Interview: Robert Skidelsky

As George Osborne prepares to unveil his austerity cuts, the leading economist warns that the coalit

"We're all Keynesians now" or "again" at least, came the cry last year. The phrase -- reluctantly coined in the 1960s by the free-market economist Milton Friedman, and often attributed to President Richard Nixon -- resurfaced last year as G20 leaders agreed on "fiscal stimulus" public spending measures to boost jobs and prop up the economy in response to the global banking crisis.

The Return of the Master, the title of John Maynard Keynes's prize-winning biographer Robert Skidelsky's latest work, last year triumphantly summed up the times. That was then, and this is now. Skidelsky, a cross-bench peer, is now emerging as a leading British voice in opposition to the Damascene conversion, at the eleventh hour, by the UK and many other G20 nations to starting austerity cuts this year.

Emeritus professor of political economy at Warwick University, Skidelsky spoke in the Lords Queens Speech debate, warning that £6bn of coalition government cuts this year risked counterproductively tipping the economy back into recession, and further harming the prospects for deficit reduction.

What makes him different is his independent voice. Skidelsky is championed by the shadow chancellor, Alistair Darling, who wrote to him last week to offer words of encouragement. He is friendly with the former Labour leader Neil Kinnock, his next-door neighbour in the Lords' offices of Fielden House in the shadow of the Palace of Westminster.

Yet this 71-year-old with Russian Jewish ancestry is a freethinker who took the Conservative Party whip for eight years in the 1990s. He became disillusioned by Labour in the 1970s and ripped up his party membership card in favour of the emerging Social Democratic Party in the 1980s, until its dissolution in 1992. That came a year after he was made a life peer.

He was removed as an opposition Lords front-bench Conservative spokesman ten years later by the then party leader, William Hague, for publicly opposing Nato's bombing of Yugoslavia. "I was attracted to Major's Conservatives, there was this thing of having lost one's political home all of a sudden," he says.

". . . I thought, well if I'm in the House of Lords I can't really do anything unless I attach myself to a political party. I probably attached myself to the wrong party in retrospect."

He is not alone in being a non-leftist voice against austerity cuts this year. Recent vociferous opponents of governments "folly" include the eminent economic columnists Martin Wolf of the Financial Times and Nobel Prize-winning Paul Krugman of the New York Times.

Dissenting voices couched in more diplomatic tones have been heard from the US treasury secretary Timothy Geithner, and Desmond Lachman, of the conservative think tank the American Enterprise Institute.

All believe that European governments cutting now at the same time, rather than waiting for better private-sector growth next year, will depress demand and create more unemployment, risking recession for years to come.

"Cruise missile"

In his first interview since publicly joining the cuts debate, Robert Skidelsky predicts the coalition government could U-turn within six months on its march to fiscal consolidation. He accuses it of "irresponsibly" talking down the economy, and of falsely presenting the former New Labour government as centralist and statist.

David Cameron, Nick Clegg and George Osborne should look to history, he says, including to the failed fiscal conservatism of the 1930s Conservative/Liberal coalition. Says Skidelsky: "I think partly there's some kind of intellectual theorem behind Osborne's and the Conservatives' view of the economy: which is the pre-Keynesian view that the economy would be at full employment or would get back to full employment very quickly if these [government] interferences weren't taking place.

"In fact, in 2008, he [Osborne] said that a Keynesian stimulus would be 'like a cruise missile aimed at the heart of the economy'. Well, that was just a month after the collapse of Lehman Brothers. If you believe the economy is basically right, there's no scope for stimulating it."

An intellectual thereom maybe, but does it work in practice? After all, Margaret Thatcher failed to get the public spending share of national income (GDP) below 40 per cent. Bust followed boom. To what extent does the ideology -- that if you shrink the state you can expand entrepreneurship and growth in the private sector -- match the reality?

"Well, reality always interferes with ideology," says Robert Skidelsky. "Thatcher didn't shrink the state, but she stopped its growth in its tracks. And I think reality will interfere with Osborne's plans.

"The main reality, which I think will start to kick in, is that the economy actually doesn't revive, and therefore he will have to abandon some of his cutting programme just to stop unemployment going up.

"There's a wave of austerity sweeping over, and somehow the people who hold out against it are a minority. But what we have to see is how the economy develops over the next six months.

"If, as I expect, the austerity drive will dampen the recovery and even abort it, I think then people will start to hear another song.

"It's very fickle, and if you have no view of the economy at all you're likely to be swung by every passing breeze. One day you're a cutter, the next you're not.

"At least, whatever happens, I will be able to say I was consistent. Either consistently wrong, or consistently right. But I think it's much too early to take the view you should suddenly drop your model just because there's suddenly this herd stampede towards cutting."

"Life-support system"

Yet could the coalition easily make a U-turn in six months, with the Conservatives, although not the Liberal Democrats, having a mandate for five years of hard cutting to reverse the "structural deficit" (the part of the £155bn Budget deficit, estimated at £77bn, or 5.2 per cent of GDP, by the new Office for Budget Responsibility, which is thought to be impervious to rising or falling tax receipts and growth).

"Oh yes, just like all governments do," says Skidelsky. "They'll say, 'Events, dear boy,' as Harold Macmillan used to say . . . 'Blown off course by events beyond our control.'

"The speeches are already there. They've been made hundreds of times already. Everything can be blamed on unexpected world developments.

"No one thought the Greek crisis or the eurozone crisis would bubble up a year ago. When I was writing The Return of the Master I don't think Greece was even mentioned in there. Now I've got a new paperback version, I mention Greece half a dozen times, because it just happened."

Lord Skidelsky has little doubt about the dangerous effects of withdrawing public spending with £6bn cuts this year, which he says are "just the tip of the iceberg".

"Dangerous, yes, it's costly to withdraw. It's very unfair just to inflict unemployment. It has knock-on effects because people go on the dole or their incomes are reduced, and unemployment and other benefits don't make up for full-time work. Therefore you get a downward spiral of spending, and that of course means that other jobs are lost.

"That is the effect of public spending cuts. If you're on a life-support system and you withdraw it, the whole thing grinds to a halt. And that is the huge risk. If the Keynesian model of the economy is right, that is what will happen.

"But my hunch is that the government will find some way, if unemployment does start rising very seriously. It will find some way of fudging its cuts -- either postponing them, or there are also clever and stupid ways of cutting. You can cut some programmes but expand others that might help you in the slightly longer run.

"What the government is doing is also very serious for much of the country outside the financial services sector."

Skidelsky believes the next few years could be a crucial moment in history.

He says: "I think this will be the huge test of Keynes. If, in fact, all these fiscal consolidations produce a wonderful spurt of growth, then he's wrong. Then you just have to lock him up, and his picture of the economy is wrong.

"That's if that happens. But I don't think it can. I don't see how you produce a recovery by cutting down demand everywhere. What they have to suppose is that the psychological boost to entrepreneurs of the government cutting and getting its budget more into balance will be so huge that they'll all start re-employing in people and investing."

But wouldn't credit and cash flow, with improved back-lending, need to underpin such a psychology?

"Yes, but also it depends on real things like their anticipation of orders coming through," he argues. "As someone said in the last great depression in Coventry, 'If no one's ordering cars, there's no point making them, is there?' And ordering depends on your income."

Fear of contagion

How about the role of exports in this, I ask. "Because we're not in the euro, so our currency's depreciated, that will help exports. But on the other hand, if the countries we export to are also in the doldrums, the effect of the depreciation of our currency would be less than it would have been.

"And there's another point that's one of those interminable riddles, that if in fact Osborne's cutting policy reassures the markets, then they'll want to hold sterling more, and that will drive up the exchange rate, just when you want it to go down in order to encourage exports.

"It is very similar to 1931, and again, you had an economy bill introduced that cut a lot of spending. A Labour government broke on it because it wouldn't agree to cuts on employment pay. A Liberal/Conservative coalition took over and introduced its economy bill.

"Then the deficit was about 5 per cent of GDP, not 10 per cent, because in those pre-Keynesian days they tried to keep it as small as they could. And the Budget was supposed to be balanced to save the pound. Anyway, the pound wasn't saved, then the currency fell, interest rates fell, and you had a little bit of recovery but not a very big one.

"I think 1931's a very good parallel. We didn't recover as a result of these wonderful Budget balancing policies. We didn't actually properly recover until the Second World War, when of course they abandoned all that."

Skidelsky is also critical of coalition government rhetoric about the causes and the scale of deficit reduction, not least in its comparisons to the Greek economy, now bailed out by fellow eurozone countries, which has triggered their austerity packages in a drive to save the euro. David Cameron has also blamed the Labour government for leaving a bigger mess than feared, which would "hurt every single person in the country".

The eminent economist says: "I don't think the markets really think there's a solvency problem for Britain. But you see, everyone goes on saying it, and you get a certain feeling that they think there may be some contagion from the Greek fallout and it'll spread.

"There's a lot of the banks that hold Greek government debt, and if those debts become useless you'll have these knock-on effects. That's what happened in 1931 when you had the financial crisis."

So had it almost become an ideological contagion, a contagion of fear, with no hard evidence that markets were set to take action against Britain, leading to soaring interest payments?

"There's no hard evidence, none at all," he says. "It's all in the mind. It's all, 'If you don't do this, well, there's a risk these terrible consequences will flow.'

"I think Osborne and the Conservatives were not being responsible in the last year, because they constantly put the fear of God into the markets that the Labour government was constantly extravagant, that it had lost control over the fiscal position; that unless there was an immediate reduction, people wouldn't want to borrow money, lend the British government money, that the rate of interest would go up. One fear after another, they planted.

"If your leading politicians are saying this about your own government's policy -- what I mean is, the British government's policy -- well, then they do start thinking there's something in it. I think they were not responsible, and it does raise an issue about how we conduct our politics. On these matters if you really do think you're in a hole, you should tone down your criticism."

Nor does Skidelsky subscribe to the view New Labour was statist, pointing to five years before the recession when its budgets had sustainable structural deficit levels of roughly 2 to 2.5 per cent of GDP. "It's only as a result of the recession that the deficit has grown to where it was. If we didn't have that recession, the deficit would be very small," he says.

He accepts Labour's opponents "had a case" in contesting deficit forecasts, and that these should have been up to double the size because of an unsustainable, above-trend growth path.

"The forecasts, the division of the deficit between structural and cyclical (subject to changes in tax revenue, such as from recession), are all subject to very large uncertainties, and I take the view that most of the deficit is just caused by the deterioration of the economy.

"Other people say, 'Yes but the economy had basically started to deteriorate long before the recession struck, therefore the government's actual net borrowing requirements which had averaged about 2 per cent to 2.5 per cent, should have been much larger, because the economy was on an unsustainable growth path.

"Then it suddenly shifted to 6 per cent and then it went to 7 per cent. I don't think it takes rocket science to understand that was due to the fact we were in a bloody great recession."

Sustained borrowing

The unpredictability, the argument goes, came from unsustainable revenues such as highly inflated oil prices and rising housing values, he says.

"Some of the revenues were sort of Teflon, they weren't going to stick, and therefore the deficit should have been higher in the pre-recession years, if you can just abstract from those windfalling kind of features."

Of the Conservative view on this, he says: "They have a case, but it's not a conclusive case. I mean, you never know that things are unsustainable until they stop being sustained. The American current account deficit for years everybody thought was unsustainable. It went on being sustained, and it's still being sustained. In fact, it's increased as a result of the recession, because the dollar has become the only safe haven."

Had New Labour been too centralist and statist, too much a tax-and-spend government, as its opponents successfully claimed at the election? The independent Insititute for Fiscal Studies placed the UK in 2007-2008 as a middling public spender among OECD and G20 countries. And its spending for three years pre-recession had been backed by Cameron's Conservatives.

Skidelsky replies: "No, not particularly. I mean, I think it was within self-imposed constraints. It was trying to shift spending towards the poorer sections of the community by focusing a lot of the NHS, pensions and education. But it wasn't by any means a tax-and-spend-freely government.

"On the whole, maybe Gordon Brown as chancellor lost a bit of control in the last year. There are other criticisms you can make of his chancellorship, but I don't think this was the important one: that he was spending way over limits.

"The real criticism of Brown's chancellorship was that he bought much too readily the hype of financial markets. That somehow he had confidence to plan quite large expenditures several years ahead on the assumption that nothing would go seriously wrong -- and that was what all the financial orthodoxy was telling him.

"There, I think, he should have been more sceptical. Some sort of anti-market instinct should have been working somewhere around there."

Les Reid is political correspondent of the Coventry Telegraph and a freelance contributor to the Guardian.

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The rise of the green mayor – Sadiq Khan and the politics of clean energy

At an event at Tate Modern, Sadiq Khan pledged to clean up London's act.

On Thursday night, deep in the bowls of Tate Modern’s turbine hall, London Mayor Sadiq Khan renewed his promise to make the capital a world leader in clean energy and air. Yet his focus was as much on people as power plants – in particular, the need for local authorities to lead where central governments will not.

Khan was there to introduce the screening of a new documentary, From the Ashes, about the demise of the American coal industry. As he noted, Britain continues to battle against the legacy of fossil fuels: “In London today we burn very little coal but we are facing new air pollution challenges brought about for different reasons." 

At a time when the world's leaders are struggling to keep international agreements on climate change afloat, what can mayors do? Khan has pledged to buy only hybrid and zero-emissions buses from next year, and is working towards London becoming a zero carbon city.

Khan has, of course, also gained heroic status for being a bête noire of climate-change-denier-in-chief Donald Trump. On the US president's withdrawal from the Paris Agreement, Khan quipped: “If only he had withdrawn from Twitter.” He had more favourable things to say about the former mayor of New York and climate change activist Michael Bloomberg, who Khan said hailed from “the second greatest city in the world.”

Yet behind his humour was a serious point. Local authorities are having to pick up where both countries' central governments are leaving a void – in improving our air and supporting renewable technology and jobs. Most concerning of all, perhaps, is the way that interest groups representing business are slashing away at the regulations which protect public health, and claiming it as a virtue.

In the UK, documents leaked to Greenpeace’s energy desk show that a government-backed initiative considered proposals for reducing EU rules on fire-safety on the very day of the Grenfell Tower fire. The director of this Red Tape Initiative, Nick Tyrone, told the Guardian that these proposals were rejected. Yet government attempts to water down other EU regulations, such as the energy efficiency directive, still stand.

In America, this blame-game is even more highly charged. Republicans have sworn to replace what they describe as Obama’s “war on coal” with a war on regulation. “I am taking historic steps to lift the restrictions on American energy, to reverse government intrusion, and to cancel job-killing regulations,” Trump announced in March. While he has vowed “to promote clean air and clear water,” he has almost simultaneously signed an order to unravel the Clean Water Rule.

This rhetoric is hurting the very people it claims to protect: miners. From the Ashes shows the many ways that the industry harms wider public health, from water contamination, to air pollution. It also makes a strong case that the American coal industry is in terminal decline, regardless of possibile interventions from government or carbon capture.

Charities like Bloomberg can only do so much to pick up the pieces. The foundation, which helped fund the film, now not only helps support job training programs in coal communities after the Trump administration pulled their funding, but in recent weeks it also promised $15m to UN efforts to tackle climate change – again to help cover Trump's withdrawal from Paris Agreement. “I'm a bit worried about how many cards we're going to have to keep adding to the end of the film”, joked Antha Williams, a Bloomberg representative at the screening, with gallows humour.

Hope also lies with local governments and mayors. The publication of the mayor’s own environment strategy is coming “soon”. Speaking in panel discussion after the film, his deputy mayor for environment and energy, Shirley Rodrigues, described the move to a cleaner future as "an inevitable transition".

Confronting the troubled legacies of our fossil fuel past will not be easy. "We have our own experiences here of our coal mining communities being devastated by the closure of their mines," said Khan. But clean air begins with clean politics; maintaining old ways at the price of health is not one any government must pay. 

'From The Ashes' will premiere on National Geograhpic in the United Kingdom at 9pm on Tuesday, June 27th.

India Bourke is an environment writer and editorial assistant at the New Statesman.

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