In an interview on British Democracy

Moving on to your next choice, Essays in Persuasion, why is Keynes so important to understanding our politics?

I studied economics at King’s College Cambridge, where Keynes was such a towering figure. I might have chosen to recommend his General Theory, which is his most famous single book – intellectually it was absolutely decisive in demonstrating how we should get out of the 1930s slump. The lessons that have been applied to the last 18 months since the collapse of Lehman Brothers were very much the Keynesian lessons: which is why it has been an uncomfortable 18 months but not a 1930s-style disaster. But in the end I chose Essays in Persuasion because this gives a much greater span of his thought over time, from the aftermath of the First World War and his assault on the Versailles Treaty and the damage it was going to cause – as it did, because in humiliating Germany it led, arguably, to Germany choosing Adolf Hitler – right through to the 1920s and 30s and the arguments over the gold standard, through some of the essays he wrote in preparation for his General Theory, right to his writing on how to pay for the Second World War. That was a very influential essay, which helped shape the financial management of a broke Britain. And every essay is readable and compelling.

Is it particularly British in its application?

He was writing about Britain and that was his experience. But I think he should be read, and could be read profitably, by people in Beijing, in Washington, in Paris or Rio de Janeiro. The underlying concepts and his assault on the narrow view of classical economics, these are important for us to learn and relearn every time the world economy wobbles.

Because of the latest world financial crisis, isn’t that classical economics at bay?

It is for a while. I studied economics in the 1960s and Keynesianism as it was taught regarded inflation as a non-problem. So when inflation took off in the 1970s, Keynesians were left with, frankly, nothing to say. That was one of the reasons why monetarism became so powerful. It was like that section in Watership Down where the rabbits become so complacent that they can’t see the danger coming. The Keynesians in the mid 1970s were like the rabbits – they didn’t see the danger coming and the monetarists swept through them. It is only really in the last few years that Keynesianism has regained some initiative. I would like to think that out of the economic dramas of the last couple of years, a more robust, 21st-century version of Keynesianism could be evolved. Because there will be future attacks from those classical economists and the monetarists. And perhaps the Keynesians could be just a tad less arrogant than they were in the mid 1970s.

In an interview on Inspiration for a Liberal Economist

Let’s talk a bit more about Keynes’s Essays in Persuasion. I think you warned me that you need to know a bit about the history of the time to fully understand it, but I really enjoyed reading it. He has some great comments about stay-at-home wives getting depressed, which I hadn’t expected at all. He’s also very prescient about the Treaty of Versailles and the devastating effects that would have. He really was a Cassandra in that regard. And he has some pretty good predictions about the future, and how prosperous society will become…

Well, some of them. This business about us becoming so rich that people would stop caring about consuming even more, that turns out not to be true. About enough time has passed for that blissful state to have arrived according to him, and somehow greed always finds a way. But yes, the comments on Versailles are amazing.

He also has a bit of a discussion about whether or not he is a liberal. He has this great quote, that “if the Liberal Party is to recover its forces, it must have an attitude, a philosophy and a direction”.

So this is an old Liberal, with a capital L – the Liberal Party of England, which was the old opposition to the forces of conservatism, which was then displaced by the rise of the Labour Party [which was further to the left] in the first half of the 20th century. That’s a very different kind of problem from what we have now. Keynes was not happy with the Labour Party. I suspect had I lived in his time I would have been more sympathetic to the Labour Party than he was, but he was obviously repelled by the Conservatives.

I think it was the Liberals who introduced the beginnings of a welfare state in England, though.

They introduced some pieces of it. The full thing came from the Labour Party after World War II. And obviously Keynes supported that. We probably could say that Keynes was what we could call a liberal in America now, or a moderate social democrat in Europe.

But you think you’re a bit further to the left than Keynes? You’re definitely more pro-trade union than he was.

I think that’s partly because I’ve got an additional 75 years of, critically, US political economy to look back at. I’m a bit uncertain about the strictly economic role of trade unions, but the political importance of having a counterweight to big business is just overwhelming.

In an interview on Utopia

Let’s go on to your last choice, the Keynes essay Economic Possibilities for our Grandchildren, which you can read directly online, or as part of his book, Essays in Persuasion.

Keynes was writing in 1930 or so, a time of deep depression in the UK, so it’s impressive he could have such an optimistic view of the potential for the future. He has quite a limited view of the world – a view very characteristic of a male academic, Bloomsburyite sort of person – and that comes through a lot in the essay. But the central point is that with technological progress, we’ll rapidly reach the point where the material needs of at least a male Bloomsburyite academic will be met for everybody. The number of working hours needed will be limited, which not only means extra leisure, but, more importantly, if we only need an average of 15-20 hours of work per week out of each person, we don’t need a powerful management to drive them to do that work. We can expect that people will be happy enough to do a fair bit of what we need, without the need for everybody to be driven hard by financial incentives. So we can move away from a situation where everybody is enslaved by money to one in which we do things primarily because we find value in doing them.

At the time he was writing, Keynes was making the important point that it was really only in the 100 years or so since the Industrial Revolution that this idea was feasible. The living standard of the average person had barely moved in the thousands of years before that. Life has been radically transformed by the growth of technology, and there’s every reason to think that will continue. Also, Keynes only looked at the developed countries, but now we are finally in a situation where the world as a whole has the capacity to achieve the kinds of things he was talking about. A striking illustration of this is that some time around the turn of this century, the number of obese people exceeded the number of malnourished people. That says something about our capacity to feed the world. Just now I mentioned the bottom billion, the billion or so people who are still desperately poor. But at the other end of the spectrum you have a billion rich people whose income is many times that of these poor people. If we could arrange a quite modest transfer from the very rich to the very poor, we can eliminate extreme poverty very rapidly. Technological capacity is a precondition for a utopian vision, but we can’t really hope to achieve that in the context of utopia in a single country. It has to be something global.

What about Keynes’s prediction that we would only have a 15-hour workweek by now? I think it’s only France that’s made headway in achieving that.

The lesson you learn is that just because something is technically feasible, doesn’t mean that it’s going to happen. Working hours in the US have generally been increasing for the last 30-40 years. That’s not because people inherently like working, it’s because we have a set of social structures where social inclusion demands that. So a characteristic feature of the market liberal economy – as it’s developed in the US – is an extreme polarisation on these things. On the one hand, you have the middle class, the top quintile of people who typically are the group most likely to be in stable marriages. You have these two income couples both on high incomes, both working long hours, at the same time as trying to raise children. At the other end of the income distribution, you have a huge number of people who have been displaced from the labour market altogether. As for the French, the 35-hour week wasn’t looking forward to a better future in total. It was a response to the macro problem of how we share out the work.

The fact that Keynes’s prediction hasn’t happened, that attempts to achieve it have run into trouble, is why, I think, we need a utopian view. We need to inspire people with a view of a better society that we can achieve within our available resources. We can’t just think about it in a day-to-day managerial context.

I spoke to Paul Krugman last year, he’s also a fan of this essay, but pointed out that the blissful state of affairs where people would be content not to try to consume more and more hasn’t come to pass. “Somehow greed always finds a way,” he said.

I’m not convinced by that. It’s true that if you look not at the calculations, but the idea of the good life that someone like Keynes would have advocated, the first thing is that he didn’t think about the question of who was going to clean the toilet. He certainly wasn’t going to, I’m sure! When he thinks about how easy it’s going to be he really is forgetting about the housework and all the drudgery that has to be done and still hasn’t been automated out of existence in any way. Also, there are plenty of people with much more of a focus on material goods and services than the kind of personal ideal that Keynes would have had. For example, I don’t know what his mode of transport was, but I don’t think having a big flashy car would have mattered to Keynes. And yet there are a lot of people for whom that really is a source of great joy.

At the same time, I do think the US perspective tends to be a bit misleading. In Australia we had a huge increase in work intensity and the pace of work in the 1990s. That was very clearly imposed on us, because we’d had a terrible recession and people were scared of losing their jobs. In the last decade, times have been good for a number of reasons, and we’ve seen people slacking off much more. The figures of authority and the talking heads are constantly complaining about how terrible our productivity is, because essentially, we have recaptured a lot of the leisure that was taken away from us in the 1990s.

I don’t think people are inherently and desperately keen to work hard to acquire more possessions. Rather, this is a complicated story about how society works, and you can’t easily opt out of it as an individual. In the Australian context the big thing that still has us trapped is our housing bubble. Unlike most places, ours hasn’t burst. People are trapped with huge mortgage payments that they have to keep working to pay, and that in turn makes them much more money-focused. This isn’t something that can be easily solved at the level of individual preferences, which is why I come back to this notion of putting forward a utopian vision where people work, they contribute to society, but ultimately they’re free. There will be some people for whom the work is so exciting and valid that that’s all they need, but there are lots of others for whom the goal in life is something quite different – whether it be restoring old cars, or running triathlons, or just reading a lot. Those kinds of goals you need a certain amount of income to support, but it is a pathology to think that the primary goal of life is to pile up more and more possessions.

Keynes also talks about aristocratic women having nervous breakdowns because they have nothing to do. I do think it’s part of the reason we keep busy and work, because we’re worried about going crazy if we don’t.

That’s very much the point Betty Friedan makes 40-50 years later [about the American middle-class housewife]. Keynes maybe was less aware of what was going on here than Friedan was. In both cases, what you’re talking about is an incredibly constricted set of opportunities that are open to people in that situation. Whether it’s middle-class American housewives in 1960 or British aristocrats in the 1920s, both are in a situation where although they are welcome to go along and help out at the church fête, they weren’t expected to take up kickboxing or anything like that. There was a limited set of projects that were available and approved for people, while also maintaining their social position. So I think the problem was this lack of freedom, rather than “What shall I do with all this leisure?” Maybe it’s a matter of disposition, but I certainly can’t imagine having too much leisure. There are so many projects that I look at and think that would be fun, but there’s simply no way I’ll ever get the time to do. I think that’s pretty common. If people have free time, and they have the resources to pursue their projects, I think most people will find good projects to pursue.