Do we, really, have to make this same Keynesian mistake all over again?
Obviously there are fashions in politics but is it really nercessary for us to make this mistake all over again?
Work by Mathew Lawrence of the Common Wealth think tank informed Burnham policies, such as the creation of a state-owned electricity grid operator (dubbed the “Great British Grid”). Lawrence’s essay, “The Productive State”, is a core text for the Prime Minister, and cites Keynes with approval.
“The socialisation of investment is not primarily about smoothing cyclical fluctuations. It is about controlling the future,” writes Lawrence. His argument is that private investment is governed by the short-termism of financial markets and does not value long-term returns, meaning the private sector will never invest enough in the things society needs most.
Lawrence’s is a quintessentially Keynesian analysis – markets will not alone make the “right” choices about where money and resources should go.
We agree, entirely, that not all market decisions are correct. Indeed, we insist that that’s rather the point. Let’s try everything then do less of what doesn’t work and more of what does. This, by definition, requires a multiplicity of decisions so as to explore that space of what is possible for what works. Variety is very much the point as a method of finding out what is right.
But, OK, there’s still a ghastly mistake at the centre of this Keynesian thinking. Even as we’d prefer to call it authoritarian non-thinking.
For what is being compared is the messy reality of market economic outcomes to the platonic ideal of perfect government. Not something that works. We need to compare the reality of markets to the reality of government action. One part of that is public choice theory - those doing the governing have their own incentives and take decisions according to those incentives, not the interests of the public interest as a whole. You know, the reason the MPs’ pension fund is the very finest in the country, closely followed by those of senior civil servants.
We insist that we must indeed focus on the actual outcomes of the two systems, not depend upon some assumption that the Man in Whitehall knows best, or even that he’ll try his best for the rest of us. Not, well, what could be possible in a world of perfect governance but how does it actually work out?
Just recent examples: Having destroyed the century old apprenticeship scheme apparently employers will no longer be able to call upon the taxes they’ve paid to fund apprenticeships to fund apprenticeships. Rail passenger journeys halved after nationalisation, tripled after privatisation, and are now all being re-nationalised in order to - so we are told - increase use of the railways. And of course the water mistake is being made again. The entire point of privatisation was that government would not spend the necessary to upgrade and rebuild the system. Now government is taking the powers to insist that no one be asked to pay water bills that cover the cost of upgrades and improvements. Lower bills now has greater political salience than sorting out anything for the long term.
The bit that Keynes did not get, the bit that Keynesianism, however modern and updated, still doesn’t get, is that government is not by the even potentially perfect, omniscient and ineffable. It’s by the usual flawed human beings reacting to their own economic incentives. We have to, therefore, compare not what perfect government could potentially do but what actual government actually does.
People trying to win the next election in a maximum of 5 years’ time do not make long term decisions. So we cannot promote more government control on the basis that they do.
Tim Worstall