Remembering Keynes

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ideas for a world in crisis
Every year for the past ten years Eve (my wife) and I have taught the introductory module of our Masters Programme in Sustainable Development. The module – called Sustainable Development – includes a session that I deliver on the 3rd day of the course which provides students with an overview of the evolution of the global economy from the end of the c.19th to the crash of 2007 and the current recession.I start the session by asking the students if they have heard of three key names: Adam Smith, Karl Marx and John Maynard Keynes. Unsurprisingly, the have heard of the first two (although amazingly some have never heard of Smith!). But what always stuns me is how only a minority have ever heard of Keynes. As the architect of our post-WWII global economy, Keynes was arguably the greatest economist of the c.20th. Educated at Eton and Cambridge, he combined a love of the arts with a passion for a socially conscious economics that initially cast him as a rebel in upper class Britain during the inter-war years – a profile reinforced in his younger years by his homosexuality. He died in 1946, exhausted by his role of the UK’s lead negotiator of the economic peace.
I have spent the holidays immersed in Keynes. I read Robert Skildelsky’s biography of Keynes – the short version which summarizes the original three volume study, but the short version is over a 1000 pages! I also read Tony Judt’s Ill Fares the Land which one could – I suppose – call a neo-Keynesian treatise on the state of our world today. I prefer to read Judt’s amazing book not as a text that corresponds to the original Keynes, but as a text that Keynes would have written if he was alive today – full of passion, unapologetically dismissive of the limp-wristed political dwarfs that run the world, highly critical of all economic icons worshipped today, well informed, steeped in the rich traditions of the inter-connected strands of political economy, and keen to chart alternatives. Keynes, above all, wanted a middle way between the lunacy of free market economics (expressed most clearly in his day by Hayek) and the false promises of revolutionary communism. He wanted a democracy that provided a space not just for capitalist profit, but also for full employment. He wanted the state to be interventionist, but not to dislodge the market. And above all, he wanted a global economy that was stable enough to avoid forever the conditions that led to the two world wars that shattered the complacencies of the c.19th world he inherited and led eventually to the collapse of the mighty British Empire. It was Keynes who – at the founding meetings that led to the establishment of the World Bank and IMF after WWII – personally handed over the baton of global economic leadership to the USA on behalf of a British Government that refused to acknowledge that the world had irrevocably changed. Nevertheless, it was the Keynesian economics of Cambridge University and not the free market economics of the London School of Economics (which is where Hayek was based) that inspired the post-WWII generation of political leaders and economic policy makers.’ State spending to counter-act economic downturns to support demand so that production levels could maintain full employment’ became a golden economic rule for governments across the globe.
It was Richard Nixon who said famously in 1971 ‘We are all Keynesians now’. Not even a democratic President would say that now. The rise of neo-liberalism (called neo-conservatism in the USA) in the 1970s and the electoral victories of Maggie Thatcher and Ronald Reagan brought an end to Keynesian economics. The Chicago Boys – as the group of Chicago University economists came to be known – built an economic theory inspired by Hayek and Milton Friedman that reversed the logic of Keynesian economics. The result was the dismantling of welfare states, the deregulation of financial markets, the freeing up of capital flows so that businesses could relocate the low wage environments like China and the unleashing of the speculative financial forces that led to the crash of 2007 and the subsequent recession. The ghost of Keynes, however, re-emerged as neo-liberal states were forced to intervene to control the damage, including executing some of the most dramatic nationalisations ever seen. The ongoing woes of the European Union suggest that austerity is not working, but the alternative of Keynesian pump priming would more than likely be equally unviable in the context of massive private and sovereign debts.
The global recession clearly marks the end of neo-liberalism, but there is no coherent alternative in its place. Expediency, opportunism and a crass pragmatism rule the day. Keynes is famous for many things, but one quote captures his sensibility best of all:
“Practical men, who believe themselves to quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas.”
Is Keynes still relevant today? If one reads the Nobel Prize winning Keynesians  of today – Paul Krugman and Joseph Stiglitz – I have my doubts. Yes, they are excellent at doing what Keynes did – diagnosing the problem with free market economics and why the austerity measures will fail. But the traditional Keynesian alternative of state spending to drive up demand so that employment levels go up as production levels rise comes up against the twin problems of saturation and sustainability. Maybe consumer markets in developed economies are saturated (in particular the upper income brackets) and in a finite world, consumption cannot expand forever. Maybe we need a very different kind of economics, one that is not dependent on debt and GDP growth, but sufficiency and sources of happiness that are less about more stuff and more about a quality of living that restores nature and a sense of belonging. But alas, we are “slaves of some defunct economist” who was more than likely an “academic scribbler” living in a world so fundamentally different from our own that even s/he would recognise the futility of trying to implement ideas that have long since lost their relevance and meaning. Tony Judt ends his book with provocative and suggestive ideas for a world that suffers above all else from a poverty of ideas. It is worth a read.