An old Labour academic claims that lack of demand is the main cause of unemployment. Yvette Cooper, a new Labour MP, says this Keynesianism is as out of date as the monetarism which followedby Yvette Cooper / August 20, 1997 / Leave a comment
This should be a good time for a book on full employment. A tour through past policy failures, a plea for the plight of the jobless, and a list of job creation remedies-these ought to be bedside reading for every cabinet minister.
What a shame, then, that John Grieve Smith’s book is so out of date. His passion is not in doubt, nor his ability to explain baffling economic concepts. The trouble is that he traces only two views-that of the so-called “new orthodoxy” he wishes to attack, and his own, expansionist, remedy. Yet both positions are decades behind the times. The “new orthodoxy” owes more to Geoffrey Howe than to Nigel Lawson, never mind Kenneth Clarke. Meanwhile, his own remedy reaches further back to the incomes policies of the 1960s. More importantly, Grieve Smith fails even to admit the existence of the new approach taken by the present Labour government.
Take the “new orthodoxy.” Grieve Smith claims it has three central tenets; that only monetary policy should be used to affect demand; that the government budget should always be balanced; and that the solution to unemployment is to persuade the jobless to accept lower wages.
This, says Grieve Smith, has been the prevailing wisdom of Tory governments for two decades. It is responsible for current high levels of unemployment; it is deflationary, and reflects the belief that unemployment does not matter too much.
But this is not true. Although Tory chancellors may have talked about balanced budgets, they never delivered them. The Tories left the British economy with a structural deficit of more than 2 per cent of GDP. Nor could they be accused of always erring on the side of deflation. Nigel Lawson exacerbated the boom in the late 1980s; Kenneth Clarke was poised to do the same in the late 1990s.
Grieve Smith maintains that the main cause of unemployment is lack of demand for labour. He argues that demand should be expanded using fiscal and monetary policy, with inflation capped through pay policy. Is he serious? Not even Ken Livingstone would argue that the problem of the British economy at present is lack of demand. Consumer confidence is back to levels last seen in mid-1988. True, unemployment is too high (still at 1.63m), but the idea that by boosting demand you benefit the unemployed is ludicrous. Those struggling on the edge of the labour market…