Keynes, Crisis and Monopoly Capitalism
Robert Skidelsky and Paul Jay discuss Keynes, the IMF, concentration of
ownership, political power and rebellion
PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay. We’re at the INET conference in Bretton Woods, New Hampshire, the birthplace of the International Monetary Fund and the World Bank. Now joining us to talk about something that’s very much at the heart of the birth of the IMF and also runs through this conference is Keynes, the economic theorist, who we will learn more about because we are now joined by Robert Skidelsky, who has recently just written a book called Keynes: Return of the Master. Thanks for joining us.
PROF. EMERITUS ROBERT SKIDELSKY, POLITICAL ECONOMY, WARWICK U.: Very happy to be here.
JAY: So first of all, let me ask you: what would Keynes make of what the IMF turned out to be? ‘Cause it turned out to be an organization that in much of the world is seen as a force more for destroying national economies than helping them.
SKIDELSKY: Well, that happened later on, and particularly in the East Asian Crisis in 1997-98. I think for a long time the IMF was an organization that helped countries over temporary balance-of-payments difficulties. That’s what it was set up to do. It wasn’t his idea, by the way. The IMF was the compromise which he made in the Bretton Woods agreement. He had a more ambitious plan set up: a world central bank, which would have much, much more resources. It’d be much better resourced. And the Americans wouldn’t actually agree to that, ’cause they were providing most of the money and they wanted to have control over the spending of it. So they limited the resources and basically limited the functions of the IMF.
JAY: Okay. Just to very quickly remind viewers, this is–we’re talking 1944, and a conference takes place in the hotel we’re in–
SKIDELSKY: In this very hotel.
JAY: –about what will the postwar world global exchange look like.
SKIDELSKY: Well, it was the end of the war, and people wanted a new world, and they wanted–they didn’t want to go back to the 1930s. And the leaders of the willing coalition said there must be new institutions that could bring order to the world economy and also to the world political system, because the United Nations was also set up as one of these new institutions. But at Bretton Woods they agreed to set up the International Monetary Fund, the World Bank, they set up a trade organization, and all these were meant to be pillars of a more stable world order, one that avoided the terrible collapses like 1929, 1932.
JAY: And it helped lead to World War II.
SKIDELSKY: Yeah, it helped–that helped lead to–. And also the protectionism that resulted from those collapses and the currency wars of the 1930s, when, you know, there was real currency war between Britain and the United States, as well as a trade war. And then Germany was in a world of its own.
JAY: So what happens? Because as we get into the later decades, IMF starts–essentially, if you–what many countries said is used a kind of blackmail, that if you want the financing, you’re going to restructure your economies the way we say.
SKIDELSKY: That was the Washington consensus. That was after the ideological right had taken over in America. This was only after Reagan. It was the new right-wing economics that believed that you mustn’t have any–as little government as possible, and that the way to prosperity and growth was to have balanced budgets, not to have any protection, and to get the government out of the economy. And so all the IMF reconstruction programs, when they were appealed to, reflected that ideology, whereas before they’d been much more permissive about domestic policies–they hadn’t tried to interfere with them. But they saw the light, these new ideologists. There was only one way to get out of poverty and get growth, and that was to get the government out of the markets. And so that was the tenor of their advice.
JAY: And what was the consequence?
SKIDELSKY: The consequence was, I think, a couple of decades of–well, five years of disaster for East Asia and very low growth compared to the 1950s and the 1960s, when the IMF was working well, the United States was lending a lot of money abroad, keeping demand very high, countries were pursuing full employment policies. It was a golden age for Western Europe and for much of the rest of the world. But, you know, the anti-government forces really regained control via the Republican Party, essentially. And then Clinton Democrats also succumbed.
JAY: Were really no different, yeah.
SKIDELSKY: Yeah, they weren’t that different. And now I’m afraid, as I see it, the Obama presidency has succumbed to this drive to cut and cut and cut government spending as a way to recovery, which is mad, because what you’re doing is you’re cutting demand, you’re cutting spending power, you’re cutting it out of the economy, and then you expect people will spend more. It’s a simple contradiction in terms.
JAY: And on the other side, they’re driving down wages. You have in the United States an increasing trend towards what they call two-tier contracts, where new workers are starting at half the wages that they had previously. You have–going to have tax on the public sector, where layoffs–. So what I don’t get is what is their logic. They’re not irrational people, the right. They have some strategy that they think makes sense. What is it?
SKIDELSKY: Well, I mean, I think there are two elements in the strategy. There’s–first of all, they are ideologically opposed to big government. That is the constant. That’s the bottom line. They don’t like big government, and they think that if government is smaller, the economy will be larger, full stop. That goes back to some simplified economic theory, which, you know, dates from the Adam Smith and 19th century period. And secondly, they’re by no means irrational, because they realize that those policies benefit that very small minority of the population who have most of the money.
JAY: And starting point is we don’t want to pay more taxes.
SKIDELSKY: Yes. Well, of course they don’t want to pay more taxes, because bigger government means higher taxes. So they want to get government–they want to get taxes reduced. But in order to get taxes reduced and at the same time maintain balanced budgets, you have to cut spending, drastically cut spending. And this seems to be the time to do it, because all governments have been running large deficits in the crisis. And the reason for that is mainly because the economies have shrunk. And when an economy shrinks, the deficit of the government grows automatically, revenues fall off, and spending for the unemployed and social security rises.
JAY: I mean, the fact is, the American right, under the Bush administration, they weren’t against stimulus. They just don’t want to pay for it. They want to pay for it by cutting services that go to the general public. But when we’re at this kind of apocalyptic moment, whether it was TARP under Bush or even afterwards, the first beginnings of the Obama reforms were supported by a lot of the Republicans.
JAY: They just don’t want to pay for the money. They want the rest of the population to pay. So, so much comes back to this issue of taxes [incompr.]
SKIDELSKY: Yeah. Well, I think they were in favor of the stimulus, because a large part of the stimulus went to bailing out the banks, actually, recapitalizing the banks. And they didn’t want the banking system to fail, because that meant that they would–many, many of the wealthy people, the investors in the banks, would lose their money. And so they were all in favor of that sort of bailout. And of course in a way they–when it becomes desperate, they’re prepared to abandon their more basic views in order to sort of get things going again. But as soon as the crisis was over, they reverted to the old view, which is that now the government’s done its job; it’s bailed us out; we can all look forward to nice profits in the banking sector; the stock market is revived again. And now the thing to do, the government’s cut its spending. And that’s really what I think has driven it. And it’s driven it not only in the United States, but in Britain and in Europe as well. Everyone is cutting. And the theory behind the cuts is wrong. One just has to say that again and again, as emphatically as one can: you cannot get a recovery by reducing spending in the economy. You’ve got to say: where is the offset, where’s the private spending going to come from if you’re reducing people’s wages, if you’re reducing their consumption power?
JAY: Now, the people pushing the austerity train have to know that. They’re not fools. They have to know what you just said is true. It’s just too obvious. So what is their strategy, then?
SKIDELSKY: Well, they have one word: confidence. Once government shows that it can really be as austere and inflict pain, that will revive business confidence. They’ll then have the confidence to invest; they’ll have the confidence to spend. And really, look at this, now that they know the deficits are being reduced, they know that taxes won’t have to go up in future to pay for the deficits. Therefore they can spend those bits of taxes they would otherwise have put aside to pay for the deficit when the bill became due. And it’s all at that simplified level. Government debt is the same as credit card debt: you’ve got to pay it back. Wrong. Governments never have to pay back their borrowings. They can go on borrowing. You know, there’s no bank manager ringing up Obama, saying, hey, it’s time; you know, you’ve borrowed all this money; I want your repayments. That person doesn’t exist. So governments can go on borrowing. They can go on financing themselves. And the United States government has found no difficulty in financing its deficits. But there is this feeling, you know, simple feeling you can’t live beyond your means. If you–you know, you’ve got to pay back your debt and that kind of stuff.
JAY: Well, the other thing is that the popular notion that’s certainly supported in the media and talked about a lot is that eventually this leads to inflation.
SKIDELSKY: Well, not–well, yes. I mean, inflation is part of a recovery, you know. There’s always going to be some inflation. If you have an economy going downhill, prices go down. I mean, you know, the rate of inflation goes down. I mean, there was actually a period when prices were actually going down. It was a short period. And in a recovery, prices go up. But the point is, when there’s a lot of unemployment around, a lot of the extra money doesn’t go into raising prices but raising the output of goods. So, you know, that’s what–when economists talk about a lot of unused capacity, they mean there are lots of people unemployed, there’s [incompr.] that’s idle, there’s a lot of money that’s idle. And, you know, that then starts being spent on goods and services.
JAY: Well, this is where I have a question about Keynes, which is–and not just Keynes; to some extent it’s about many things I’m hearing at the INET conference; which is, you can have various models that make sense, that seem very rational. And there’s, you can say, a kind of an aspiration here for a more rational form of capitalism. But politically you can’t pass any of it, not just in Washington but in many of the other advanced countries in Europe, in Canada, but especially in the United States. There’s any number of things that you could talk about: how to have a more green economy; how to have a more full employment objective. You can’t even have the discourse here. And if–and I guess what I’m getting at is if the politics is the factor for paralysis here, because the majority of the American elite and the elite who actually owns stuff, and because they own stuff, they have so much political power, and we know how the relationship of politics here to money, that you’ve got to tackle that. And that doesn’t seem like the discourse or the discussion, how to mobilize people outside the elite to tackle that. I’m not hearing that conversation.
SKIDELSKY: Well, I think you need two things. First of all, you need an outstanding leader like Roosevelt, who came into office pledging to drive the money lenders out of the Temple. I mean, you know, that was very, very tough language, and he didn’t back away from that. He was very, very strong, and he also knew that–you know, he knew what he wanted to do, roughly speaking, and he was determined to drive it through. That’s the first thing. The second thing is the situation has to be much worse than it is now. When things are just bumbling along at not a very healthy level, but, you know, the patient isn’t actually on the point of dying, the popular pressure to do something is very, very weak. And the interesting thing is that when the economy is depressed, that actually depresses radicalism quite a lot. People sort of get resigned to the situation, get used to it. You know, people even got used to concentration camps. They made a life out of it. And when people are unemployed, they find a life being unemployed, and when they’re underemployed, they adapt. And it’s depressed times are not good times for radicalism, actually, unless they’re so bad that there is a revolt of some kind. And I think America 1932-1933 was close to sort of saying enough is enough of this. There were big, big marches. The veterans marched. There were a million people in Washington. They wanted something done. But it was never quite as bad this time,–
JAY: The issue of who–.
SKIDELSKY: –partly because of John Maynard Keynes, who actually was the author of that initial stimulus policy which stopped the slide.
JAY: And also to some extent diffused the mass movement.
SKIDELSKY: Yup. Yup.
JAY: Not necessarily for better, in the long run. The issue of who owns stuff, does that not need to be taken on, when you have such monopolization, when you have so few people owning, controlling the commanding heights of the economy privately? I thought one of the most interesting moments of this administration, Obama administration, is when they said the only way to really regulate, control, deal with the power of the health industry is through a public option. Now, he caved on it.
JAY: [incompr.] he opened a door to a fascinating thing, that if–and if it’s true for the health sector, why isn’t it true for finance sector and some other sector?
SKIDELSKY: Well, there is a very old tradition, radical tradition in America known as trust-busting. And trust-busting was how you dealt with monopoly in the progressive era of the late 19th century, early 20th. So you broke up these monopolies and you enforced competition. There were two models: either you break them up or you regulate them. And I think that’s been the debate over what you do about the banking system. I mean, there are a lot of people who believe that all you need to do, really, to prevent the banking system indulging in the excesses it did in the run-up to the recession is simply to have better regulation. And the big failure was a failure of regulation. I don’t think that goes to the root of the problem, because I think the regulators were captive to the banks, actually. I think you need to break them up. I think some of Obama’s initial ideas to limit the capitalization of banks, to break up commercial from investment, separate commercial from investment banking–. You know, investment in the commercial banks really became slaves to their investment departments or to the investment banks. I think that separation should have been tackled.
JAY: ‘Cause what you have now is a situation where neither do you break them up, nor do you really regulate them.
SKIDELSKY: Yeah. Yeah. Well–.
JAY: Which goes back to the–this–the kind of political power of this concentrated ownership.
SKIDELSKY: You see, the trust-busting thing wasn’t just in a narrow economic sense a monopoly. It was a power issue. If you have a lot of concentration of money in a few institutions, that is a power in the country. It’s not just a power in the economy; it’s a power in politics.
JAY: Which was a lot of Eisenhower’s argument about the danger of military-industrial complex.
SKIDELSKY: Military-industrial complex, yes.
JAY: It wasn’t just about militarism as what it does to the politics and democracy of the country.
SKIDELSKY: Yeah. The irony is that the Democrats hated Eisenhower because he thought he wasn’t doing, you know, proper Keynesian stuff. In fact, it’s now a golden age, Eisenhower. I mean, it turns out he was a very enlightened liberal. He raised money for the state highway system. He did masses of infrastructure, Eisenhower. But he wasn’t–rhetorically, at any rate, he wasn’t a Keynesian.
JAY: Well, in the next segment of our interview, let’s talk about a solution you’re proposing, a national development bank. So please join us for the next segment of this interview on The Real News Network.
End of Transcript
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