I have never liked the Guardian. Before word processors became the norm, the spelling errors for which it was renowned were at least entertaining. Now it is just irritating. I then lost all respect for the newspaper nine years ago when it falsely accused a friend of academic fraud and showed no interest in the truth of the matter. I see from yesterday’s (October 28, 2008) Guardian that its standards have not improved since.
I am referring to Poly Toynbee’s hysterical rant about a letter of which I was a co-signatory that was published in last Sunday’s Sunday Telegraph. The letter itself was a politely worded criticism of the Government’s decision to adopt a Keynesian public expenditure policy to try to offset the recession into which the economy is sliding. It reads as follows:
“Further to your interview with Alistair Darling (October 19), we would like to dissent from the attempt to use a public works programme to spend the country’s way out of recession. It is misguided for the government to believe that it knows how much specific sectors of the economy need to shrink and which will shrink “too rapidly” in a recession. Thus the government cannot know how to use an expansion in expenditure that would not risk seriously misallocating resources.
Furthermore, public expenditure has already risen very rapidly in recent years, and a further large rise would take the role of the State in many parts of the economy to such a dominant position that it would stunt the private sector’s recovery once recession is past.
Occasional economic slowdowns are natural and necessary features of a market economy. Insofar as they are to be managed at all, the best tools are monetary and not fiscal policy. It is inevitable that government expenditure and debt naturally rise in a recession but planned rises in government spending are misguided and discredited as a tool of economic management.
If this recession has features that demand more active fiscal policy, which is highly disputable, taxes should be cut. This would allow the market to determine which parts of the economy shrink and which flourish to replace them.”
It was signed by 15 other economists and me.
It is, I believe, a reasonable position: the last time we tried Keynesian economics we ended up with stagflation and had to be bailed out by the IMF in 1976. Keynesian macroeconomics was then repudiated by Labour PM Jim Callaghan. In my opinion, it doesn’t work, but I recognise that there are others who do not share that view and I make no claims of infallibility.
Most of the Keynesian economists I know would disagree with this view, but they would not regard it as self-evidently evil or stupid. Ms. Toynbee, however, seems to think otherwise.
Some of what she wrote is given in italics below, and the comments after them are my responses:
The gloves are off, and an epic ideological battle has begun. The enemies of Keynesian economics are launching a fight-back.
We agree on this, at least.
Hardly pausing despite the crashing failure of their wild, free markets, the old forces of darkness are back.
The causes of the present financial crisis need to be discussed in a calm and reasoned way, but your referring to those who do not share your views as the “forces of darkness” is uncalled for, Ms. Toynbee. The people who disagree with you are not evil: they simply disagree with you. Why can’t you debate the issues on their merits without the need to give gratuitous offence?
Opening salvoes from the vanguard of neo-conomics came in a letter 16 economists wrote to the Sunday Telegraph attacking the Brown-Darling plan to borrow and spend to ease what threatens to become a recession at least as bad as 1981. “Occasional slowdowns are natural and necessary features of a market economy,” they wrote breezily. Laissez-faire is the best policy, but if something must be done, “which is highly disputable”, then “taxes should be cut”.
This gives the misleading impression that we suggested that nothing should be done in the middle of a crisis. Read the letter Ms. Toynbee: we didn’t suggest that. Why don’t you debate what we actually wrote?
These people know what they mean: they have been here before. It flatters some of these crude marketeers to call them anything as grand as Hayekians – but that was the ideology of those who devised the catastrophic Thatcher-Howe 1981 budget they seek to reprise. It cut spending and sent unemployment over 3 million. They turned recession into social catastrophe and now Sir Alan Peacock, Professor Tim Congdon and Ruth Lea, along with the chief economists of Lloyds TSB and Cazenove, advocate making the same callous mistake again.
I am not aware of anyone who is going around saying “Lets make the same callous mistake we made the last time” and would certainly not agree with anyone who did. So why the need to undermine your arguments with this sort of sanctimonious abuse? As for the actual issues, my view is that the 1981 budget was a good one, but that the Thatcher recession was an avoidable mistake due to botched monetary policy. Of course, whatever the cause, no-one wants us to go through that again and you have no grounds to suggest otherwise.
And I am not a Hayekian, by the way.
She goes on to make the patronising assertion that “The truth is, few have changed their mind, apologised for past errors or learned any lessons.”
I take it you haven’t?
Gordon Brown seems unable to stop saying things so blindingly untrue that you wonder how he gets the words out.
I have wondered this too. But how do you expect a man who cannot tell the truth to win the confidence of the public and lead the country out of its current predicament?
What’s needed now to win trust is unvarnished truth.
Indeed, and you should take your own advice: your readers will have more trust in you if you stick to the unvarnished truth.
I quote one last passage:
Meanwhile, Hayekian commentators are sharpening their knives against “Brown’s misty-eyed Keynesian adventure”. The argument has not been won yet: Labour has to make the case eloquently, as opinion polls show profound scepticism of government’s ability to spend money well. Conservatives may be wavering, uncertain which way the public will jump, but Labour would be rash to think pro-Keynesianism was a done deal.
Do you even read what you write? – “opinion polls show profound scepticism of government’s ability to spend money well.” So why do you think that is? Are the public just stupid or are they onto something that you haven’t noticed?
And, to repeat my earlier question, how do you expect Labour (and I quote your own words) to “make the case eloquently” whilst under the leadership of a man who “seems unable to stop saying things so blindingly untrue that you wonder how he gets the words out”. How do you expect Labour to square that circle?
With arguments of this calibre, you are certainly right that the case for Keynesianism is not a done deal.
Issues as important as these need to be properly aired. I would suggest you cut the sanctimony and don’t assume that people who do not share your views are callously trying to recreate the Thatcher recession or are secretly in league with the Antichrist. You would also earn some respect by not twisting their arguments or presuming an infallibility or superiority that I know you do not have. But if you really want to help the debate on economic policy, the next time you are thinking of writing something on it: don’t.
October 29, 2008