This week in Say More, PS talks with Robert Skidelsky, a member of the British House of Lords and Professor Emeritus of Political Economy at Warwick University.
Project Syndicate: Last year, you lamented the reversion of contemporary policy discussions to “the age-old standoff between market-based supply-side economics and a supply-side approach rooted in industrial policy,” because it leaves out a Keynesian focus on the “insufficiency of demand.” How would such a focus alter policymakers’ approach to key issues like climate change and energy security? For example, how could the US advance the Inflation Reduction Act’s stated goals using a Keynesian approach?
Robert Skidelsky: This is a really difficult opener! My main issue with the contemporary policy discussion is that it disregards Keynes’ insight that capitalist economies suffer from a chronic deficiency of aggregate demand. In other words, it assumes that economies have an in-built tendency toward full employment. But if that were true, there would be no case for expansionary fiscal policy.
The IRA – which includes $800 billion in new spending and tax breaks to accelerate the deployment of clean-energy technologies – had to be dressed up as “modern supply-side policy,” aimed at reducing inflation by lowering energy costs. But fiscal expansion based on a model that denies the need for it is bound to come to grief, as markets push for a return to sound finance and sound money. In the UK, Labour has had to abandon its pledge to spend an extra £28 billion ($35 billion) per year on green energy, because it couldn’t answer the question, “Where is the money coming from?”