Speaker 1: Hello, and welcome to another episode of the Odd Lots podcast.
Speaker 1: I'm Joe wasn't All and I'm Tracy Alloway. So, Tracy,
Speaker 1: both of us are our careers in financial media. It's
Speaker 1: roughly around the same time, alright, Like right, like you
Speaker 1: started pretty much just before the financial crisis. Yeah, that's right.
Speaker 1: In fact, I joined the Financial Times in September of
Speaker 1: two thousand eight, so actually directly in the middle of
Speaker 1: the financial crisis. Well that was, like, that's the same month, yeah,
Speaker 1: that or maybe October two tho eight I started Business Insider,
Speaker 1: and we really I always thought it was like the
Speaker 1: best time in terms of career timing wise, because there
Speaker 1: was just so much to cover in those days. Absolutely,
Speaker 1: and the best part was because everything that was happening
Speaker 1: was so unusual and so new. You were sort of
Speaker 1: on an even footing with people who have been covering
Speaker 1: it for years and years and years. Everyone was trying
Speaker 1: to figure out what was going on at exactly the
Speaker 1: same time. Yeah, I my thoughts exactly. And then I
Speaker 1: think the subsequent years, the last decade or so has
Speaker 1: also been incredibly interesting. I mean, obviously the news has
Speaker 1: slowed down a bit, but I think one of the
Speaker 1: I guess positive aspects of the post crisis era has
Speaker 1: been this major rethinking about all kinds of conventional wisdom,
Speaker 1: all of the standard dogma about economics and which direction
Speaker 1: should policy go and what framework should best be used.
Speaker 1: They're really coming under even still today, pretty intense, uh
Speaker 1: scrutiny and just sort of rethinking of everything. I mean,
Speaker 1: I'm not sure I would call it a positive development
Speaker 1: because all these questions of economic orthodoxy are sort of
Speaker 1: coming up because people think that economic orthodox ey hasn't
Speaker 1: actually worked, and we still have sluggish economic growth, and
Speaker 1: we still have lots of problems in the international financial systems,
Speaker 1: so people are really trying to figure out what has
Speaker 1: gone wrong. But from a financial media perspective, yes, yes,
Speaker 1: it's been very interesting. Yeah, I think that's a good distinction.
Speaker 1: It's not good that the post crisis economies, especially in
Speaker 1: developed in the developed world, have been so mediocre, sluggish,
Speaker 1: mediocre wage growth, etcetera. But from our seats, from our
Speaker 1: vantage points, it's certainly been been a time of sort
Speaker 1: of a great opening up of the possibilities and lots
Speaker 1: of chances to explore different ideas. Yeah, and it's not
Speaker 1: you know, it's an unusual time when you see headlines
Speaker 1: like the failure of central banks, and we see those
Speaker 1: all the time, Right, that's sort of almost a given
Speaker 1: at this point in time, with everyone talking about fiscal stimulus,
Speaker 1: exactly right. So today I'm very excited about our guest
Speaker 1: because he's probably one of the best positioned people to
Speaker 1: talk about the history of economic ideas, rethinking economic dogma,
Speaker 1: anticipating where policy will go, and UH, during a period
Speaker 1: of such a profound change. We're going to be speaking
Speaker 1: to Robert Skidelski. He's a member of the House of Lords,
Speaker 1: but he's mostly known for having been the most famous
Speaker 1: and authoritative biographer of John Maynard Keynes. He's written extensively
Speaker 1: about Canes and his work, and he is the author
Speaker 1: of a fairly new book. It's called Money and Government,
Speaker 1: a Challenge to Mainstream Economics, and it's about this. It's
Speaker 1: about the history of the ideas that led us up
Speaker 1: to the global financial crisis, and it's a discussion of
Speaker 1: where things are going to go next. So sort of
Speaker 1: the perfect guest for this moment. UH, Robert Skidelski, thank
Speaker 1: you very much for joining us, and thank you for
Speaker 1: asking so let's start with our intro. When you look
Speaker 1: at the post crisis era and you see all these
Speaker 1: different debates going on about the new frameworks and new
Speaker 1: ideologies and new approaches, are you heartened by it? I mean,
Speaker 1: I mentioned as a positive. It's not positive that we've
Speaker 1: had such sluggish growth and that the old dogmas have failed.
Speaker 1: But do you feel excited by the possibilities that this
Speaker 1: is created in terms of new directions and economic thinking. Well,
Speaker 1: we're in an interesting transition stage, n Tree. I mean,
Speaker 1: I always recall that that that old adage the old
Speaker 1: world is dying and the new world is powerless to
Speaker 1: be born. I mean the old world of economic policy
Speaker 1: I think suffered some pretty devastating blows both in two
Speaker 1: thousand and eight, and really area of policy to lift
Speaker 1: economy is back to anything like vigorous growth, since that
Speaker 1: is most economy economies. There's a dissatisfaction with the orthodoxy. Um,
Speaker 1: there's political discontent with the orthodoxy, and that is shown
Speaker 1: right through the political systems of the world. But there's
Speaker 1: no agreed consensus on where to go from here everything
Speaker 1: all you know, lots of ideas are being put forward.
Speaker 1: There's a lot of turmoil, then new developments and economics
Speaker 1: which try to address some of the problems. The political theorists,
Speaker 1: social scientists, anthropologists, they're all feeling they've got something to say,
Speaker 1: but there's no no unified doctrine of economics to carry
Speaker 1: us forward. So just to set the scene a little bit,
Speaker 1: what is it do you that you think economists actually
Speaker 1: got wrong about the two financial crisis, because I think
Speaker 1: that will inform some of your thinking about where we
Speaker 1: might go from here. Well, I think the thing they
Speaker 1: got mainly wrong was their their view of financial markets
Speaker 1: as efficient mechanisms for the allocation capital. I think the
Speaker 1: orthodox view was that you know, with with a minimum
Speaker 1: minimum regulation, financial markets would be efficient and therefore you
Speaker 1: couldn't get crises like like the crisis that happened. There
Speaker 1: was also the view that derivative markets and that whole
Speaker 1: process would spread risk so individual institutions would be less
Speaker 1: likely to fail. As I said that that really came
Speaker 1: out of the Chicago's School Eugene Farmer, and the view
Speaker 1: that financial markets are efficient. I mean that was a
Speaker 1: subset of the view that all markets are efficient provided
Speaker 1: governments kept out in other words, of markets, and that
Speaker 1: markets were properly competitive, and you couldn't do better. And
Speaker 1: then one further requirement. Provided that money was controlled, there
Speaker 1: was very little that could go wrong. Of course, there
Speaker 1: could be shocks which were unanticipated and couldn't be anticipated,
Speaker 1: and that's always possible, but leaving the shocks aside, things
Speaker 1: would run pretty smoothly and there would be some sort
Speaker 1: of optimization going on right through the economic system. And
Speaker 1: so I think that was the core mistake. Because markets
Speaker 1: aren't efficient. Um, They're always going to have frictions and
Speaker 1: severe mis dysfunctions, and it's the task of governments to
Speaker 1: correct them. And if governments give up that function, then
Speaker 1: things are quite likely to go wrong. The title of
Speaker 1: your book, Money in Government, is really interesting, and you
Speaker 1: actually very early on in your book you go into
Speaker 1: detail about theories of money, what money is, where money
Speaker 1: came from, Why is this important? Why is the sort
Speaker 1: of I mean, both Tracy and I are interested in this.
Speaker 1: We've had several episodes about questions of the nature of money,
Speaker 1: but you obviously put a very front and center in
Speaker 1: laying out your book this concept of what is money,
Speaker 1: Why was that, Why why did you do that? And
Speaker 1: why what what do economists in your view, get wrong there. Well,
Speaker 1: you see, I think money has a double function and
Speaker 1: always has and that's sort of accepted, but only one
Speaker 1: of the functions has been stressed. I mean, on the
Speaker 1: one hand, money is what you need to buy things.
Speaker 1: If you don't have any money, you know, you can't
Speaker 1: get the things you need. But it also has a
Speaker 1: different function, which is what economists call a store of value,
Speaker 1: that is as a hedge against uncertainty. And when the
Speaker 1: money you earned is being stored, it's not being spent.
Speaker 1: So when uncertainty increases, people spend less, and so businessmen
Speaker 1: sell less, the market shrinks, you get depressions. So I
Speaker 1: think what happens is that once you have a shock,
Speaker 1: or even if people don't think that the future is
Speaker 1: going to be too bright and start in st starting
Speaker 1: in investing and spending in the expectation that tomorrow will
Speaker 1: be better than today. Um, they think tomorrow might well
Speaker 1: be worse than today, and so they start storing what
Speaker 1: wealth they have. And money is is a prime way
Speaker 1: of storing wealth, and so it's always had that function.
Speaker 1: That's why you need to look to money always to
Speaker 1: understand why things go wrong and why here is uncertainty
Speaker 1: are so bad. Um for for economic life, money is
Speaker 1: the key. If you didn't have uncertainty, money would only
Speaker 1: have one function, which is to exchange goods with each other.
Speaker 1: So what you describe there, obviously, and you know I
Speaker 1: mentioned at the beginning that you're, among other things, very
Speaker 1: well known for your biographical work of John Maynard Keynes.
Speaker 1: It shouldn't be a new idea. I mean, what you
Speaker 1: just said there is something that you know, many people
Speaker 1: or that Canes wrote about nearly a hundred years ago.
Speaker 1: But what is it about his writing and what is
Speaker 1: it about that conception of money that even as recently
Speaker 1: as well right now, somehow economists are still missing because
Speaker 1: it sounds pretty intuitive store of value, everyone saves, spending
Speaker 1: goes down. How is this something that economists still aren't
Speaker 1: truly internalizing in their understanding of the world. Well, I
Speaker 1: think you know, you have to dig into the bedrock
Speaker 1: of economic theory. I mean, if you look at a textbook,
Speaker 1: and this is the way I think economics has been
Speaker 1: taught and conceived from very early days. You have a
Speaker 1: theory of what you might call a real economy, in
Speaker 1: which goods have produced and exchange for other goods and
Speaker 1: money isn't there. Money gets introduced as a sort of
Speaker 1: disturbing influence quite late at chapter six or chapter seven,
Speaker 1: and then and and so the all the old courses
Speaker 1: in economics were theories of value and theories of money,
Speaker 1: and the two things are kept separate. And one of
Speaker 1: the things cass did, which was crucially important, he says,
Speaker 1: you've got to bring in money on the ground floor,
Speaker 1: because money has an influence of its own. It's not
Speaker 1: just something that has an influence when other things go wrong.
Speaker 1: Money is always a factor. It's always a possibility. People
Speaker 1: always have a possibility of retreating to money. And the
Speaker 1: world is uncertain. I think Caine's thought of uncertainty is
Speaker 1: much more prevalent than orthodox economists did, and especially economists
Speaker 1: in more recent times, they've always thought of the future
Speaker 1: as being in some sense calculable. You know. You you
Speaker 1: you find that people in economists and even financial journalists,
Speaker 1: they rarely talk about uncertainty. They talk about risk and
Speaker 1: you know, this thing risks this or this policy risks something,
Speaker 1: as though you could calculate it. But in many cases
Speaker 1: you can't calculate what the risk is. You haven't got
Speaker 1: a number for it, and I think one of the
Speaker 1: things Cain said was, well, we pretend we have probabilities
Speaker 1: of of things happening um and and our institutions are
Speaker 1: based on that pretense. But when the belief in those
Speaker 1: probabilities break down, then you know that the whole of
Speaker 1: the whole of people's thinking, then simply they panic because
Speaker 1: they no longer have an anchor. Economics is responsible for
Speaker 1: misleading people about the cultulability of future events. I think
Speaker 1: it's it's a huge it's an absolutely huge weakness in
Speaker 1: the way economics is done because in some situations there
Speaker 1: is no uncertainty, there's all very little uncertainty, but in others,
Speaker 1: in the in terms of the macroeconomic economy, the uncertainty
Speaker 1: is a huge I mean, just look at what people
Speaker 1: are trying. They're they're looking into the entrails of the
Speaker 1: future and trying to work out where China is going
Speaker 1: to go up, the political repercussions of Russia and the Ukrainia,
Speaker 1: will the disturbances in Hong Kong affect people's views of
Speaker 1: growth in East Asia and the stability of China. And
Speaker 1: then in Europe, what's going to be the effect of
Speaker 1: Brexit and will populists gain ground? What about Trump the
Speaker 1: sort of you know, errant or wandering cause in all this,
Speaker 1: and then they still have models in which you have
Speaker 1: rational expectations, in which people know what the probability of
Speaker 1: all these possibilities is. And that seems to be just
Speaker 1: the wrong mindset. And of course it minimizes the role
Speaker 1: of government, because if you agents and markets have enough
Speaker 1: information to act rationally and on the whole win their
Speaker 1: bets on the future, then government doesn't really need to
Speaker 1: play a very big part. It should get out of
Speaker 1: the way as much as possible. It should make sure
Speaker 1: that there's no fraud, no corruption, that markets remain competitive.
Speaker 1: It should do a bit of welfare, have a safety net.
Speaker 1: But beyond that, there's no obvious case made out for
Speaker 1: government to intervene in these benign processes. So, in the
Speaker 1: theory of the real economy, sort of classical economics, goods
Speaker 1: are exchanged for goods, everyone acts rationally, and the market
Speaker 1: comes to an equilibrium without the need for government interference.
Speaker 1: But the Kanes argument or your argument, is that money
Speaker 1: changes that equation because it can act as a store
Speaker 1: of value and basically allow people to store up their
Speaker 1: spending because of uncertainty. So I'm curious if you were
Speaker 1: to factor in the fact that money was impacting the
Speaker 1: economy itself, how different would developed market economies actually look
Speaker 1: and what role would the government have in such an economy. Yeah,
Speaker 1: that's just that the one thing you mentioned attains in
Speaker 1: his view of equilibrium. You can think of what's happened.
Speaker 1: What happens when when people stopped to be more uncertain
Speaker 1: about things, is that they increase their precautionary saving. That's
Speaker 1: why you don't get a bounce back to a position
Speaker 1: of optimal equilibrium. What happens is that you do get
Speaker 1: an equilibrium, but it's an inferory equilibrium. And I think
Speaker 1: Kane's introduced to two economics, the notion of multiple equilibriate
Speaker 1: and you can easily get stuck in an inferior equilibrium.
Speaker 1: And I think roughly speaking, we have been um over
Speaker 1: much of the world since two thousand and eight, and
Speaker 1: there's no obvious way back to an optimal equilibrium. And
Speaker 1: that's why I think he would argue governments have two functions.
Speaker 1: One is to prevent the collapses in the in the
Speaker 1: first instance UM, and the second is to use macroeconomic
Speaker 1: policy um very vigorously to offset the increase in precautionary saving.
Speaker 1: I in other words, the government governments have to desave
Speaker 1: and under the situations, and and of course monetary policy
Speaker 1: also comes into the picture. What I would say is
Speaker 1: that Kyne's thought that fiscal policy was more powerful both
Speaker 1: in prevention and in cure the monetary policy. Going to
Speaker 1: this sort of pre crisis period, a lot of the
Speaker 1: sort of dominant economic ideology, a lot of them it
Speaker 1: would have been. I think the term that people uses
Speaker 1: New Caynsian and New Caynesian School of economics or New
Speaker 1: Caynsian models, and my impression of it is that I
Speaker 1: think it's a it's an attempt to extract some insights
Speaker 1: from Canes, such as perhaps the need for fiscal stimulus
Speaker 1: from time to time, but to ultimately shoehorned back into
Speaker 1: the classical school of economic thinking, in which everything is
Speaker 1: calculable and everything sort of restores itself to equilibrium in
Speaker 1: the ideal state. What do this sort of New Caynesian
Speaker 1: school anomists misunderstand about the economist from whom they draw
Speaker 1: their name. Well, you see, it's a good question that
Speaker 1: I think they bought the rational expectations model, but they
Speaker 1: added frictions of one kind or another. And with frictions
Speaker 1: you get some policy space because things don't sort of
Speaker 1: just optimally very quickly. If they don't adjust quickly, then
Speaker 1: they may adjust to a different equilibrium, so to speak.
Speaker 1: In the end, sure the economies will resume their equilibrium
Speaker 1: of growth path, but a lot of damage can be
Speaker 1: done in the interval, and it's not clear that you'll
Speaker 1: really resume at the place you want to, and and
Speaker 1: so that creates a policy space. So I think Mucinsians would,
Speaker 1: let's say, in working out their fiscal rules and monetary rules,
Speaker 1: they would they would always allow for some central bank
Speaker 1: and and physical intervention, especially central bank intervention to steady
Speaker 1: the cycle, and and and so you know, I think
Speaker 1: that's what happened. That's what orthodox central banking policy was about.
Speaker 1: It allowed space for smoothing, cyclical smoothing. Would you, I
Speaker 1: feel very purist rational expectations person, you don't need But
Speaker 1: that was because of sluggishness of response. I don't think
Speaker 1: they should have called themselves Kansian. I mean, I don't
Speaker 1: think that had anything to do with these actually, but
Speaker 1: they want to distinguish themselves from the hard line Chicago school,
Speaker 1: so they created a bit of extra policy space, but
Speaker 1: it proved much too weak, both to stop prevent the
Speaker 1: crash of two thousand and eight or to bring about recovery.
Speaker 1: So Joe and I alluded to this in our intro.
Speaker 1: But nowadays, you know, it's fairly normal to see on
Speaker 1: a daily basis headlines such as, you know, the failure
Speaker 1: of central banks or um central banks face quantitative failure.
Speaker 1: The shock and awe era for central banks is over,
Speaker 1: and it does feel like there is more focus on
Speaker 1: fiscal stimulus, not least in Europe. Does it feel like
Speaker 1: we're moving in the right direction to you in the
Speaker 1: sense that we are moving to a more active role
Speaker 1: for governments or do you feel that we're doing this
Speaker 1: without a cohesive economic theory actually behind that move? Yeah, well,
Speaker 1: I feel the second of it. We're doing it blindly.
Speaker 1: It was always it was always a delusion to believe
Speaker 1: that central banks could take the place of God months
Speaker 1: in the management of the matter economy, and there many
Speaker 1: reasons why they couldn't, but one of the obvious ones,
Speaker 1: as they lacked the legitimacy to do so, macro policy
Speaker 1: is a responsibility of government. It can't be outsourced because
Speaker 1: monetary interventions by central bankers have political and social consequences.
Speaker 1: People have talked about those, the fact that quantitative easing
Speaker 1: and buying of assets, I mean the people who have
Speaker 1: been selling the assets that people have had the assets,
Speaker 1: and so in a way, you know, it's increased inequality.
Speaker 1: And now that's a political consequence of a policy for
Speaker 1: which someone ought to be held accountable. But the central
Speaker 1: banks aren't held accountable because they're they're said to be neutral,
Speaker 1: politically neutral, but that was always a mistake. They may
Speaker 1: be individually central bankers may individually be politically politically neutral,
Speaker 1: but their policies do have political consequences, and so that's
Speaker 1: one reason why central bank role has to be diminished
Speaker 1: in the macro economy. What they should do, and what
Speaker 1: they are set up to do, is to regulate the
Speaker 1: financial system, regulate the affairs of their member member banks,
Speaker 1: and that is a key role which they rather neglected
Speaker 1: before the crash because they thought that the financialism didn't
Speaker 1: need much regulation. So I think you have to rethink
Speaker 1: the role of central banks. But what we haven't done
Speaker 1: is to really properly we think the role of fiscal policy.
Speaker 1: We're drifting back into into into fiscal policy in words
Speaker 1: like stimulus and things and words like that are being used.
Speaker 1: But when when to stimulate by, what means to stimulate?
Speaker 1: What rules fiscal policy should be subject to, Because we
Speaker 1: need rules, because rules are something that that improves certainty,
Speaker 1: that reduces uncertainty. So we need all those things. But
Speaker 1: we've forgotten, we've forgotten what physical policy is, and so
Speaker 1: that's where we have to think pretty hard. Yeah, I
Speaker 1: wanted to connect this to what you were saying. You
Speaker 1: sort of anticipated my question when you said rules designed
Speaker 1: to prevent or reduce uncertainty. And again, and maybe it
Speaker 1: goes back to this sort of new Candian way of thinking.
Speaker 1: We talk about fiscal stimulus as though, okay, we can
Speaker 1: pretend to identify some output gap and if we spend
Speaker 1: this amount of money and then it multiplies the net
Speaker 1: or turn us to full potential, as if that's a
Speaker 1: noble number, and then we get the economy back on course.
Speaker 1: It sounds like what you're saying, and it sounds like
Speaker 1: in terms of this sort of Canzian idea of the
Speaker 1: sort of incalculable uncertainties. That it's not about replacing a
Speaker 1: certain quantity of money per se or getting us to
Speaker 1: some full idea of employment, but that the presence of
Speaker 1: government as an actor in the economy that can come
Speaker 1: in with force, they can reduce uncertainty. It's not about
Speaker 1: the amount of dollars. It's that there is this institution
Speaker 1: that doesn't have to be swayed by the whims of
Speaker 1: animal spirits, the ball and bear cycle, and can just
Speaker 1: present be a be a stabilizing force. Yeah, I think
Speaker 1: I agree with that. The difficulty is that they may
Speaker 1: not be swayed by the business type animal spirits, but
Speaker 1: they're certainly swayed by politics. And that was really what
Speaker 1: brought the old old Kanes in constitution if you like,
Speaker 1: crashing down the fact is that, you know, and lead
Speaker 1: to Milton Friedman's critique that politicians, they vote, vote hungry,
Speaker 1: and they'll make promises for spending irrespective of the real
Speaker 1: needs of the cycle at a particular time. And you've
Speaker 1: seen that going on today. I fiscal policies coming back,
Speaker 1: but not in the way I would approve. I mean,
Speaker 1: look at look at what's happening in the British general election.
Speaker 1: Both parties making huge spending promises, not not by any
Speaker 1: means of the Conservatives saying we were wrong about austerity,
Speaker 1: we should have done it differently, but just to win votes.
Speaker 1: So they compete in the in the number of billions
Speaker 1: they're promising to spend. Now that is going to discredit
Speaker 1: fiscal policy again. So what what my idea is is
Speaker 1: that fiscal policy should be made as automatic as possible.
Speaker 1: And you have a very valuable concept in the idea
Speaker 1: of the automatic stabilizers. I think automatic stabilizers can be
Speaker 1: made more powerful. I mean automatic fiscal stabilizers more powerful,
Speaker 1: so you wouldn't really be driven back to calculating output
Speaker 1: gaps and multipliers, all of which are pretty uncertain. But
Speaker 1: you would do say something like, well, look, we have
Speaker 1: a public sector job guarantee, and we have and and
Speaker 1: and this acts as a buffer stock for labor in
Speaker 1: the economy, and it increases that not that you know
Speaker 1: that the stock swells when the economy turns down, and
Speaker 1: it automatically diminishes when the economy recovers. I mean, we
Speaker 1: have automatic stabilizers at the moment, they're quite weak, and
Speaker 1: I'd like to strengthen them. I don't think I can
Speaker 1: explain all this in one minute, but I think that's
Speaker 1: the way we ought to be going. The other way
Speaker 1: I think we ought to be going is I think
Speaker 1: we ought to revive the idea of public investment. State
Speaker 1: investment was a huge stabilizing force in the sixties and seventies,
Speaker 1: but is shrunk as a percentage of total investment because
Speaker 1: people now have the idea that all state investment is
Speaker 1: bound to turn sides, you know, does not not going
Speaker 1: to pay for itself. Well, I think you need to
Speaker 1: actually work out what what things are investment, what will
Speaker 1: pay for themselves, what will benefit the economy, and what
Speaker 1: you ought to cover just from revenue. Those are things
Speaker 1: that are still in the melting pub. So you mentioned
Speaker 1: the general election in the UK, and I think when
Speaker 1: we talk about fiscal stimulus, part of the obstacle that
Speaker 1: governments will face is most of the population, certainly in
Speaker 1: the US, is distrustful of the way the government actually
Speaker 1: spends public money, even though, as you point out, there's
Speaker 1: a history of public investment actually being a stabilizing force
Speaker 1: and overall social good in you know, the fifties and sixties.
Speaker 1: Why do you think we got to a place where
Speaker 1: lots and lots of people just think that there is
Speaker 1: no role for the government when it comes to this
Speaker 1: type of economic stabilization or this type of investment. Why
Speaker 1: are people so distrustful of the government when as as
Speaker 1: you very clearly lay out, there is potentially an economic
Speaker 1: role for them. Well, you know, I think Robert Schiller
Speaker 1: should put his finger on it. I mean, people believe narrative,
Speaker 1: and if a narrative gains hold, it shapes the way
Speaker 1: they think about reality. The narrative that really got hold
Speaker 1: in the seventies and eighties was really the Freedman narrative
Speaker 1: that governments are just spent thris and that if you
Speaker 1: leave if you leave macro policy to them, they'll just
Speaker 1: inflate the economy in order to ease their construct their
Speaker 1: spendings constraints. And I think that kind of narrative got
Speaker 1: hold that, you know, and it was combined with another narrative,
Speaker 1: which is that politicians are like just their utility maximizes,
Speaker 1: but what the utility they maximizes is their own private utilities.
Speaker 1: And that was in line with the general motivational structure
Speaker 1: of neoclassical economists. So they're always going to be corrupt.
Speaker 1: They're always going to think about their own interests and
Speaker 1: not the public. Those two things coming together, uh, sort
Speaker 1: of have created a view of government which I think
Speaker 1: colors public debate. And yet in the United States there's
Speaker 1: always been actually a huge role of government. I mean,
Speaker 1: people don't understand that most of modern contemporary digital technology
Speaker 1: is a really all based that comes out of the
Speaker 1: US government military spending. And you know, government's had a
Speaker 1: huge role all the way through. Yet that's that's become
Speaker 1: silent and ignore and instead you have these stupid things
Speaker 1: about governments of build roads that never lead anywhere, and
Speaker 1: you know, all that kind of stuff. I'm going to
Speaker 1: ask a question. It might be very controversial, and you
Speaker 1: should tell me if the if it's if it's an appropriator,
Speaker 1: you don't want to answer it. But nonetheless, you know,
Speaker 1: you're talking about rethinking fiscal policy and UM, that it
Speaker 1: can't just be one of these things where when times
Speaker 1: are bad, suddenly politicians uh proposal laundry list, and that
Speaker 1: we need more permanent role. And you mentioned a public
Speaker 1: jobs guarantee is one way of a source of permanent
Speaker 1: public stability, very strong UM countercyclical stabilizing measure, and one
Speaker 1: group of economists who talk about it, the public jobs
Speaker 1: guarantee these days of the U M M tars, the
Speaker 1: modern monetary theorists, and I've noticed in your book that
Speaker 1: you actually mentioned them fairly early on in your in
Speaker 1: your argument they got a prominent place. Would if Canes
Speaker 1: were here, would he find a sort of a would
Speaker 1: they be kindred spirits to him of the various factions
Speaker 1: out there right now in your view? Or is that
Speaker 1: going too far? Well? You see, I think that was
Speaker 1: a Cane's reaction to an early version of modern monetary there,
Speaker 1: which was his reaction to Aber Learner's paper of ninety two,
Speaker 1: I think, in which which was called functional theory of
Speaker 1: functional Finance, in which a Learner was basically using this
Speaker 1: argument that you don't use the tax system in order
Speaker 1: to get revenue, but to drain the economy of money,
Speaker 1: and you need to do that when you're in a
Speaker 1: situation of inflation or incipient inflation. In other ways, what
Speaker 1: Leerner was saying is that government spend money because they've
Speaker 1: got banks that printed for them, and and it's a
Speaker 1: myth that they have to apply to the people for
Speaker 1: in order to spend rather, they're spending creates the taxes
Speaker 1: which they may have to then raise in order to
Speaker 1: stop inflation and pains. His reaction to that was to say, well, technically, yeah,
Speaker 1: that argument is correct, but it's simply not practical politics
Speaker 1: to recommend it. I and I and I go along
Speaker 1: with that. And what I'd say, in addition to what
Speaker 1: Kane said, is that although it's a myth that governments
Speaker 1: have to apply to the people for taxes or get
Speaker 1: them issue debt, it's a necessary myth of our limited government,
Speaker 1: because otherwise, what's to stop the state just spending what
Speaker 1: it wants for whatever purposes it chooses to. In other ways,
Speaker 1: it's part of the part of the constitution of limited
Speaker 1: government that this myth should be there. And so um,
Speaker 1: I would say, some myths are very useful if you
Speaker 1: want to avoid despotism, and one shouldn't really attack this
Speaker 1: myth just on technical grounds that in fact that's not
Speaker 1: what governments actually have to do. One should be aware
Speaker 1: of the political functions of this particular view of the
Speaker 1: relationship between government and its taxpayers and creditors. Yes, so
Speaker 1: that's the way I would I would deal with modern
Speaker 1: monetary theory. But where it's been extremely useful is to
Speaker 1: point out another myth, which is that the government's government
Speaker 1: space a fiscal constraint whenever they unbalanced the budget. Now
Speaker 1: that I think has been the orthodoxy, and it's been
Speaker 1: one of the big arguments for balancing, that government should
Speaker 1: balance their books. And I think modern monetary theory has
Speaker 1: been foremost in pointing out that this is not the case.
Speaker 1: In that sense, It's been very useful. So I don't
Speaker 1: think I think it is controversial. I doubt if modern
Speaker 1: monetary theory will become a dominant theory of fiscal finance
Speaker 1: in the next few years. In fact, you can do
Speaker 1: what you need to do on the fiscal front without
Speaker 1: having to use modern monetary theory. This was going to
Speaker 1: be my next question actually, So if you were to
Speaker 1: write an essay right now on what economic orthodoxy would
Speaker 1: actually look like in ten years time, what's your best guess.
Speaker 1: Is it a continuation of the existing system or going
Speaker 1: back to more of a pure Canes model. What do
Speaker 1: you think it will look like? The economic consensus, Well,
Speaker 1: I don't think there's any linear path to better economics.
Speaker 1: In fact, I'm not sure that economics as it now
Speaker 1: exists will be with us in fifty years time at all.
Speaker 1: I mean, there'll be economists, but there will be attached
Speaker 1: different subjects. That's probably my view of how how it
Speaker 1: will go. But otherwise it all depends on what happens
Speaker 1: in events. As one of our former prime ministers used
Speaker 1: to say, events there boy will decide how thought goes.
Speaker 1: And that's sort of entirely true, but I think there's
Speaker 1: a large element of truth in it. If we have
Speaker 1: new shocks um to the world economy, that will stimulate thought.
Speaker 1: I think otherwise the economics may not be in the
Speaker 1: center of the rethinking of how you deal with economies.
Speaker 1: You see that that's that's maybe a bit paradoxical, but
Speaker 1: we're much much more aware of the fragility of liberal
Speaker 1: democratic societies. It's not not clear to me that economics
Speaker 1: gives any particular answer to that. And all economics should
Speaker 1: be able to say is we must not allow crashes
Speaker 1: like two thousand and eight to happen. We should not
Speaker 1: allow so much inequality to exist, We should not be
Speaker 1: prepared for such long periods of subnormal capacity utilization. And
Speaker 1: what are the policies that can prevent those calamitism? And misfortunes,
Speaker 1: and so economics has to rethink the role of government,
Speaker 1: and it's not clear that economics is the best place
Speaker 1: to do that, which is why I'm not sure that
Speaker 1: the economics really deserves to be the queen of the
Speaker 1: social sciences as full family from Paul, and I know
Speaker 1: that's not answering your question properly, but I don't think
Speaker 1: it's got a simple answer. No, that's great. I think
Speaker 1: it's a perfect answer, Robert, thank you for joining us.
Speaker 1: That was that was fantastic. Really enjoyed that. Well, I enjoyed.
Speaker 1: I enjoyed talking to Thank you so much by Tracy.
Speaker 1: I really liked his answer to your last question. Actually,
Speaker 1: I thought that was kind of the perfect place, which
Speaker 1: is that economists have some insight, but that maybe thinking
Speaker 1: about oh, economics is going to give us the answers
Speaker 1: to sort of what ails is now at a time
Speaker 1: when so much is obviously on the political side. I
Speaker 1: thought it was very insightful. Yeah, it kind of reminded
Speaker 1: me of a couple earlier All Thoughts episodes that we've done,
Speaker 1: where we always pointed out how I don't want to
Speaker 1: use the word primitive, but I guess how simple. Some
Speaker 1: of the models that economics is actually built on are
Speaker 1: like this notion of the equilibrium between two sets of
Speaker 1: goods and the market will always move to that point,
Speaker 1: and it doesn't actually take into account a the existence
Speaker 1: of money or be the sort of behavioral economics aspect
Speaker 1: of stuff where people don't always behave rationally. It's sort
Speaker 1: of it's it's weird and sometimes frightening to think that
Speaker 1: a lot of the way the world works is still
Speaker 1: built on these outdated models. Yeah, and from what I understand,
Speaker 1: and he talks about this in his book, and I've
Speaker 1: heard a lot of people say it, it's like many
Speaker 1: economists not only don't know how banks work, but don't
Speaker 1: feel that that's particularly important. Again because banks are seeing
Speaker 1: as just sort of this extension of money, and of
Speaker 1: money is just this technology to sort of intermediate person
Speaker 1: a in person B or bank is just to intermediate
Speaker 1: to people. Are two entities. You don't really need to
Speaker 1: know how they work, even though the financial crisis obviously
Speaker 1: showed that you can't really understand the modern world without
Speaker 1: understanding what banks do. The other thing I really liked
Speaker 1: about that discussion, and by the way, I knew an
Speaker 1: MMT question was coming up. It was only a matter
Speaker 1: of time. But but one of the criticisms of m
Speaker 1: m T is that even if you say that the government,
Speaker 1: you know, isn't limited by a sort of household budget,
Speaker 1: it's only limited by inflation when it comes to spending,
Speaker 1: that doesn't overcome the problem of political will or a
Speaker 1: achieving a political consensus. And Lord Skidelski is quite clear
Speaker 1: on one way that maybe you could get to that point,
Speaker 1: which is his idea of automatic stabilizers. So if you say,
Speaker 1: when X happens, why is going to come into effect,
Speaker 1: you sort of bypass the twoing and throwing of Congress
Speaker 1: or parliament or whatever when it comes to actually figuring
Speaker 1: out what to do. Yeah, I mean the question is,
Speaker 1: and I think it sort of sums it up is
Speaker 1: political leaders in developed markets tried to solve that problem
Speaker 1: with the creation of independent central banks and the hope
Speaker 1: that economic stabilization could be taken out of the hands
Speaker 1: of politicians. But of course, as he points out, central
Speaker 1: banks have their own ay, they have a credibility problem
Speaker 1: because they're not really accountable to the public in the
Speaker 1: same way, so they're not really they're only in a
Speaker 1: very sort of indirect sentence, and leaning so much on
Speaker 1: monetary policy has distributional consequences that aren't ideal. So, you know,
Speaker 1: no one really knows what the sort of post post
Speaker 1: crisis future looks like, but it sounds like, if we
Speaker 1: can sort of summarize it, it's how do you build
Speaker 1: a system that's robust? How do you build a system
Speaker 1: that's uh powerful economic stabilizers while maintaining some sort of
Speaker 1: democratic accountability to it? Big questions, big episode of odd blots. Yeah, no, no,
Speaker 1: easy answers. All right, this has been another episode of
Speaker 1: the ad Thoughts Podcast. I'm Tracy Allaway. You can follow
Speaker 1: me on Twitter at Tracy Alloway and I'm Joe Why
Speaker 1: Isn't Thal? You could follow me on Twitter at the
Speaker 1: Stalwart And you should definitely follow our guests on Twitter.
Speaker 1: Lord Robert Skidelski, he is at our Skidelski. Also be
Speaker 1: sure to check out his new book, It's Really Good.
Speaker 1: Be sure to follow our producer on Twitter, Laura Carlson.
Speaker 1: She's at Laura M. Carlson, as well as this week's
Speaker 1: substitute producer to for Foreheads at Foreheads T and be
Speaker 1: sure to follow the Bloomberg Head of podcast Francesca Levi
Speaker 1: at Francesca Today, and all of Bloomberg's podcasts can be
Speaker 1: found under the handle at podcasts. Thanks for listening.