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The Future of Work Podcast

Episode 56

How can macroeconomics answer the call for greater social justice?

6 May 2024

With progress slow towards realizing the objectives of the Sustainable Development Goals and the Paris Climate Agreement, and rising demands of people for social and environmental justice, is the standard approach to macroeconomics no longer fit for purpose?

In this Future of Work podcast, the Director of the ILO’s Research Department, Richard Samans, author of the book Human-Centred Economics: The Living Standards of Nations and economic historian Lord Robert Skidelsky explore how we can begin to transform macroeconomics to deal more effectively with ongoing challenges like inequality, underemployment, precarity and environmental degradation.


-Hello, and welcome to this edition of the Future of Work podcast.

My name is Rick Samans, and I'm the ILO's Director of Research

and representative to the G20 Finance Ministers

and Central Bank Governors process.

In my recent book, Human-Centered Economics:

The Living Standards of Nations,

I examine the chronic underperformance of economies

with respect to social inclusion, environmental sustainability,

and human and systemic resilience.

I present a new approach to macroeconomic theory and policy

to better address these issues, which are likely to become more urgent

in light of a number of new and complex challenges

that our world is facing,

like artificial intelligence and climate change.

In today's episode, we'll explore how fit for purpose

the standard approach to macroeconomics is in the 21st century

with the preeminent economic historian and macroeconomist, Lord Robert Skidelsky,

who is Professor Emeritus

of Political Economy at the University of Warwick,

member of the British House of Lords, and author of many books,

including the definitive three-volume biography

of John Maynard Keynes.

Lord Skidelsky, welcome to the podcast.

-Thank you for asking me.

-At the outset of our conversation, I suppose we should acknowledge

that monetary and fiscal policy were deployed to considerable effect

during the COVID crisis

to stabilize economies and sustain people's jobs and incomes.

Economics as an intellectual discipline

is clearly struggling to address a number of ongoing vexing challenges,

like inequality, underemployment, precarity, and environmental degradation.

Progress has been extremely slow

toward the related objectives countries unanimously agreed to

in the Sustainable Development Goals and the Paris Climate Agreement.

This is contributing to a certain social pessimism

about whether capitalism can ever be made sufficiently inclusive and sustainable.

How do you assess the state of the field, Lord Skidelsky?

Is macroeconomics, in your view, or at least the mainstream practice of it,

stuck or suffering from some sort of blind spot?

If so, how do we begin to transform it to deal more effectively with

the distributional and other social justice challenges

likely to be exacerbated

by the technological, environmental, and other big challenges

we're witnessing today?

-I do think one of the things that's happened is that


the great contribution of Keynes,

has been squeezed out of economic pedagogy,

not entirely squeezed out of policy, as you rightly pointed out,

but it's been squeezed out of pedagogy.

As a result, all economic problems

that arise are discussed in terms of microeconomics.

In other words,

in terms of supply, the supply side of the economy,

the demand side of the economy is on the whole ignored,

except, as you say,

in an emergency, when you have unexplained, let's say,

unexplained collapses of demand,

often attributed to government failures of one kind or another.

Then you supply a plaster,

and you just try to keep the patient alive for a bit

until the automatic forces of recovery come in.

I think that's the state of the pedagogy.

Economies have an automatic tendency to full employment,

whatever their distributional state.

That can be upset from time to time, usually by government interference,

but then with appropriate emergency treatment,

the normal course of events will be resumed.

In that scenario,

distribution doesn't really play a role.

The distribution of wealth and incomes

is a sort of separate issue in microeconomics.

In other words, it may affect issues of justice.

It may certainly affect politics

and social elements of social stability,

but it's not part of any economic model.

In other words,

you can't find in economics any very clear statement

of a correlation between certain types of distribution

and economic performance.

-Yes, the current paradigm is focused almost exclusively

on optimizing the quantity of growth,

or GDP, as opposed to the social quality of growth,

which is to say broad improvement in people's living standards and well-being.

Policy often amounts to a dash for growth,

as measured by things like GDP statistics and asset prices,

on the assumption that the social benefits of growth,

such as the availability of decent work with an adequate living wage,

improved access to and affordability of basic necessities,

and greater economic and environmental security,

will inevitably diffuse or trickle down to the population as a whole.

Yet the most influential early theorists

and codifiers of liberal political economy,

including Adam Smith,

didn't assume this.

They didn't see overall progress in social welfare

as an inevitable outcome of economic growth.

Rather, they quite explicitly

viewed economies through two and equally important lenses.

First, production in the markets and capital accumulation that enable it,

on the one hand,

and distribution and the policies and institutional features

that enable it, on the other.

For example, in such areas as labour rights,

social and environmental protection,

corporate and financial governance, infrastructure, taxation,

education and skilling, et cetera.

It's actually the combination of the two

that's needed to achieve the bottom-line purpose of economics,

which is to improve the material well-being

or living standards of a society as a whole.

In my book, I try to resurrect this institutional dimension

and give it a clearer and more actionable structure,

because I believe it's becoming ever more important

to satisfying the rising demands of people

for social and environmental justice in this century.

In fact, many countries learned and applied this lesson

after the Great Depression in the middle decades of the 20th century,

but this more balanced view of economic progress has gone lost

in the contemporary pedagogy and practice of macroeconomics, hasn't it?

-Yes, I agree.

I think one of the absurdities of our time is the view

that reducing the tax burdens

on the very rich opens the door to paradise for everyone else.

That is absolutely crazy.

What it does is it simply makes the rich richer.

The trickle-down effect is not very large,

and empirically it's not well-established.

What's more, when you look at the data, as you say,

the fastest rate of period of growth in the global economy,

especially in the Western countries,

in history,

was in the 30 years after the end of the Second World War

when the highest marginal rates of tax were 90%.

It was literally impossible

for anyone in that world to become a billionaire.

There weren't any billionaires.

There were very, very few millionaires.

That was a period of very fast growth relative to what happened.

Social consensus was high.

There were strong unions.

All right, it ended, you might say, in tears, but for 30 years,

something worked.

It worked for welfare.

It worked for society.

That's broken down.

If you ask why it's broken down,

it seems to be economics or economic pedagogy,

as you called it, has a great deal to answer for.

Because it's repudiated the kind of activism and the institutional structure

which was in place.

-Thank you, Lord Skidelsky.

Keynes himself did not focus directly on distribution.

He didn't pick up on Marx's and Hobson's arguments

about high inequality fueling underconsumption

and thus undermining growth in a country's available fiscal resources,

which are partly a function of economic growth.

You've suggested in a recent article that more often than we think,

there is unexploited policy space on the fiscal front.

You've made this case in the context of the current debate in the United Kingdom

over fiscal policy.

Tell us about that.

-Yes, well, I think

Labour and the left more generally is in a bind about economic policy

because on the one hand,

they don't accept the view

that economies are

under the existing regime performing at their best capacity,

either in terms of level of output or quality of work.

They want to use the budget constructively

in order to expand the economy

and also to improve the quality of economic activity,

in other words, to improve productivity, but they're trapped

by the assumption

that economies have no spare capacity,

that they are at full employment.

They can point to figures showing

that unemployment is at a very low rate,

and therefore, the question they can't quite answer is

where they're going to get the money from to run the kind of policy they want

because there's no further capacity to squeeze out of the economy to do it.

They have to take the money from somewhere,

and therefore that means higher taxes,

and therefore the left are really pinioned

by the charge that

to do what they want will simply mean raising taxes,

and raising taxes will slow down the rate of growth,

whereas the counter argument is that the way to get faster growth

and faster growth per person is to lower taxes.

It's very interesting that the chancellor, our chancellor,

Jeremy Hunt, in introducing his budget

a couple of weeks ago explicitly referred to the Laffer Curve.

I don't think many people nowadays use the Laffer Curve,

but this was the idea that

if you lower taxes you increase the growth rate,

and therefore the revenues of the state,

by getting people to work harder.

This was a very popular doctrine in the 1980s and '90s.

It's led a quiet life ever since,

and now it's revived.

Suddenly there it is, to justify a policy of tax cuts

without having to raise taxes

at a later time.

I think the left can't invoke Laffer, they can't invoke Keynes,

and therefore they're stuck with fiscal orthodoxy.

In fact, Rachel Reeves has abandoned the pledge

to spend several hundred billion over the five years on a green investment.

That's just been dropped because the Conservatives said,

"Where are you going to raise the money?"

She can't say part of the money

or a lot of the money will come from the economic growth

that this fiscal expansion will bring about.

-Your new book, The Machine Age,

is a fascinating look at humans' relationship

with technology over the years with a particular reference

to today's debate about artificial intelligence.

Are you optimistic or pessimistic

about the net effect of this technology on our economies,

and what do you think it all means for the field of economics going forward?

-One view is quite simply that machines are liberating.

If you take the view, which is a standard economics view,

and even Keynes had this view, if you take the view

that work is a cost or disutility, and it's the cost of living,

basically, then anything that lowers the cost of living must be a benefit,

and machines lower the cost of living.

They make the output of the society available at a much lower price.


that means people can, in theory, get what they want

in terms of their consumption basket of goods and services at a lower cost

than they would if they didn't have the machines,

and therefore they will need to work less and less

to get what they want.

The Keynesian paradise, if you like, or that particular paradise opened up

by his Economic Possibilities for Our Grandchildren,

a short essay he wrote in 1930,

was that by now we would only have to work three or four hours a day to,

as he put it, satisfy the old Adam in us.

In other words, to regain the Garden of Eden.

That's that view of things.

Of course, that assumes two things.

One is that distribution will ensure or distributive policy will ensure

that the fruits of technical progress are widely diffused through society

and don't all accrue in one corner of it.

Secondly, that people gladly give up work.

What are they then going to do

if they only have to work a few hours a week?

Work gives people, I think, a sense of identity.

It's a way of connecting with their fellows.

There are better jobs and worse jobs, of course.

That path,

if you take that route, you're not so sanguine

about the progressive potential of machines.

Now, there's a conflict here, and that conflict has gone on,

actually, ever since the Industrial Revolution.

-Yes. Here at the ILO,

we have done a preliminary estimate of the likely implications of generative AI

on job automation,

which is replacement of jobs by technology,

as opposed to job augmentation,

which is when workers use the technology to become more efficient

and productive in their existing work.

Globally, we found that about 13% of all jobs

are considerably exposed to augmentation,

and 2.3% or so are exposed to automation.

That's six times more jobs likely to be transformed

than replaced.

While that may sound reassuring at first,

this amounts to somewhere between 10% and 20% of the workforce

facing a major transition of some sort

over the next 10, 15 years,

either having to find a new job

or having to upskill in order to keep pace in their current occupation.

That's a big increase in dislocation and adjustments for workers,

and it will take place at the same time

that countries are supposed to be deepening their green transition

in industry and energy systems,

which, along with rising temperatures and sea levels,

are likely to disrupt many other jobs.

Change in labour markets of such a large magnitude has major implications

for fiscal policy and the social contract more generally.

That's to say for the role of governments and enterprises

in supporting people through these disruptions to their lives.

You would think it would also have major implications

for the field of economics, wouldn't you,

for the way that we think about growth and development?

-There's much more churn, much less security,

and therefore,

if you leave the development of technology to the market

and don't actually ask the questions of

what it means for human welfare

and what it means for being human,

you're going to end up in disaster.

The trouble is we don't ask, we don't consider that.

We just assume,

as crudely as this,

that anything that eases the burden of work must be good,

and the only thing we need to think about is,

if we're humane people, is how to provide people

with the incomes to live with their redundancy.

I think that's a very dangerous position to be in.

I think it's going to be a potential cause of big social unrest.

Lots of people are feeling that they're being put on the scrap heap

and that they have no future.

Younger people are notably more pessimistic

than their parents and grandparents about the future.

I think it's partly to do with this question,

what are we going to do with our lives?

I think, all right, this is a developed country problem.

It may not be nearly as big a problem

yet in the developing world, but it's going to come sooner or later

because what we're doing is

we're pressing technological change on everyone.

It's a free good.

-Yes, there seems to be quite a bit of soul-searching taking place

among mainstream economists today.

This is creating space

and political demand for new thinking and fundamentally different approaches.

In this podcast,

we've explored some alternatives to the dominant economic thinking

that can help to re-embed the teaching and practice of macroeconomics in society,

from being very tightly focused on GDP growth

to applying itself much more directly

and holistically to improving the general standard of living,

the everyday lived experience of people.

I hope that our discussion today

has given our listeners a glimpse of what a more human-centered,

that is to say, inclusive, sustainable, and resilient approach to economics

would look like.

Lord Skidelsky, on behalf of the ILO,

I'd like to thank you very much

for joining this edition of the Future of Work podcast.

-It was a great pleasure to be on the program.

Thank you.

-I'd like to advise our listeners that links to the publications we've mentioned

can be found on the podcast website.