If you, like members of the Joint Public Issues Team, are prone to ponder such things as the power of the markets, Government spending or the velocity of money circulation, you could do far worse than tune into the BBC2 series ‘Masters of Money. ’ Presented by Stephanie Flanders, the three programmes examine some of the problems that dominate the headlines through the lens of Karl Marx, Friedrich August Hayek, or John Maynard Keynes, and the influence they still have on economic affairs. The night before last, the series kicked off with Keynes, one of the earliest cheerleaders for government intervention in the economy. Go watch on Iplayer
While telling the story of his life and times, the programme steered the viewer through some the key insights that Keynes gave the ‘dismal science’ of economics.
· Unlike other sciences, economics has to contend with irrational human sentiments and so can not predict future events by analysis, or the application of set rules. (Keynes learned this the hard way: He used to spend his mornings analysing economic statistics in order to speculate on the markets, but despite all his work he failed to predict the Wall Street Crash)
· The Government can, and should, ‘step in’ to prevent this from happening, running up whatever deficit it needs to in order to prevent this from happening.
And this basic thought has been embedded in western economic policy ever since. The programme took the viewer to the Hoover Dam, built on government debt during the great depression; to a giant solar-power plant in the Arizona dessert, built on the same stuff today, and to Pirelli, the tyre manufacturers who have been able to continue trading and avoid lay-offs largely thanks to UK government stimulus spending, .
So far so blah, and it would be predictable, inaccurate and invidious for me to turn this post in to an argument against the Governments policy of deficit reduction (a cause which is looking ever more lost). Keynes was proscribing a remedy for the problems of a different era. When he called for more government spending in the 1930s, the treasury was borrowing less than 10% of national income. Now it is hovering around the 60% mark
So why, I hear you ask, do you bring this programme to your attention? Well largely for Keynes’ wider insight into market economies. It might count as a golden rule of capitalism.
· Begger thy Neighbour (trading partner), Begger thyself.
The programme told of how his attending the negotiations for the Treaty of Versailles, at which he saw huge reparations exhorted against his counsel from the vanquished foe. The experience inspired him to write ‘The Economic Consequences of the Peace.’ He argued, not that the treaty was immoral, or unfair, but that it was stupid. Germany was broke, he pointed out; she would not be able to pay these sums, and it would cause untold harm to expect her to do so, with no advantage to victor nations. In the clear light of hindsight, it looks as if he was bang on the money. (What, we may wonder, would Keynes say about the current situation of the Greeks?)
Later on, viewers learned that in 1944 Keynes headed the British delegation at Bretton Woods, a conference organised to discuss the post WW2 economy. The economic woes of the 1930s, and to an extent the War, had as he saw it, been caused by nations pursuing their own interests with scant regard for others. The result was misery for all.
So, applying that principle ‘Begger thy Neighbour, begger thyself”, he proposed a complicated system which would have tied the worlds economies together, and seen those with a trade surplus funnelling money to those with a trade deficit. This would, he thought, force economies in to a close relationship with each other, making a world economy that was more accessible to individual nations, and avoid the financial imbalances that cause so much trouble. It was a very clever scheme for keeping the world economies stable.
The scheme was, understandably, rejected by the richer trade-surplus nations, who did not see how such a policy could be in their benefit.
But one question remains: can such mechanisms for managing the world economy create financial stability, equality, and shared prosperity or, are they a self-defeating hubris that forgets to take account of the 'Animal Spirits'
