Review: “Money and Government: A Challenge To Mainstream Economics” Robert Skidelsky

Posted by in Development, Economics, History, Politics, Reading

This is an excellent, if dry book, but it suffers in comparison to the more politically focused books reviewed above because it aims for a new understanding of Keynesian economics as an antidote to failed neoliberalism. Reading economics, even good economics, just reminds me how general economics is, how easy it is for models to be more linked to currently fashionable ideologies then the messy complexity of our real world.

Still, someday perhaps economics departments may again include significant sections which are not dependent on consultancy to business and which focus on supporting best business practice and regulatory balance. If that change happens, this book will be an excellent resource as it traces the deliberate burial of Keynes’ ideas by anti-state neoclassical economists, then clarifies and highlights the continuing relevance of Keynesian approaches today.

Skidelsky does this not with the idea of promoting old solutions to new problems, but with lifting the level of debate around possible new alternatives to our failed dependence on ultra-low interest rates. Here are a few quotable quotes to give you a flavour of his perspective:

On the world economy: “Surveying the whole scene, it is hard to avoid the conclusion that, in the advanced world at any rate, governments had surrendered to bankers the job of keeping their economies afloat. They allowed money to be pumped from one centre to another in a widening circle of financial betting, convincing themselves that if the money wheel could be kept spinning, nothing much could go wrong.”

On the rise of right-wing nationalism: “The working of the economic machine needs to be drastically improved and the rate of disruptive change slowed down to societies’ (considerable) capacity for adaption if a decent political system is to be maintained.”

On new economic policies: “The essential requirement is to reverse the current balance of fiscal and monetary policy. The focus should shift from fighting inflation to fighting stagnation. This means using the budget to revive growth, and monetary policy to support fiscal policy.”

On banking: “The financial system caused the Great Recession, but it was allowed to. Its faults were licensed. Reform of banking that does not include regulating what banks are allowed to do will miss the point.”

On the state: “There is a permanent role for public investment to keep a growing economy at full employment. It may also be the case that public investment will need to expand to fill the growing gap between private saving and investment as economies become richer.”

On globalisation: “A market system, to be generally acceptable, requires a state to curb its excesses, distribute its fruits in a reasonable way, and mitigate its hardships. National states were created to do this; they in turn created and enable unified domestic markets. We have been trying to create a unified global market by diminishing national states without setting up a global state, or even recognising the need for one. No wonder there has been an explosion of popular resistance.”

On trading and monetary systems: “What would be best is an agreed set of rules allowing different types of restriction on cross-border capital flows under specified conditions.”

On protection: “The general assumption in favour of free trade has rarely been questioned since the nineteenth century. This is bad history, since many nations have prospered under protection.”

On migration: “There are limits to the rule of profit-maximising capitalism which we ignore at our peril. Economics can help us understand what those limits are. But it has to be a different type of economics. Specifically, those who think about economics should spell out the economic conditions for a decent migration policy.”

On housing: “Compelling banks to hold mortgages for a period of years, plus a big boost to social housing, would cool this particular inflammation.”

On inequality, he offers only the compensation of a guaranteed unemployment income financed by taxes. Even this progressive economist seems blind to the need to rebalance today’s radical weakening of labour by capital.

And on reforming economics: “Keynes argued repeatedly that the future was radically uncertain. In contrast, orthodox economics abstracts from uncertainty by claiming that the economy is a predictable as the natural world. The reinvention of macroeconomics requires (re)inserting society into the study of economics.