Lord Robert Skidelsky will be lecturing on “Why Keynes?” on Wednesday, June 15, 6 pm at Innsbruck University
For a public sector job guarantee
My Lords, I think I am the only macroeconomist contributing to this debate, which is perhaps rather odd as it is a debate on economic affairs. As instructive and important as the other contributions have been, I want to talk about economic policy, because unless the economy works a lot better than it has in the last 10 years, none of the spending pledges, to be quite honest, will be worth the paper that they are written on, and how well it works will largely depend on economic policy.
The good news is that fiscal policy is back. The gracious Speech said: “My Government will invest in the country’s public services … My Government will prioritise investment in infrastructure and world-leading science research and skills”.
That is good. Governments everywhere have started to inch back to fiscal policy. Retiring ECB chairman, Mario Draghi, admitted that monetary policy “needs help from fiscal policy.”
Evidently the Chancellor agrees. That agreement is indicated by the figures of extra spending that he promises over the next five years. Austerity is over.
Why the turnabout? First is the realisation that monetary policy cannot deliver the required boost to spending. We are told that central banks have run out of ammunition. The truth is that they never had enough ammunition to bring a sick economy back to health. The reason was the liquidity trap: most of the extra money pumped out by central banks simply was not spent on the real economy, it got locked up in financial assets.
Second is the realisation that fiscal policy was pointing the wrong way. There is a lot of myth-making going on here. It is claimed that, thanks to years of austerity, the Chancellor now has the “fiscal space” to boost investment, but the logic of that is all wrong. Trying to balance the budget when the economy was depleted did enormous damage to millions of people; making the economy smaller made the budget more difficult to balance. The result of that has been missed targets, less investment and rising national debt. To say that the nation had to sacrifice itself for 10 years in order to enable the Government to spend more on the health service or infrastructure now is simply terrible fraud. There has been no mea culpa from the perpetrator of that fraud: George Osborne.
The Government promise to increase spending while maintaining the sustainability of the public finances. It is just possible that the Chancellor will meet his much-revised fiscal targets; it really depends what happens to the economy, and most people are expecting a recession. If or when that happens, the Chancellor will have to talk about “headwinds” rather than “headroom”.
Now that fiscal policy is back in fashion, can we do better than the current hit-and-miss strategy? Former Fed chairmen Bernard Bernanke and Janet Yellen have called for more powerful automatic stabilisers. It is a slightly technical phrase but, in this connection, I urge the Government to seriously consider a public sector job guarantee. Its purpose would be to balance fluctuations in private sector employment in a non-discretionary way. The reservoir of public sector jobs would deplete or fill up automatically as the economy waxed or waned. Not only would this be a much more powerful automatic stabiliser than trying to balance the economy by paying out more on unemployment benefits, but it would remove the discretionary element from tax and spending policies that did so much to discredit fiscal policy in the past.
Finally, I am encouraged by the promise in the gracious Speech to give communities more control over how investment is spent, so that they can decide what is best for themselves. John Maynard Keynes long ago emphasised the importance of rightly distributed demand—that is, investment channelled to underheating, not overheating regions. The Government’s pledge to prioritise investment in poorer regions will give communities more control over how money is spent. It would also dovetail neatly into a job guarantee programme.
It would be tragic if the second coming of fiscal policy were to be wrecked on the same inattention to the need for a fiscal constitution as the last one. As Paul Johnson, director of the IFS, recently said: “The trouble is that setting supposedly binding fiscal rules, missing them, abandoning them and replacing them with something new” is not a fiscal constitution, it is back to the bad old days of the political business cycle: we must do better than that this time.
Brexit: Withdrawal Agreement and Political Declaration
My Lords, I do not want to add to the volume of speculation about what will happen tomorrow or a day or two after. The noble Lord, Lord Howell of Guildford, expressed clearly my position on what should happen: the withdrawal agreement, or an amended successor to it, should be made subject to a vote of confidence, and if the Government lose it there should be a general election. That is the clean and British way but whether it will happen is in the hands of the gods at the moment.
Continue reading “Brexit: Withdrawal Agreement and Political Declaration”
Speech on the Autumn Statement 2018
My Lords, I welcome the general thrust of the Budget. As the OBR says, it represents the “largest fiscal loosening” since 2010. Noble Lords have suggested that the Chancellor is spending his windfall, but I mistrust the language of “windfalls”. Windfalls are only forecasts of revenue based on forecasts of growth; they are not there under the bed, so to speak, and should be given the credence they deserve—which is very little.
Lessons for the Left, 1997 – 2018
A lecture given at King’s College London, under the auspices of the Political Economy Forum
i. Labour’s Relationship with Keynes
Labour has always been set a higher standard on the economy than the Conservatives: they’ve had to be more orthodox, more competent, more successful to win equal
praise or escape equal blame.
Money and Government: a lecture at the LSE, 17 September 2018
Over the weekend, just ten years ago, the investment firm Lehman Bros collapsed, and the world economy collapsed after it. I feel a little reluctant to add to the torrent of words trying to read the runes of this catastrophe for the better management of affairs in the future.
But, by chance or cunning, a book of mine, called Money and Government: A challenge to mainstream economics, has just been published. This tries to set the collapse of 2008 in a historical context. It has been inspired by John Maynard Keynes, who believed that the collapse of the 1930s needed the response of a new economic theory, and a new, or rather very old, conception of statecraft.
Continue reading “Money and Government: a lecture at the LSE, 17 September 2018”
Brexit: Preparations and Negotiations
My Lords, it is very cold in this spot at the moment. That is a comment not on the Cross Benches but on the fierceness of the air conditioning—but I shall struggle through.
I have heard with increasing incredulity the efforts of noble Lords in this House, some of them my good friends, to reverse the results of the referendum of 2016. It may have been a mistake to hold a referendum on such a complex issue, but, having asked the question and promised to treat the answer as binding, it seems to me inconceivable that responsible politicians can disregard it. This is the answer to the noble Lord, Lord McNally. David Cameron gave repeated assurances that he would respect the result of the referendum, and I do not think we can ignore that.
Economy: Spring Statement
My Lords, in his Spring Statement, the Chancellor saw,
“light at the end of the tunnel”.—[Official Report, Commons, 13/3/18; col. 718.]
The light is pretty dim, and the tunnel has been much too long. The two are connected, the dimness of the light being largely the result of the length of the tunnel, as I shall try to demonstrate.
Economy: Autumn Budget Statement
Lord Skidelsky (CB)
My Lords, I will concentrate, as is my wont, on the macroeconomic implications of the Budget. That is not to say that supply-side questions are not important—of course they are. I agree with the noble Lord, Lord Maude, that a Government should not be exempt from the efficiency expected of the private sector. However, in general, efficiency is closely related to investment. The more investment there is, the more efficient an economy is likely to be, for the simple reason that there will be much less resistance to cutting costs—which in practice usually means laying off workers—if there are plenty of alternative jobs available.
We have 1.4 million people out of work—“too many”, the Chancellor rightly says. Continue reading “Economy: Autumn Budget Statement”
Economy: Currency Fluctuations
Lord Skidelsky (CB)
My Lords, I, too, thank the noble Baroness, Lady McIntosh, for making this debate possible. The most dramatic economic effect of the United Kingdom’s Brexit vote has been the collapse of sterling. Since June, the pound has fallen by about 16% against a basket of currencies. Mervyn King, the former Governor of the Bank of England, has hailed the lower exchange rate as “a welcome change”. Indeed, with Britain’s current account deficit in the order of 7% of GDP—by far the largest since records started—depreciation could be regarded as a boon. But is it? That is the subject of our debate today.