Singing Keynes' praises

Philip Booth reviews "Masters of Money".

Last night's BBC documentary Keynes in the Masters of Money series will be followed by two others on Hayek and Marx. The first programme was brilliantly presented by Stephanie Flanders, though perhaps it was too strong in its praise of its subject. The uncritical nature of the programme is not necessarily inappropriate as Stephanie Flanders made clear that she was presenting Keynes as a hugely important figure in post-1930s Britain, rather than as being correct on all matters of economics. Perhaps, by way of balance, Hayek will get the same enthusiastic treatment next Monday.

As a person, Keynes was portrayed by his supporters as a "we are all in this together" sort of a chap. Some might find this difficult to square with his support for eugenics. There is a temptation amongst those of a left-leaning persuasion to assume that those who want to use deliberate government intervention to avoid misery are necessarily more concerned for the plight of all the people than those of us who believe in freedom - this is by no means the case.

Similarly, there was much discussion of his supposed internationalism and his efforts to ensure that we had a world monetary order that enabled the weak to prosper alongside the strong. However, in 1933 Keynes said: "I sympathise, therefore, with those who would minimise, rather than with those who would maximise, economic entanglement between nations.[L]et goods be homespun whenever it is reasonably and conveniently possible. I am inclined to the belief that, after the transition is accomplished, a greater measure of national self-sufficiency and economic isolation between countries than existed in 1914 may tend to serve the cause of peace." This was not an isolated statement on such matters.

The issue of whether Keynes was right or wrong on the issues we today call "Keynesian" was skirted round. Apart from my own brief appearances, and criticisms from Kenneth Rogoff and some pertinent comments from David Laws, commentators had few reservations.

Let's take first the issue of the Great Depression. Britain was out of depression long before General Theory was published. Indeed, by 1936, output had almost would soon recover to the point which it would have reached had we seen trend growth from 1929. Britain did so with very tight fiscal policy. Monetary policy was very loose, of course, after coming off gold. But, this is precisely the policy that Keynes said would not work. It was used. It worked.

The US, on the other hand, had her Hoover dams and other major Keynesian projects. They were described in the programme as having created thousands of jobs. Perhaps they did. The point about Keynesian economics is that it is not very good at probing into both the "seen" and the "unseen". Economists should not generalise from the particular. Certainly, in terms of its effects on the economy as a whole, US policy in the Great Depression was an abject failure. Indeed, as Stephanie Flanders said, the US was not out of depression at the outbreak of war. In other words, there were 17 years between 1929 and sustained peacetime growth. Why was this? Perhaps it was something to do with the fact that, even if stimulus policies work in theory (doubtful in itself), they do not work in practice once put in the hands of politicians. Maybe the policy uncertainty created by giving government greater powers keeps those animal spirits low.

Arguably the worst prediction of the night came from Joseph Stiglitz. He said - presumably in March when other interviews were filmed - that we know what will almost certainly happen if the government does not borrow more money: "unemployment will go up." Unemployment has fallen every month since. We have a growth problem but, surely, if Keynes' economics of recession is about anything, it is about rigidities in labour markets rather than the enhancement of productivity necessary for growth. But, prediction is not Stiglitz's strong point. In a co-authored paper with one of President Obama's later Chief Economic Advisors, he said when commenting on the introduction of a new capital standard in 2002: "on the basis of historical experience, the risk to the government from a potential default on GSE [Fannie Mae and Freddia Mac] debt is effectively zero."

Would Keynes be on Stiglitz's side today? Who knows? And this was one issue on which Stephanie Flanders was deliberately equivocal. It is widely thought that Hayek did not review General Theory because he believed that Keynes would change his mind about the issues - as he did with Treatise on Money. Certainly, there is no reason to think that he would have proposed what came to be called Keynesian policies in countries already borrowing eight per cent of national income, where the government is spending 50 per cent of national income, where unemployment is falling and where real wages seem to be adjusting.

The role of money in creating the Great Depression was not mentioned in the programme - despite the widespread consensus on this issue. The cause was animal spirits, pure and simple. The same cause was cited for the crash of 2008. Indeed, it was even argued that before the crash politicians had been preaching (and it was implied practising) uncritically the doctrine of free markets only to be derailed by animal spirits. No mention of monetary policy and the "Greenspan put". No mention of too big to fail. No mention of Fannie and Freddie or Basel II. No mention of US bankruptcy law. No mention of the policy of encouraging home ownership amongst those who could not afford it. No mention of US deposit insurance which never had the risk-based premiums that were supposed to be levied. No mention of government spending accelerating in countries such as the UK, US, Portugal, Spain and so on. Hopefully, these causes will be presented in next week's programme. A government that follows the above policies and spends nearly twice as much as a proportion of national income as even Keynes thought desirable is not practising a free-market policy.

In a long feature on the euro crisis, it was suggested by the greatest weight of voices that Keynes would today have been warning against strong countries imposing austerity on the weak through government spending cuts and thus causing the violent protests. In fact, although he may well have recommended debt forgiveness, it is certainly not clear what Keynes might have thought on the issue of reducing government spending in countries where it has reached unsustainable levels.

We were also told that our international economic relationships would have been transformed if we had followed his advice and had a fixed exchange rate system where both surplus and deficit countries made adjustments. This may or may not be true, but surely Keynes would have pointed his finger at the deficit countries when Bretton Woods collapsed in the early 1970s, the seeds of which were sown a few years earlier. The problem then was not German deflation (inflation was low but positive) but US and UK inflation (the former caused by government spending on welfare and the Vietnam War, the latter by general indiscipline).

Indeed, famously, when the facts changed, Keynes changed his mind. Perhaps he would have learned to like floating exchange rates, which lead to the beggar-my-neighbour policies the programme criticised becoming an irrelevance. Perhaps Keynes would have seen floating exchange rates and the free movement of capital as the best way to facilitate economic adjustments between very different countries suffering from asymmetric shocks (though not to provide an excuse for endemic inflation).

Stephanie Flanders ended with a paradox. This man who believed in animal spirits and the unpredictability of human nature also believed in governments steering the economy. Next week, perhaps, we will hear that this is not just a paradox, but a contradiction. Perhaps we will hear too that, when people take responsibility for their own financial recklessness and respond to the diverse signals that they see in market prices, the economy can self-correct much more effectively than it can ever be steered by intelligent people in Whitehall - and recessions will be that much shorter.

Philip Booth is Editorial and Programme Director at the Institute of Economic Affairs

Keynes. Photograph: Getty Images

Philip Booth is Editorial and Programme Director at the Institute of Economic Affairs.

 

Photo: Getty
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In focusing on the famous few, we risk doing a disservice to all victims of child sexual abuse

There is a danger that we make it harder, not easier, for victims to come forward in future. 

Back in the 1970s when relations between journalists and police were somewhat different to today a simple ritual would be carried out around the country at various times throughout the week.

Reporters, eager for information for their regional newspaper, would take a trip to the local station and there would be met by a desk sergeant who would helpfully skim through details in the crime Incident Book.

Among the entries about petty thefts, burglaries and road accidents there would occasionally be a reference to an allegation of incest. And at this point the sergeant and journalist might well screw-up their faces, shake their heads and swiftly move on to the next log. The subject was basically taboo, seen as something ‘a bit mucky,’ not what was wanted in a family newspaper.

And that’s really the way things stayed until 1986 when ChildLine was set up by Dame Esther Rantzen in the wake of a BBC programme about child abuse. For the first time children felt able to speak out about being sexually assaulted by the very adults whose role in life was to protect them.

And for the first time the picture became clear about what incest really meant in many cases. It wasn’t simply a low level crime to be swept under the carpet in case it scratched people’s sensitivities. It frequently involved children being abused by members of their close family, repeatedly, over many years.

Slowly but surely as the years rolled on the NSPCC continued to press the message about the prevalence of child sexual abuse, while encouraging victims to come forward. During this time the corrosive effects of this most insidious crime have been painfully detailed by many of those whose lives have been derailed by it. And of course the details of the hundreds of opportunistic sexual assaults committed by Jimmy Savile have been indelibly branded onto the nation’s consciousness.

It’s been a long road - particularly for those who were raped or otherwise abused as children and are now well into their later years - to bring society around to accepting that this is not to be treated as a dark secret that we really don’t want to expose to daylight. Many of those who called our helpline during the early days of the Savile investigation had never told anyone about the traumatic events of their childhoods despite the fact they had reached retirement age.

So, having buried the taboo, we seem to be in danger of giving it the kiss of life with the way some cases of alleged abuse are now being perceived.

It’s quite right that all claims of sexual assault should be investigated, tested and, where there is a case, pursued through the judicial system. No one is above the law, whether a ‘celebrity’ or a lord.

But we seem to have lost a sense of perspective when it comes to these crimes with vast resources being allocated to a handful of cases while many thousands of reported incidents are virtually on hold.

The police should never have to apologise for investigating crimes and following leads. However, if allegations are false or cannot be substantiated they should say so. This would be a strength not a weakness.

It is, of course, difficult that in many of the high-profile cases of recent times the identities of those under investigation have not been officially released by the police but have come to light through other means. Yet we have to deal with the world as it is not as we wish it would be and once names are common knowledge the results of the investigations centring on them should be made public.

When it emerges that someone in the public eye is being investigated for non-recent child abuse it obviously stirs the interest of the media whose appetite can be insatiable. This puts pressure on the police who don’t want to repeat the mistakes of the past by allowing offenders to slip through their hands.  And so there is a danger, as has been seen in recent cases, that officers lack confidence in declaring there is a lack of evidence or the allegations are not true. 

The disproportionate weight of media attention given to say, Sir Edward Heath, as opposed to the Bradford grooming gang sentenced this week, shows there is a danger the pendulum is swinging too far the other way. This threatens the painstaking work invested in ensuring the public and our institutions recognise child abuse as a very real danger. 

Whilst high profile cases have helped the cause there is now a real risk that the all-encompassing focus on them does both victims of abuse and those advocating on their behalf a fundamental disservice.

As the public watches high -profile cases collapsing amidst a media fanfare genuine convictions made across the country week in week out go virtually unannounced. If this trend continues they may start to believe that child sexual abuse isn’t the prolific problem we know it to be.

So, while detectives peer into the mists of time, searching for long lost clues, we have to face the unpalatable possibility that offences being committed today will in turn become historical investigations because there is not the manpower to deal with them right now.

So, now the Goddard Inquiry is in full swing, taking evidence about allegations of child sex crimes involving ‘well known people’ as well as institutional abuse, how do we ensure we don’t fail today’s victims?

If they start to think their stories are going to be diminished by the continuing furore over how some senior public figures have been treated by the police they will stay silent. Therefore we have to continue to encourage them to come forward, to give them the confidence of knowing they will be listened to.

If we don’t we will find ourselves back in those incestuous days where people conspired to say and do nothing to prevent child abuse.

Peter Wanless is Chief Executive of the NSPCC.