This week, Project Syndicate catches up with Robert Skidelsky, a member of the British House of Lords and Professor Emeritus of Political Economy at Warwick University.
Project Syndicate: Just a couple of weeks after you predicted that UK Prime Minister Boris Johnson’s ousting of his chancellor of the exchequer, Sajid Javid, heralded a shift from monetary stimulus to fiscal expansion, the US Federal Reserve slashed its benchmark interest rate in response to the COVID-19 crisis. But, as you noted, whereas “fiscal policy might in principle be up to the task of economic stabilization, there is no chance that central banks will be.” That seems even truer now, as the pandemic has made a severe recession all but inevitable. Which fiscal measures would be most effective in restoring economic stability?
Robert Skidelsky: My major concern is that we could drift back toward the bad old days, when the fiscal-policy “tap” was turned on and off out of panic or for political reasons. Fiscal policy should aim to balance the economy at full employment. Politicians must not be allowed to play fast and loose with taxes and spending.
We thus need to distinguish between long-term capital investment and short-term stabilization policy. Capital investment should aim to achieve a steady flow of investment projects independent of the business cycle. Short-term policy should aim to strengthen the “automatic stabilizers” by means of a public-sector job guarantee. Both establish a degree of automaticity in the management of long-term and short-term demand.
PS: Back in 2018, you wrote that, “Unlike the Great Depression of the 1930s, which produced Keynesian economics, and the stagflation of the 1970s, which gave rise to Milton Friedman's monetarism, the Great Recession has elicited no such response from the economics profession.” You then concluded that, “Macroeconomics still needs to come up with a big new idea” that goes beyond “New Keynesian ‘tweaking.’” And yet you’re critical of Modern Monetary Theory (MMT), whose proponents, you’ve written, are “too dismissive of the constitutional case for limiting government spending.” Where, then, should economists look to find a better option?
RS: My view of MMT – essentially, the idea that the state’s only “budget constraint” is inflation – is that it is technically correct, but can’t be sold politically, because it violates the ancient constitutional principle that the state should spend money only with taxpayer consent.
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We ask all our Say More contributors to tell our readers about a few books that have impressed them recently. Here are Skidelsky's picks:
by Ian McEwan
In this contemporary novel, two humans purchase a morally perfect servant robot, Adam, who tries to take charge of their lives. It brilliantly portrays the tensions that build up among the three, until they reach a horrendous climax.
by Adrienne Mayer
This book shows how questions about man’s relationship with robots were posed from the beginning of Western civilization, when they existed only in the imagination. Mayer’s exploration of this history enriches contemporary discussions about robotics, driverless vehicles, biotechnology, artificial intelligence, machine learning, and other innovations.
by Keith Thomas
With tremendous erudition, Thomas chronicles the emergence in England of the ideal of “worldly asceticism,” which laid the psychological foundation of capitalism.
From the PS Archive
In this long read, Skidelsky analyzes the advanced economies’ policy successes and failures in the aftermath of the 2007-2008 global financial crisis. Read more.
Skidelsky explains why Thomas Paine’s eighteenth-century idea of an unconditional basic income has gained contemporary relevance. Read more.
Around the web
In an interview for the Institute for New Economic Thinking, Skidelsky criticizes neoclassical economics for dismissing the role of money and the state in the economy. Watch the video.
Tracing the history of fears that automation will make human workers redundant, documentary-maker Phil Tinline asks Skidelsky and others for their take on the “problem” of leisure. Listen to the podcast.