Is Keynesianism now dead?

Nick Clegg’s speech yesterday suggests perhaps not.

Nick Clegg’s speech yesterday suggests not

The political narrative is all about economic pick-up at present. Cheap money has, albeit eventually, produced a consumer led recovery. Business is gradually growing more confident. The Tories top line message in eleven months time – more jobs, growth back, and inflation controlled – looks a strong one.

I doubt even Grant Shapps will pump out a ‘Osborne was right’ poster, but it’s essentially the central tenet of their platform.

So is Keynesianism, de rigueur in 2012, now dead? Nick Clegg’s speech yesterday – with its reference to “austerity forever: no” – suggests perhaps not. And in my new book One Nation Britain I argue that this must absolutely not be the case.

John Maynard Keynes offered three broad lessons for any future One Nation government.

Firstly, as his biographer Robert Skidelsky has noted, Keynesianism was not only about re-booting economies after a crash, but trying to limit the occurrence and depth of such crashes in the first place.

For Keynes, 1929 or 2008 style collapses were not just a one in a century event, but a perennial possibility of market capitalism. The role of governments was to correct such failures through targeted intervention.

Even if it sounds pretty wonky, Labour’s distinction between predatory and responsible capitalists is therefore exactly right. But policy does not yet match rhetoric.

This is best illustrated in the financial sector where, rather than tackle the systemic problem, Labour have pledged to intervene after the fact. Taxing banker’s bonuses at 50p in the pound – leaving aside whether it makes any great financial difference to taxing them as income – is essentially saying “we accept predatory capitalism, the state just wants a piece of that action”.

Labour may no longer be intensely relaxed about the City growing filthy rich, but it accepts the idea. Indeed, Labour’s jobs guarantee fundamentally depends on City traders raking in bumper bonuses. Taxing said bonuses may indeed poll well, but that is an odd position to be in post 2008.

Labour are also not ideally placed on Keynes’ second big ideological call: pump-priming through infrastructure investment.

Unemployment is manifestly coming down under this government. It’s now been falling consistently since around December 2011. With the rate dropping about 100,000 jobs a year and the economy accelerating, it is reasonable to assert that, by 2020, UK unemployment could be around the 1.6 million mark (even with a growing population and interest rate rises).

If Labour believe in the Keynesian multiplier, which after all underlines much of their arguments, they need to get ahead of the Tories on this.

A pledge to reduce unemployment by three-quarters of a million people in the next parliament would be ambitious, and doesn’t really sit with Miliband’s desire to ‘under promise’ in opposition and ‘over deliver’ in power. But, at this point, if he does too much of the former he may not get the chance to do the latter.

Broadly, I am with Dave Anderson’s recent Labour List article. Public works should be a key facet of the post-2015 landscape, and this means looking beyond current pledges on HS2 and 200,000 homes a year (not enough to keep up with demand in any case).

And if Nick Clegg actually is on board with pro-growth infrastructure investment as he professes to be, then I agree with him too. The devil will of course be in the detail.

Lastly, perhaps most importantly, Keynes realised that economics was only a means to an end – what he called ‘the good life’. The present Conservative economic argument is utterly top-line in this regard. That does not mean that it is not effective nor that, in and of itself, it is not true. But, ultimately, it is a series of numbers that does not accord with the experience of many.

With one in five workers paid below a living wage, as many as 5.5 million British workers on some form of zero hours contract, and most Britons prioritising holding onto their job rather than advancing within it, the commonplace experience under this government is insecurity even for those nominally in work.

Of those trends, the most important is wages. In his recent policy review, Alan Buckle has called low pay “the nation’s challenge”. That is undeniable – yet fundamentally it must be government which acts on behalf of said nation. Nice caveated words about the living wage might have worked when Labour could also point to a generally murky economic picture, but, with things picking up, the low paid now demand concrete action.

The Tories have shown they are likely to provide work in the next parliament, albeit of a poorly remunerated sort. Labour need to outbid them on both these areas. The whole ‘are you better off than you were five years ago’ question is all well and good, but Labour need a proper answer to ‘how well off will I be in 2020’ too.

Ed Miliband is a deep thinker and is no doubt considering his options carefully. He has also spoken of Keynes before.

In a 2012 speech in Sheffield on the post-war settlement he argued that its origins lay in “the catastrophic failures of the previous decade to meet the basic human needs of millions. Because of the growing sense that the evils of unemployment, poverty and want were not acts of nature but the result of political decisions. Because of an intellectual revolution based on the economic ideas of John Maynard Keynes”.

In 2015 he may get the chance to effect his own political decisions. It is to be hoped that Keynes figures somewhere in that mix. If Miliband’s office really do walk round saying ‘go big or go home’, it is time to get on with it. The clock is ticking.

Richard Carr is a lecturer at the Labour History Research Unit, Anglia Ruskin University, and a contributing editor to Left Foot Forward. He publishes the book One Nation Britain this summer

4 Responses to “Is Keynesianism now dead?”

  1. swatnan

    The Keynesian is dead! Long Live the Keynsian!
    The truth is these things go around in cycles; things come and go out of fashion.
    Take the Welfare State and Universal benefits from Cradle to Grave, which nis no longer tenable these days in times of austerity; so the Contributory Principle becomes quite popular.
    Noi doubtr when we become more prosperous we can afford to be more genorous. But not now. Thats why the Monarchy is so difficult to get rid of. They’ve developed a knack of surviving and reinventing themselves. So too with Keynes.

  2. Makhno

    Keynesianism is based on staying in a growth-dependent economy, and perpetual growth is impossible.

    Don’t get me wrong – Keynesian policies have a consistently better record of delivering and maintaining growth than any alternative method. And we are in a growth-dependent economy now, so Keynesian policies are what we need in the immediate term. But in the longer term it is essential that we transition to a steady-state economy.

    Unfortunately, I can’t see how.

  3. Leon Wolfeson

    We’re on the road now. The poor get poorer, and rich get richer. That’s what happens when you suck off the productivity increases which technology enables into capital, locking it away from wages.

  4. Leon Wolfeson

    It’s not feasible *because* austerity creates austerity, It’s not “generosity”, it saves vast amounts of cash.

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