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Transcription of interview with Nicholas Wapshott on November 12, 2012.
Douglas Goldstein, CFP®, Financial Planner & Investment Advisor
Nicholas Wapshott is an author and journalist and he recently came up with a book called
Keynes Hayek: The Clash That Defined Modern Economics.
He is also the former New York Bureau chief of the Times of London.
Douglas Goldstein, financial planner & investment advisor, interviewed Wapshott on Arutz Sheva
Radio.
Douglas Goldstein: You’ve written this book about Keynes and Hayek.
Give us a brief description of what the difference is?
Nicholas Wapshott: They were two men who lived in the first part of the 20th century.
They were both economists of slightly different sort.
John Maynard Keynes turned out to be a great genius and he was born as a mathematician
really but he became an economist and he transformed the economics trade to profession and the
discipline altogether.
Before then, economics was a basic almost like a business understanding of what happened
when money is spent and he transformed it into a really sophisticated discipline with
many different moving parts.
The old Marshallian as it was called old-fashioned economics was transformed in 1936 by his great
general theory.
Friedrich Hayek came from a different tradition.
He came from the Austrian school which keeps himself much low into the ground.
He is much more interested in microeconomics that is in individual transaction out of the
macroeconomics which is to look at the whole of the economic activity as if from up above
as a whole.
He contested John Maynard Keynes’ version of events presently into London in order to
argue the toss with John Maynard Keynes and Keynes being sort of person he was, instead
of just dismissing him, took him pretty seriously and they ended up having a wonderful scrap
which went on for the rest of their lives which
was about 60 years.
Keynes was inspired by the experience of Britain in 1920s when there was mass unemployment.
This was the decade before the great oppression with widespread unemployment throughout the
world.
In Britain, the Bank of England pegged the Pound of Sterling at a wrong rate to too higher
rate which made the exports very expensive and a lot of people were out of employment
for no reason of their own.
There was nothing wrong with them, there weren’t lazy, there weren’t unskilled and they were
just structurally unemployed and this deeply offended Keynes who thought it was a waste
of their lives.
He was very compassionate though and he set about trying to work out what could be done.
He said in the end of the day only a government was large enough to both lend money to people
but also to spend if it have to and it was really in trying to explore the ways of curing
unemployment that lead him to find intellectual justification for intervention in the economy
by government.
Friedrich Hayek really just put down a flat no saying if you start tinkering with the
stuff, it will go terribly long very fast.
Douglas Goldstein: How of these two schools of thought play themselves out in each country?
Nicholas Wapshott: In turns out to be this great debate between Keynes and Hayek is the
dividing line roughly between left and right when it comes to non-social policies.
In terms of economic policies, the left on the whole believes that the government first
of all has a duty to help its citizens if things are going wrong and if economy is in
trouble, they feel that it has a duty trying to fix it if it can.
What Keynes did was to provide the logic to say, “Yes, indeed you can, once more it
will work.”
The Hayekians that is the conservatives mostly and libertarians even more so would say the
best thing to do is to leave the free market to cure itself.
Eventually, it will all come out in the wash, the markets will clear and when you have a
government interfering in the running of the economy just like the government interfering
in anything else, you want to keep the government out of your lives if you can and therefore
even if Keynes in his indeed work, we’d rather do without it.
Douglas Goldstein: What would Hayek for example say about the ever increasing debt that the
United States has where it would seem that by borrowing money and then spending it vigorously,
that’s helping to give people a sense of security currently although it seems no long
term the US is going to have to deal with that debt, maybe you can look at how both
sides would see that?
Nicholas Wapshott: I think they’re both on the same page when it came to debt.
The thing about Keynes was that he said there are three ways really that you can intervene
in the market.
You can make interest rates very cheap for as long as possible which will encourage people
to invest in new plant and employ people.
You should cut taxation, never mind that you might go into debt in the short run.
In fact, a government is not going to ever default on its debt that’s of course before
we came to Greece maybe, but that’s not going to happen, so never mind that you go
into debt in order to cut taxation and that will put money to people’s pockets.
The third way and the last resort, the government should spend on infrastructure projects, things
that will be needed when the economy get back to boom times.
Things like good roads, good railways, education, workforce properly so that they can take advantage
of more expensive production methods and so on, but you said if you do that at the bottom
of the business cycle when people are being thrown out and business are going fast, the
important thing is at the top of the market when everybody is not back in employment,
in order to head off inflation, you should start paying off the debt by taxing the people
again and getting that money back.
The problem with Keynesianism in practice is that it was applied by politicians and
politicians find that the business cycle and the electoral cycle got out of sink and there
are very few politicians who are courageous enough to actually pay off the debt, will
run an election with looming.
But Hayek was very simple and that is you never went into debt in any circumstances
although it’s not considered a conservative notion that you should cut taxation at least
in America, coming taxes is considered entirely
a conservative notion, it is Keynesian.
Douglas Goldstein: In the future based on what’s going on today in the United States,
what sort of prosperity can we hope for in terms of the way that the government is managing
the money according to either one of the two economists?
Nicholas Wapshott: I don’t think there’s any doubt that the American economy will recover
slowly but surely and they recover faster or slower depending exactly what policies
are there, but the American economy in itself is dynamic and will always increase in its
productivity at least in the medium term.
I’m not talking about far, I’m not talking 50 years, hens when all sorts of demographic
changes and the rise of China and India and so on, but within the next 10 years, the American
economy would do very well.
In fact, the American economy right now is hauling the rest of the world after what was
a very deep recession, the worse we know and the worse than the days of the early 1930s.
That is evident I think in the way for instance the Europeans who are taking a very Hayekian
view and battening down the hatches and getting all the debt repay, they are in recession.
Britain which has taken a semi-Hayekian approach to its debt and paying on the debt so they
are not actually contributing at all and the American economy is still obviously slowing
coming out of its own recession.
If the Europeans which makes a different tact and the British would say take a different
tact and those are two very large trading groups then the American economy would recover
much faster.
Douglas Goldstein: If the Europeans are paying down their debts, it sounds like a responsible
thing to do meaning in the short term, there’s going to be a lot of austerity that people
have to deal with but ultimately won’t that make them healthier economy?
Nicholas Wapshott: There’s a wall of difference between a kitchen table economy that if in
trouble times if someone might lose their job or is not entirely sure how long their
job will continue, it’s not the time to go and take out the large mortgage, not the
time to go on an expensive foreign holidays, not the time to go using your credit card
every weekend to blowing it on [inaudible 00:10:21].
That’s true but for a national economy it’s not the case.
We’re not first of all taking about austerity for the short term.
The Germans and French who lead the European Union are imposing upon Greece, Spain, Italy,
and Portugal Island.
We’re talking about 10 years worth of austerity.
In Greece right now, one in three people is already in the low the poverty line.
This is storing up enormous trouble because already general strikes, public disorder,
violence on the street, it’s a common place in Athens and in Madrid too.
In Madrid, at the moment, one in four Spaniards is already out of work before they’ve even
started cutting public spending.
One in two that is half of the population of people under the age of 25 in Spain is
already out of work.
To give them no prospect of working in the next 10 years is also storing up trouble.
The last thing you want is sophisticated nations like Spain, France, Italy, it may not reach
Germany but all countries as big as that, as important as that having permanent social
descent because people are not working as they should be working.
Yes, it sounds a great idea, it sounds responsible to pay down the debt, but it also sounds thoroughly
irresponsible to cause so much human misery when you can see on the streets of these countries
already before any of these comes to taking place.
The people are beyond their tolerance, beyond boiling point unless the Europeans actually
readdressed exactly how to cope with the Eurozone problems.
We’re going to have social disorder on a horribly large scale and the last time we
saw that back in the 1930s, it lead to some of the most vicious, disgusting and poisonous
regimes that the world has ever seen.
Douglas Goldstein: In the past, you’ve also written about Margaret Thatcher, Britain’s
first woman prime minister.
She was known for some of the more strong-armed economic decisions of a government.
She denationalized many industries and she destabilized the power of the trade unions.
How do you think that she today would deal with the European economic crisis?
Nicholas Wapshott: Just like the Europeans altogether, she [kept out] of the Euro and
she was absolutely the right choice.
Whatever else people might think about Mrs. Thatcher, she got back absolutely right and
thank goodness that the Brits are not involved in the Euro otherwise they’d be on the same
sort of mess that the rest of the Europeans were in.
She did not believe in debt.
She was Hayekian by the way.
She read a lot of Friedrich Hayek and this is the thing that brought her close to Ronald
Reagan.
He’d also read a lot of Friedrich Hayek and they agreed that actually you should be
sort of physically condiment as possible, you should pay your debts off as quickly as
possible.
She worked actually with her father in a corner shop so she understood small retail business
and exactly what you have to do to match these things up and that inspired her.
It’s not entirely appropriate I think though to look at the whole of the economy and that’s
not the best way to understand the way an economy works and it’s not probably the
best way to deal with economy.
She was dealing with very specific things.
She had a mixed economy where really just due to lethargy, due to lack of clear thinking
also to things that are being taken into public ownership, the bad reasons because of the
war or whatever was still in public hands.
It’s unbelievable today to imagine the telephone companies, the railways, and road freight
transport were all held by public companies.
She just cleared a lot.
She had a sort of fire sale.
She just cleared everything out and put it back in the hands of the private companies
and that sort of strapped up undoubtedly the way those industries work, but it sort of
inspired the rest of British industry to be far more entrepreneurial, to be far sharper
so actually, however, again she wasn’t very popular at the end but every Briton should
be grateful to her because she actually did proper spring cleaning of the British economy
and she put it back on its feet.
Douglas Goldstein: How can people follow your work?
Nicholas Wapshott: The best way actually is just put my name Wapshott into Google or put
Keynes Hayek and you’ll find that in the first 10 entries, I sort of corner the marketing
Keynes Hayek so you’ll find my stuff there.
I write a regular column once or twice a week for Reuters.
I write a column to the News Statesman.
I have plenty of journalism on and off air.
I do have a website but if you Google me, you’ll find my site sure enough.
Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host
of the Goldstein on Gelt radio show (Monday nights at 7:00 PM on www.israelnationalradio.com.
He is a licensed financial professional both in the U.S. and Israel.
Securities offered through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA,
SIFMA.
Accounts carried by National Financial Services LLC.
Member NYSE/SIPC, a Fidelity Investments company.
His book Building Wealth in Israel is available in bookstores, on the web, or can be ordered
at: www.profile-financial.com (02) 624-2788 or (03) 524-0942.
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