Who’s afraid of John Maynard Keynes

Keynes? Where?The next few posts from Robert de Vries will cover some issues raised by a recent event held at the University of Westminster; ‘Increasing Inequality: Causes, Consequences and the Great Recession’.

This past Friday, the University of Westminster held a day-long event on the causes and consequences of inequality, particularly as it relates to recession. A lot of questions were raised: Why has almost every developed country suffered stagnating wages and increasing inequality? Does increasing inequality make financial crises and recessions more likely? Can we grow our way out of our current crises and increase equality and the same time?

These are all pressing questions, and I’m going to spend the next few posts discussing some possible answers. But first I just want to quickly note a strong impression I got from the day overall, and that is the complete mismatch between what seems to be ‘mainstream’ economics, as far as a good number of working economists are concerned, and what is considered mainstream by our current crop of politicians.

From the way politicians of all three parties talk about the economy, you’d be forgiven for thinking that the ideas of John Maynard Keynes had been completely discredited; that he’d been proven wrong decades ago, and was now regarded by serious people as some kind of crackpot idealist. Almost no one outside of Guardian journalists and Paul Krugman seriously talk about spending to promote demand as a possible route out of recession. Certainly the current leader of the UK’s left-wing party does not. Imagine my surprise, then, at seeing several serious, mainstream, decidedly un-crackpot-like economists discussing Keynes and demand-led growth as if they were the most normal things in the world. Did they not get the memo?

To be clear, I’m in no way economist enough to unpick the evidence for and against Keynesian solutions for our current economic woes. But for now I’m more interested in why Labour seem so scared of the guy. It seems to me that there are two possible explanations for their reticence:

Possibility number one is that it’s just politics. Labour know that the Conservatives (with the enthusiastic assistance of their coalition partners) have won the propaganda war on spending. The public mind has been so thoroughly won over to the idea that the national budget is like a household budget, and that we have just ‘run out of money’, that the barest peep about stimulus would go down like a whole crate of lead balloons.

In this scenario, the Labour higher-ups are just pragmatically deciding not to expend more political capital on a battle they’ve already lost. The frankly colossal problem with this approach is that it leaves them with very little scope to differentiate themselves from the Conservatives on the economy. As poorly as spending to stimulate the economy might go over with the current public mindset, “we won’t cut spending quite as much, or we’ll cut it a bit differently” will scarcely go down any better.

The second possibility is that Labour are going along with the idea that we’re out of money, and that the only way to fix things is by cutting spending, because they actually believe it. Maybe the Conservatives have done such a good job selling the idea that ‘serious’ people don’t do Keynes that they’ve even got the opposition buying it. If you believe that austerity isn’t working to grow the UK economy, it is this second possibility that’s the most deeply troubling because it means that even a Labour victory at the next election would be unlikely to bring about a substantial change of course.

This is a problem that I think touches a lot of our discussions on this blog, at least on the UK side of things. We try to highlight research that we think speaks to something important in the way we function as a society. But what use is this research and debate if mainstream politics had become constitutionally blind to a whole class of possible results?

Right, with that out of the way, we can get back to something more substantive. In the next post I’ll bet talking about some interesting work done by Özlem Onaran, who suggests that decreasing inequality, rather than being something we put off until we’re back to the good times, might actually be the way we get back there in the first place.

About Robert de Vries

I'm an Early Career Research Fellow in the Sociology department at the University of Oxford. I'm mainly interested in how people are affected by concerns about their social status; how it colours the way they think, feel, and behave. I try and contribute here regularly, but my addiction to writing excessively long posts keeps getting in the way.
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2 Responses to Who’s afraid of John Maynard Keynes

  1. You raise some broad points which if I may I would comment on briefly. The economic crisis which began in 2008 with massive banking collapse is extremely serious and very much ongoing; we are not half way through the global economic crisis yet and massive Spain is nearly in major default which would bring Europe to its knees hence all the anxiety.

    The UK cannot ignore our own ‘fiscal deficit’ and all parties are adapting to that including Labour. The ‘economic cake’ we all had in the mid 2000s is shrinking especially regarding transfers to welfare; in 2010 following the shock of an Autumn independent review on UK finances it seemed that all parties would focus spending on ‘productive’ infrastructure, technology, science etc., ; less money would go to public spending on welfare etc.,

    Now of course Economists like Paul Krugman, the internationally respected Nouriel Rubini and many commenters in the FT like these two and say Martin Wolfe their chief commenter have all castigated UK and Europe for running a ”front-loaded” Austerity package which damages economic growth, reduces consumer demand and does nothing to reduce the deficit.(i.e. difference between taxation and spending). We agree with them of course. However here’s the rub the Keynesians are critical of the ‘front-loaded’ aspect of the cuts in a recession not the reduction in public spending itself. That will come in some form once the economy picks up. Which ever way we play it ( and including dealing with large scale disgusting tax avoidance) choises will have to be made. We are an economy – we now have less income than under Tony Blair and like Japan – we face an increasing elderly population. The forces of the progressive Left have to forge solutions and some in Labour are trying.

  2. Pingback: Healing the economy by making it more equal | Inequalities

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