to succeed him. David Cameron was skewered by Brexit, and Theresa May by her failure to deliver Brexit. 

No such events explain Johnson’s fall. 

David Lloyd George, a much greater leader than Johnson, is his only serious rival in sleaze. But though the sale of seats in the House of Lords, slipshod administrative methods, and dishonesty had weakened Lloyd George, the immediate cause of his fall (exactly a century ago) was his mishandling of the Chanak crisis, which brought Britain and Turkey to the brink of war. 

The more familiar comparison is with US President Richard Nixon. Every Johnson misdemeanor is routinely labeled “gate” after the Watergate break-in that ended Nixon.

John Maynard Keynes called Lloyd George a “crook”; Nixon famously denied that he was one. Neither they nor Johnson were crooks in the technical sense (of being convicted of crimes), but Nixon would have been impeached in 1974 had he not resigned, and Johnson was fined £50 for breaking lockdown rules. Moreover, all three showed contempt for the laws they were elected to uphold, and for the norms of conduct expected from public officials. 

We struggle to describe their character flaws: “unprincipled,” “amoral,” and “serial liar” seem to capture Johnson. But they describe more successful political leaders as well. To explain his fall, we need to consider two factors specific to our times. 

The first is that we no longer distinguish personal qualities from political qualities. Nowadays, the personal really ispolitical: personal failings are ipso facto political failings. Gone is the distinction between the private and the public, between subjective feeling and objective reality, and between moral and religious matters and those that government must address. 

Politics has crossed into the realm previously occupied by psychiatry. This was bound to happen once affluence undermined the old class basis of politics. Questions of personal identity arising from race, gender, sexual preference, and so on now dominate the spaces vacated by the politics of distribution. Redressing discrimination, not addressing inequality, became the task of politics. 

Johnson is both a creature and a victim of identity politics. His rhetoric was about “leveling up” and “our National Health Service.” But, in practice, he made his personality the content of his politics. No previous British leaders would have squandered their moral capital on trivial misdemeanors and attempted cover-ups, because they knew that it had to be kept in reserve for momentous events. But momentous events are now about oneself, so when a personality is seen as flawed, there is no other story to tell. 

Johnson’s personality-as-politics was also the creation of the media. In the past, newspapers, by and large, reported the news; now, focusing on personalities, they create it. This change has given rise to a corrupt relationship: personalities use the media to promote themselves, and the media expose their frailties to sell copy. 

There has always been a large market for sexual and financial gossip. But even in the old “yellow press,” there was a recognized sphere of public events that took priority. Now the gossip stories are the public events. 

This development has radically transformed public perceptions about the qualities a political leader should have. Previous generations of political leaders were by no means all prudes. They lied, drank, fornicated, and took bribes. But everyone concerned with politics recognized that it was important to protect the public sphere. Leaders’ moral failings were largely shielded from scrutiny, unless they became egregious. And even when the public became aware of them, they were forgiven, provided the leaders delivered the goods politically. 

Most of the offenses that led to Johnson’s resignation would never have been reported in the past. But today the doctrine of personal accountability justifies stripping political leaders naked. Every peccadillo, every lapse from correct expression, becomes a credibility-destroying “disgrace” or “shame.” People’s ability to operate in the public sphere depends on privacy. Once that is gone, their ability to act effectively when they need to vanishes. 

The other new factor is that politics is no longer viewed as a vocation so much as a stepping stone to money. Media obsession with what a political career is worth, rather than whether politicians are worthy of their jobs, is bound to affect what politically ambitious people expect to achieve and the public’s view of what to expect from them. Blair is reported to have amassed millions in speaking engagements and consultancies since leaving office. In keeping with the times, The Times has estimated how much money Johnson could earn from speaking fees and book deals, and how much more he is worth than May. 

In his resignation speech, Johnson sought to defend the “best job in the world” in traditional terms, while criticizing the “eccentricity” of being removed in mid-delivery of his promises. But this defense of his premiership sounded insincere, because his career was not a testimony to his words. The cause of his fall was not just his perceived lack of morality, but also his perceived lack of a political compass. For Johnson, the personal simply exposed the hollowness of the political.

Russia’s Path to Premodernity


The Stalinist retreat from science and logic persisted following the Soviet Union’s collapse and is now the main tendency of Russian President Vladimir Putin’s rule. With his faith-based mythology, warping of history, and denial of facts, Putin’s withdrawal from contemporary Europe could not be starker.

LONDON – The Russian writer Pyotr Chaadayev said of his country that “we have never advanced along with other people; we are not related to any of the great human families; we belong neither to the West nor to the East, and we possess the traditions of neither. Placed, as it were, outside of the times,” he wrote, “we have not been affected by the universal education of mankind.”

That was in 1829. The “riddle, wrapped in a mystery, inside an enigma,” as Winston Churchill described Russia more than a century later, is no closer to being solved today. The philosopher John Gray recently wrote that Russian President Vladimir Putin “is the face of a world the contemporary Western mind does not comprehend. In this world, war remains a permanent part of human experience; lethal struggles over territory and resources can erupt at any time; human beings kill and die for the sake of mystical visions.” That is why Western commentators and liberal Russians are baffled by Putin’s so-called “special military operation” in Ukraine.

Personality-based explanations for Putin’s actions are the easiest to advance – and the most facile. Putin is neither acting like an expert chess player, calculating every move, nor like a ruler unhinged by power or steroids.

Rather, Putin has a distorted, or at least one-sided, view of Russian history, and of what constitutes Russia’s special virtue. But this does not explain the widespread popular and intellectual support in Russia for his justificatory narrative regarding Ukraine. We are all to some extent captives of our national myths. It is just that Russian mythology is out of step with “the universal education of mankind.”

We expect Russia to behave more or less like a modern, or even postmodern, European nation-state, but forget that it missed out on three crucial ingredients of European modernization. First, as Yuri Senokosov has written, Russia never went through the Reformation or had its age of Enlightenment. This, Senokosov argues, is because “serfdom was abolished only in 1861 and the system of Russian autocracy collapsed only in 1917 […] It was then swiftly restored.” As a result, Russia never experienced the period of bourgeois civilization which, in Europe, established the outlines of the constitutional state.

Second, Russia was always an empire, never a nation-state. Autocracy is its natural form of rule. To its current czar, the disintegration of the Soviet Union in 1991 was a violation of Russian history.

The third missing ingredient, related to the absence of the first two, was liberal capitalism, of which Russia had only brief and limited experience. Marx insisted that the capitalist phase of economic development had to precede socialism, because any attempt to build an industrial economy on the archaic soil of peasant primitivism was bound to lead to despotism.

Yet, this is exactly what Lenin’s revolutionary formula of “Soviet power plus the electrification of the whole country” amounted to. Lenin, a brilliant opportunist, was following in the tradition of the great reforming czars who tried to westernize Russian society from the top. Peter the Great demanded that Russian men shave their beards and instructed his boyars: “Don’t gorge like a pig; don’t clean your teeth with a knife; don’t hold bread to your chest while cutting it.”

In the nineteenth century, Russia’s relationship with Europe took on a new dimension with the idea of the New Man – a Western type inextricably linked to Enlightenment philosophy and enthusiastic about science, positivism, and rationality. He appears as Stoltz in Ivan Goncharov’s 1859 novel Oblomov. In Ivan Turgenev’s Fathers and Sons (1862), he is the nihilist “son” Bazarov, who champions science and rails against his family’s irrational traditions. Nikolai Chernyshevsky’s novel What Is to Be Done? (1863), which strongly influenced Lenin, imagines a society of glass and steel built on scientific reason.

Because of their shallow roots in Russian culture, these futuristic projections incited a literary peasants’ revolt. Fyodor Dostoevsky’s Notes from the Underground, published in 1864, not only became one of the canonical texts of Christian Slavophilia, but also raised profound questions about modernity itself.

The Bolsheviks made the greatest collective attempt to bring the New Man out of literature and into the world. They, like Peter the Great, understood that transforming a society required transforming the people in it. They launched a concerted effort, with the participation of the foremost avant-garde artists of the time, to modernize people’s mindsets and nurture their revolutionary consciousness. Russians would become the scientifically and collectively minded New Men who would help build the Communist Utopia.

This was perhaps the biggest failure of all. With Stalin deeming socialism achieved in 1936, and state-mandated socialist realist literature and art exalting mysticism over science, Soviet dreams of a New Man remained just that. The retreat from science and logic survived the Soviet Union’s collapse and now is the animating tendency of Putin’s rule. His own faith-based mythology, unusual symbiotic relationship with the Orthodox Patriarch Kirill of Moscow, warping of history, and denial of facts, underscore the extent of Russia’s withdrawal from contemporary Europe.

In his 2003 book The Breaking of Nations, the former European Union diplomat Robert Cooper thought Russia’s future was still open. The signing of the Conventional Armed Forces in Europe Treaty and later Russian moves to join NATO indicated that “postmodern elements” were “trying to get out.” Whether the rapprochement was foiled by Western arrogance or Russian incompatibility will long be debated. By 2004, Putin had shed most of his liberalizing tendencies and began embracing traditionalism. In Cooper’s classification, Russia is a modern pre-modern state.

Following the Soviet Union’s 1968 invasion of Czechoslovakia, the Czech writer Milan Kundera refused to adapt Dostoevsky’s The Idiot for the stage. “Dostoevsky’s universe of overblown gestures, murky depths, and aggressive sentimentality repelled me,” Kundera said. It is in these murky depths, behind the rational façade, that we can glimpse Putin’s war.