Johnson implied yesterday that the cost of living crisis is a price worth paying to beat Putin. But we're not at war. Nor is there any likelihood that we will be. Putin knows that. Johnson, I suspect, would like it otherwise: he has the fantasy of being the wartime as well as the peacetime Churchill. Thankfully, there are others to probably constrain him.
But, that said, we have an economy suffering the impact of war, following on from a period of economically chosen stagnation, as the 2010s were. What should be the reaction to that?
Keynes faced this dilemma in 1940. He, of course, knew he was writing about all-out war for a country without the resources to wage it. His contribution to thinking on the issue was critical. I offer a couple of thoughts inspired by it.
First, Keynes knew that there were two domestic issues to address in a war economy. One was the inflation that wartime shortages bring. The other was the prevention of poverty that wartime privations could create. He had answers, of course.
One was steeply progressive taxation. He was intent on taking consumer power out of the economy and did so through taxation of the best off. By and large, it worked.
Second, within that context there was support for the incomes of those on lower pay. Using the wages of the forces and other measures pressure was brought to bear to ensure that all could survive the consequences of conflict.
Third, a positive role for savings was created. This was wartime capital.
Fourth, rationing was used, which may be required with regard to energy in the UK, as yet. Importantly, the market was not trusted, which is the significance to draw from this.
Of course, I grossly summarise a whole policy, but I also retain the essence. How does this compare to where we are?
Johnson's repose to war is to permit large companies and banks to profit; to let small businesses fail; to let landlords and speculators to gain; and to force those most impacted by the current worldwide economic shortages to bear the burden through real pay cuts and through tax and interest rate rises. He could not be further from Churchill if he tried.
What we need is some Keynesian thinking.
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Agree.
Like me you must remember the oil price hikes of the 70’s and my father was issued petrol coupons although they were never required.
I assume that there must be some sort of ’emergency rationing scheme’ capable of being dragged out if needed. I would certainly suggest that some sort of fuel ration at a fixed price would be a great help for many at the moment.
I remember discussion of them – and that I seem to recall my father being classed as an essential worker
Keynes’ four policies seem eminently appropriate and necessary today – if only Johnson and the Tories would realise.
I personally don’t think that Johnson, or any member of his Cabinet, has the ability to realise that we are witnessing the death of capitalism any that a replacement monetary system, as suggested here, means that their ideology is obsolete in the future.
Without having read the book it seems to me that another important part of the solution may be missing from your list, would not that have been money creation? Maybe that was too taboo for him to address directly? This issue usually has been taboo throughout the ages
I read a interesting book a few years back on the history of the US Treasury issued money during the American Civil War(nicknamed the Greenback dollar). The US administration tried increasing taxes and duties but were reluctant to increase taxes too much for fear of negatively affecting the economy at the time and punishing people further ( I do note Keynes advocates higher taxes on capital AFTER the war in his preface), they also banned exchanges in gold and issued many govt backed bonds at various interest rates as Keynes recommends, but this all still fell way short of balancing the govt books. What to do? After much debate there was only one option left to pick up the slack and that was to print Treasury issued dollar bills to pay the troops. It worked, but as you say they were facing the crisis of all out war.
Whilst we are not facing all out war we are approaching yet another major crisis situation(like Covid) . Boris cannot just sit on his hands and allow that to worsen.
He was aware of the money issue – although Abba Lerner was ahead of him on that
Keynes was a close adviser of Bonar Law (Chancellor) during WWI. I suspect he must have known about the 3% War Loan fix. In which case I wonder, surely Keynes knew as early as 1914?
How he handled that knowledge (and the secret) is of course, another matter.
He had to have been an insider to that – impossible that he was not
So he knew how to create money
We are not facing all out war yet but the army has begun to mobilise. Apologies for the length of the quote.
Quoting the Chief of the General Staff General Sir Patrick Sanders at the RUSI Land Warfare Conference 2022.
“I stand here as the first Chief of the General Staff since 1941 to take up this position in the shadow of a major state on state land war in Europe. As I do, I’m reminded of the words of a man in whose footsteps I tread. In relative obscurity, and recognising the impending danger the nation faced, the then Brigadier Bernard Montgomery wrote this in the pages of that magnificent publication Royal Engineers’ Journal of 1937:
We have got to develop new methods, and learn a new technique…. There is no need to continue doing a thing merely because it has been done in the Army for the last thirty or forty years – if this is the only reason for doing it, then it is high time we changed and did something else.
For us, today, that “something else” is mobilising the Army to meet the new threat we face: a clear and present danger that was realised on 24th February when Russia used force to seize territory from Ukraine, a friend of the United Kingdom. But let me be clear, the British Army is not mobilising to provoke war – it is mobilising to prevent war.”
The problem is that the army is not in a fit state. Neither is the navy, the surface fleet is to lose its only heavyweight anti-ship weapon next year with no replacement for at least five years. Ben Wallace wants more money and has said so publicly. The noises are that they want an extra 0.5% + inflation of GDP. But the government, whom many believe to be the party for the armed forces is likely to refuse any increase. The truth is I have no idea but I wouldn’t be surprised.
[…] Cross-posted from Tax Research UK […]
The nutrition of many folk improved significantly under rationing, either by providing enough, or by helping to stop the excesses of others.
In France, where good food is revered by most, whilst junk food and TV are not, there are many less obese folk than in some other nations.
If J.M. Keynes, or A.J.P. Taylor were alive today I wonder what they’d make of it?
Great song from Glastonbury, I will play it to certain MSPs soon.
We could do with it that is for sure but in many ways I hope the Tories don’t because I want them to keep digging their own political graves up to 2024. And then we need to concrete them over and seal them in their tombs forever.
Time is the revelator of evil and stupidity. And it’s going to take time.
i am reading Rentier Capitalism by Brett Christophers , arguably one of this year’s most important books . having read your post i came across this … ” In the Keynesian policy milieu of the 1950’s the Government was not about to let the finance sector regain its erstwhile power. The Big Banks were kept on a tight leash , Finance was a servant not a master . In only one year of the 1950’s did financial corporations account for more than 2% of the total gross operating surplus [ essentially profits ] . Fast forward to 2009 and Barclay’s record breaking year , financial corporation’s share of total UK corporate operating surplus had surged to just shy of 20% ” . his book then argues , the neoliberal period has seen the rise of the rentier across broad swathes of the UK economy , with the financial rentier been in the vanguard.
when you take into account , the UK with its corporate tax haven network is by far the world’s greatest enabler of corporate tax avoidance and has single – handedly done the most to break down the global corporate tax system , we can see the financial sector amongst others are now very efficient in avoiding tax .
For me Unionization , where present , serves as a bulwark against exploitation and inequality . in 1980 around 70% of employees ‘ wages were set by collective bargaining , in 2018 the figure has plummeted to 26% . the UK Economy is a different beast today and the Book is a great eye opener to its change . Sadly it it shows the Inequality , Exploitation etc is rife and with the collaboration of the media and our Political parties it is the Layman that is shouldering this burden.
I entirely agree with that
[…] Cross-posted from Tax Research UK […]