The new economy

Minsky’s moment has arrived

There is a big political prize dangling over the economic crisis. Whoever now devises a coherent economic programme will mould British society for a generation. Labour won the post-Great Depression prize in 1945 by creating the paternalistic welfare state and won again in 1966 — a short-lived victory — with Harold Wilson’s modernising ‘white heat of technology’. In 1979, Margaret Thatcher won the prize that arose from the failures of the preceding paternalism and technocratic modernism with her vision of free-market individualism. From then until Northern Rock was nationalised, all economic policy was recognisably some shade of Thatcherism.

Keynes dominated the thinking of 1945 and 1966; Hayek defined the 1979 revolution. Who will define the next one? David Cameron needs an economics that is neither Hayek nor Keynes — and so do we all. There was a real failure of late Keynesianism after 1966 and we are now suffering the real failure of the Hayekian reaction.