POLITICAL THEORY - John Maynard Keynes — Transcript

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1. 0:08John Maynard Keynes was a political economist
2. 0:11of extraordinary optimism and vision
3. 0:14who believed that governments have it in their power
4. 0:16to solve some of the greatest ills of capitalism.
5. 0:20Keynes refused either to believe in communism,
6. 0:23or in the utter wisdom of the unfettered free market.
7. 0:26Instead, he occupied a middle course,
8. 0:28believing that governments could,
9. 0:30with a judicious injection of money here
10. 0:33and a rise regulation there, smooth out the peaks
11. 0:36and troughs to which all economies seem fatefully prone.
12. 0:40Keynes believed that what chiefly holds back countries
13. 0:43is corruption, knee-jerk policies, and shortsightedness, but that if these three ills
14. 0:48are corrected, then humanity can look forward to an age of incredible and lasting wealth.
15. 0:53In a charming essay titled, "Economic Possibilities for Our Grandchildren," written in 1930,
16. 1:00at the height of the world economic crisis, Keynes outlined his belief that most severe economic problems
17. 1:05could be overcome, and give way to an age where the chief challenge for human beings would be how to occupy
18. 1:11their leisure time in conditions of mass prosperity. For Keynes, economics was not a dull science. It was the tool
19. 1:19with which to bring about economic security for all.
20. 1:23Keynes' background was well-to-do, and throughout his life, he remained firmly a part of the British establishment.
21. 1:29Educated at Eton and at Cambridge University,
22. 1:32Keynes was unusual for the breadth of his artistic and literary interests.
23. 1:36Throughout his life, he maintained friendships with some of the most brilliant artists and scholars
24. 1:40of the twentieth century, and was an integral part
25. 1:43of the Bloomsbury Group of writers and intellectuals.
26. 1:46Virginia Woolf, for example, was one of his best friends.
27. 1:49As the Bloomsbury Group recognized,
28. 1:52good economics is as fundamental to wellbeing
29. 1:54as good painting or literature, and at a deep sense,
30. 1:57not fundamentally different in its search
31. 1:59for the wellsprings of fulfilment, and its attention to human error and blindness.
32. 2:05Keynes' masterpiece was written in 1936.
33. 2:08The General Theory of Employment, Interest, and Money.
34. 2:11In this work, Keynes set out to rethink the
35. 2:14causes of unemployment, in the hope of reducing new solutions
36. 2:17to this intractable problem of the 1930s,
37. 2:20and of capitalism more generally.
38. 2:23Classical economics give us three reasons why unemployment exists.
39. 2:27Firstly, and most obviously, workers are temporarily unemployed when they move jobs.
40. 2:32Secondly, individuals might simply elect not to work, particularly if they can
41. 2:36support themselves through some form of welfare payment.
42. 2:39But thirdly, and most interestingly,
43. 2:41unemployment arises when wages are higher than what employers can afford.
44. 2:46In the classical model, it's assumed that a free market
45. 2:49will correct this last course automatically,
46. 2:51and that the supply of labor and the demand for labor
47. 2:54will spontaneously come into equilibrium.
48. 2:57ensuring something approaching full employment.
49. 3:00Only, if some outside force were to exert itself
50. 3:03on the market--for example, if governments set a minimum wage
51. 3:05that artificially inflates wages, or
52. 3:08if trade unions organized workers so that they refused to take
53. 3:11lower wages in a declining market,
54. 3:13only under these conditions would equilibrium not be found. But Keynes took issue
55. 3:19with this classical theory. In the 1930s,
56. 3:21there were huge numbers of people out of work, as many as
57. 3:243 million in Britain and 15 million in the United States
58. 3:27of America. These numbers were just too great
59. 3:30to shrug off as the result of people being between jobs
60. 3:33or simply idle. And to Keynes' way of thinking,
61. 3:36this level of unemployment was also too great to be explained
62. 3:39by the interference of trade unions,
63. 3:41given that, during the years of the Great Depression,
64. 3:44high unemployment had severely curbed union power.
65. 3:47For Keynes, the real problem of unemployment lay in a
66. 3:50lack of demand.
67. 3:52This was not something that economists had ever properly focused on,
68. 3:55but it became the linchpin of Keynes' theories.
69. 3:58Classical economic theory had simply assumed that
70. 4:01demand for goods would return by itself
71. 4:04once wages and labor requirements had equalized.
72. 4:07But Keynes now famously declared,
73. 4:09"In the long run, we are all dead."
74. 4:12In other words, this process might simply take too long.
75. 4:16Keynes argued that it was insufficient for economists and policymakers
76. 4:20simply to advise people to accept suffering in the short and medium term, secure in the knowledge
77. 4:24that at the end of the storm, the sea would return to calm.
78. 4:27What was needed was intervention
79. 4:29in the economy, by government, in order to break
80. 4:32the cycle of economic depression,
81. 4:34and thereby restore prosperity.
82. 4:36Traditionally, in an economic downturn, governments would turn to
83. 4:39matters of supply to provide an economic boost,
84. 4:42encourage growth, and create employment.
85. 4:45For example, if interest rates were reduced, that this should encourage
86. 4:47savers to invest their money, providing cash
87. 4:50either for existing businesses to expand, or else for
88. 4:53entrepreneurs to establish new ventures. However,
89. 4:56Keynes now declared there might exist a persistent belief that
90. 4:59demand was so low
91. 5:00that there was little point in supplying goods. In this case,
92. 5:03traditional tools of promoting economic recovery
93. 5:06would be useless, and something else would be required.
94. 5:10If market mechanisms were unable to stimulate economic recovery, then, Keynes now argued, it was the job of the state
95. 5:17to step in to create demand, by running, if necessary, a very large budget deficit in order to create jobs.
96. 5:26Practically, this could be done by raising loans and using the money to finance vast public works
97. 5:31that could be brought on line relatively quickly.
98. 5:33These might include building roads or railways,
99. 5:36or else investment in other infrastructure that would not only
100. 5:39create work for people, but which would leave a useful legacy
101. 5:42for private enterprise. Governments should, for Keynes, act as the primary shopper in the land,
102. 5:48creating demand until more widespread sources off-demand can return.
103. 5:53Keynes criticized governments for the way they typically respond to downturns.
104. 5:57Their immediate (and understandable) impulse is just to rein in spending. After all, this is what a household would do when money is no longer coming in.
105. 6:05But what is wise at the level of the household is often catastrophic when applied at the level of the nation.
106. 6:11Nations are not households in all kinds of ways,
107. 6:15and Keynes needed to persuade his audiences to act contrary to their simpler, more basic instincts.
108. 6:21Reining in spending when an economy is in decline always worsens the very problem it's meant to solve.
109. 6:27One obvious objection to Keynes' focus on government spending
110. 6:30was the question as to who should pay for the loans.
111. 6:34By creating the debt, would not the problem be simply postponed to another day, rather than solved?
112. 6:39Here, Keynes applied his theory of what became known as the "Multiplier Effect."
113. 6:44In the first instance, by creating jobs through public works,
114. 6:47governments would save some of the money they would've otherwise spent on unemployment benefits.
115. 6:53Secondly, the increase in the number of people in employment would create additional spending power, and therefore boost the economy and tax receipts.
116. 7:02There would be an indirect effect on businesses as opportunities to service public works programs became available.
117. 7:08The result would be increased tax revenue from businesses, as they began to once again prosper.
118. 7:13In turn, these receipts would then pay off the debt created by the initial expenditure.
119. 7:18That was the Multiplier Effect.
120. 7:21Keynes' ability to conceive of grand macroeconomic architecture
121. 7:25put him in a high demand during the Second World War.
122. 7:27When he went to the Treasury to work as an advisor,
123. 7:30raised the peerage in 1942 as Baron Keynes of Tilton in the County of Sussex, Lord Keynes
124. 7:36led the British delegation to the Bretton Woods Conference in the United States,
125. 7:39at which the Allied nations hammered out post-war economic policy.
126. 7:44Not only did Keynes believe that national governments could successfully manage economies,
127. 7:48but Keynes also believed that a global system of economic organization was possible.
128. 7:54He argued that, for the purpose of global trade, countries should subscribe to the creation of a new international standardized unit of account:
129. 8:01the Bancor.
130. 8:02Through a complex system of accounting,
131. 8:05the adoption of the pseudo-currency
132. 8:07would allow an internationally-recognized organization
133. 8:09to impose fines on countries in order to discourage them from running large trade deficits or surpluses.
134. 8:15Such a system would help to smooth out peaks and troughs
135. 8:18in international trade and, not coincidentally, it would also benefit countries like Britain
136. 8:24who had, because of the cost of the War, had low reserves of gold.
137. 8:27It was both a brilliant and self-interested idea in equal measure.
138. 8:32But, ultimately, the Bancor did not come about.
139. 8:35The United States, which was effectively bankrolling global post-war economic reconstruction, ran large trade surpluses
140. 8:41and had no intention of accepting limitations on these.
141. 8:44But several of Keynes' other proposals, such as the establishment of the World Bank, and the International Monetary Fund
142. 8:50to oversee and encourage world trade, were accepted,
143. 8:54and have dramatically changed the world.
144. 8:56Testimony to Keynes' belief that national and super-national economic planning is both necessary and possible.
145. 9:04The strain of the Bretton Woods negotiations were immense upon Keynes. In 1946, aged only 62,
146. 9:10Keynes died of complications from a series of heart attacks.
147. 9:14Yet his legacy lived on.
148. 9:15In the thirty years or so after the Second World War,
149. 9:18Keynesian policies were adopted across the capitalist world.
150. 9:21Economies saw record lows of unemployment, and record high levels of economic growth.
151. 9:27Keynes' ideas became the new orthodoxy, and were particularly attractive to the political left.
152. 9:32By the 1970s, however, critics of Keynes' ideas,
153. 9:35notably, Friedrich Hayek and Milton Friedman
154. 9:38were gaining ground with politicians in countries like the United States and Britain.
155. 9:43They argued for small estate, free markets, and a reduction in regulation of capitalist enterprise.
156. 9:49At the same time, Britain and the United States
157. 9:51began to experience high inflation alongside high unemployment, known as "stagflation."
158. 9:56This phenomenon could not be explained by Keynesian economics,
159. 9:59and Keynes' ideas came to be discredited,
160. 10:02giving way to those of the neoliberals.
161. 10:05Nevertheless, the financial crisis of 2008
162. 10:08jolted policymakers into considering alternatives to neoliberal thinking.
163. 10:12When the global economy spiralled into decline, rather than wait for the market to correct itself,
164. 10:17the G20 nations announced an economic stimulus package of around 2% of gross domestic product to stimulate growth.
165. 10:25As one critic of Keynes wryly conceded,
166. 10:28"I guess everyone is a Keynesian in a foxhole."
167. 10:32To be sure, Keynes' ideas need to be modified to suit the conditions of the contemporary world, but Keynes would approve. His was not a static
168. 10:40or dogmatic understanding of economics. After all,
169. 10:43when asked why, in the 1930s, he had altered some of the positions on economic policy he had previously held,
170. 10:49Keynes famously answered,
171. 10:52"When the facts change, I alter my conclusions. What do you do, sir?"