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  • 28/05/2025
Stephanie Flanders looks at the life and work of economist John Maynard Keynes, and how his ideas have never been more relevant or controversial than now.

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00:00This vast solar power plant being built in the remote Arizona desert is part of the biggest
00:15economic rescue effort in history.
00:17While the cost of action will be great, I can assure you that the cost of inaction will
00:23be far greater.
00:25With the economy still struggling, the American government is shelling out three quarters
00:29of a trillion dollars to try to haul the country out of trouble.
00:35And in Britain, billions are being spent to accelerate growth, even by a government determined
00:41to cut borrowing.
00:42Is this really the right road to take?
00:45After the crash in 2008, the world seemed to be running out of cash.
00:49But rather than cut back, governments spent huge amounts of money they didn't have.
00:55Why on earth would they do that?
00:58It all goes back to the extraordinary ideas of this man, the British economist, John
01:03Maynard Keynes.
01:05Quite simply, he changed the world.
01:08I think it is true that he's one of the great figures of the 20th century and in many ways
01:13of the 21st century.
01:15Keynes thought capitalism was brilliant, but left to its own devices, it could also go
01:19seriously wrong.
01:20It was up to governments to step in to get the economy back on track.
01:26He was the archetypal man in Whitehall, Westminster or Cambridge who thought he knew best.
01:32Keynes has never been more relevant or controversial than he is today, because for the first time
01:37since the 1930s, the problems he was grappling with then, bank failures, international crises,
01:44the possibility of a long economic slump, we're facing too.
01:50In this series we'll explore the stories of the lives and world-changing thinking of three
01:55men with dramatically polarised views, Karl Marx, Friedrich Hayek and tonight Keynes.
02:03They're the ones who taught us the awesome power of money, the good that markets and
02:07capitalism could do, but also the enormous trouble they could bring.
02:13Could these radical thinkers help us understand the huge mess we're in?
02:18Could their ideas help us get out of it?
02:25The
02:38quiet hills of north-west England.
02:41This is Economics in Action.
02:46These rally cars are competing in the Tour of Cumbria.
03:10The sponsors, Pirelli, are getting a slice of the government's £2.4 billion fund to
03:16help regional growth and employment.
03:19They want to show what the company's really all about.
03:29Pirelli's one of the world's biggest tyre makers.
03:32It's been manufacturing in Britain for almost a century.
03:37It wants to develop some of its top ranges and beef up research and development.
03:45But the sums hadn't been adding up.
03:59This factory is one of Carlyle's biggest employers.
04:03There are about 750 workers here, producing 10,000 tyres a day.
04:08Not so long ago, people worried the company would shift production overseas to cut costs.
04:14A £2 million government grant has persuaded Pirelli to invest in Britain instead.
04:23When we have a major investment, the confidence in people to spend the wages is increased
04:29and the local economy benefits.
04:32And it's not only Pirelli employees.
04:35We have hundreds of suppliers and contractors who depend on this factory, and they benefit
04:41also when Pirelli increases its spend, and also they recycle that money into the local
04:46economy.
04:47It might seem surprising, a handout to a private company, when the government's so worried
04:53about them mounting national debt, now more than a trillion pounds.
04:59But Keynes was quite clear.
05:01There are times when we need to step in to make capitalism work for us, even when that
05:06means spending money we don't have.
05:09What Keynes said was that it was possible for government to come in and make markets
05:15work better.
05:17So one way that it's often put is that Keynes saved capitalism from the capitalists.
05:25So for Keynes' critics, it's mistakes by governments that really cause the trouble.
05:33When we find instances of economies being seriously knocked out of equilibrium, it's
05:37generally been as a result of government policy mistakes.
05:41But Keynes didn't really make a convincing case that even when an economy was knocked
05:46out of equilibrium, that government action could do better than allowing the economy
05:51to essentially mend itself.
05:57Keynes is either an economic saviour, or the man who led us all astray.
06:01But he was at the centre of the debate 80 years ago, and he's back there again today.
06:07A great weight is lifted from us.
06:11This is the only known film of Keynes speaking.
06:14There's no danger of the exchange falling too far.
06:17There's no danger of a serious rise in the cost of living.
06:21It's a broadcast about economics, how to share out the world's resources.
06:28But for Keynes, this was no dry science.
06:31It was about changing the world for the better.
06:34I think if we're looking at Britons who made a real difference in the 20th century, the
06:40most obvious name would be Winston Churchill.
06:43John Maynard Keynes is really not far behind.
06:47Keynes spent years in this house in London, developing ideas that helped shape some of
06:54the most important events of the past century.
06:58Helping to save capitalism from the Great Depression, funding the war against the Nazis,
07:04and building a new post-war economic order that helped pave the way for decades of growth
07:09and rising prosperity.
07:12He had the ear of everyone who mattered.
07:15Presidents and prime ministers all listened to what he had to say.
07:18That was only after his death that everyone actually started taking his advice.
07:23I applied to university in 1965, and the whole intellectual climate of the time, not just
07:29in terms of economics, but politics, was driven by the idea that Keynes had solved the economic
07:35problem.
07:36By the late 1960s, Keynes' ideas were built into the fabric of pretty much every Western
07:41economy.
07:42But he didn't seem to have an answer to the high inflation of the 70s.
07:46After that, Keynesian fine-tuning was out, and free market ideas gradually took over.
07:53But when the world got into serious bother in 2008, Keynes was back.
07:58Its ideas that mobilised the world, on right and left, good and bad.
08:04And Keynes was the author of, in my judgement, the best suite of ideas about how to think
08:10about capitalism that there's been.
08:12And if you think that counts, then he counts.
08:25So what are these great ideas that have dominated our economic landscape for so long?
08:29And where exactly did they come from?
08:33Keynes was born at the height of the British Empire, in 1883, to middle-class parents who
08:39sent him to Eton and Cambridge.
08:42So far, so conventional.
08:45But at university, he fell in with a very unconventional crowd, the Bloomsbury set.
08:51As a young man, he spent a lot of time here, at their country retreat, Charleston, in Sussex.
08:57It was a kind of commune for artists and writers, and the one economist.
09:03They did see themselves as very different.
09:07To an extent, they were tinged by that rather indefinable concept, bohemian.
09:20They were very ahead of their time.
09:21They were pioneers about sexual orientation, and they were very
09:25They were pioneers about sexual behavior, they were pioneers on the political front,
09:30and they were pioneers in many aesthetic fields, in writing and in the arts.
09:38The Bloomsbury group allowed him to step outside of the box and to think the unthinkable.
09:43And that breadth of intellect that he had allowed him to leap off cliffs
09:49with the confidence that there was no bottom.
09:55It was a gift from the people of Cambridge.
10:04Keynes immersed himself in the cultural world all his life,
10:08collecting paintings, fine books, even founding the Arts Theatre here in Cambridge.
10:15Perhaps it's no coincidence that a man with such wide-ranging interests
10:19should have the vision to develop a radically new approach to economics, Keynesianism.
10:24stand today for government efforts to control the economy.
10:36Greek fury at the austerity they feel has been imposed on them by their European neighbours.
10:41For Keynes, this might feel a bit familiar. He saw at first hand the disaster that can
10:48come from stronger countries dictating economic terms to the weak. That helped him form his
10:57first big idea. In an interconnected world, when you beggar your neighbour, you might
11:03well beggar yourself.
11:11It was an idea forged by the horrors of World War I. True to his Bloomsbury values, Keynes
11:18didn't want to fight in the war. But he was willing to use his economic brilliance
11:24to help finance it by working for the British Treasury.
11:32Once the war was over, Keynes could see how hatred of the defeated Germans might lead
11:37the victors to make a terrible mistake.
11:42At the end of the First World War, there was a great deal of obviously public hostility
11:45towards Germany. I mean, it had been a disastrous war, both obviously in terms of lives and
11:51casualties but economically too. I think there was quite a strong feeling that Germany must
11:55be made to pay.
11:59At the Palace of Versailles, where the peace treaty was signed, British Prime Minister
12:03Lloyd George and his French and American allies relished their victory. Keynes was
12:09a member of the British delegation here, but against his advice, Germany was ordered to
12:13pay everyone's bills for the damage and suffering caused by the war.
12:18How could Germany afford to repay that debt? You need an economy that is running to produce
12:24money, to produce wealth, and then you can repay. You cannot repay without of nothing.
12:38Keynes was so outraged that he resigned from the Treasury and retreated to his room in
12:42Charleston to write his first major book, The Economic Consequences of the Peace.
12:49Brilliantly written, it became a bestseller, though some said, with his sympathy for the
12:53Germans, he should be awarded an Iron Cross.
12:58The key point was that he didn't think the Treaty of Versailles was just unfair. He thought
13:03it was stupid. He thought a desperate Germany wasn't going to keep the peace in Europe and
13:07it certainly wasn't going to contribute to prosperity. It wasn't going to buy goods from
13:11Britain and help Britain recover from the war. That's something he kept coming back
13:16to throughout his life. We're all in it together.
13:20The Treaty of Versailles brought one of the great powers of Europe to its knees.
13:28As Keynes predicted, the German economy descended into chaos. Their debts were so impossibly
13:36large, they ended up printing the money to pay the bills, which quickly led to hyperinflation
13:41and a thoroughly worthless currency. Hyperinflation didn't just destroy the economy, it destroyed
13:47the fabric of German society, people's hopes too. When Keynes warned that the Versailles
13:54Treaty would bring a catastrophe here, even his admirers might have thought he was exaggerating.
14:00They didn't think that for long.
14:08Just 14 years after the Treaty of Versailles, Hitler came to power. World War II wasn't
14:16far away. As Keynes had predicted, the price of getting economic relations wrong was calamity.
14:31Keynes foresaw that the reparations were too onerous, would have to be adjusted and that
14:36actually you were laying the seeds of the next European conflagration. He thought it
14:41was unbelievably short-sighted and he was right.
14:47So what would Keynes make of Europe today? Well, once again he might see strong countries
14:52dictating economic terms to the weak, though this time it's strong countries like Germany
14:57itself insisting that crisis-ridden nations like Greece sign up to tough budget cuts in
15:03exchange for emergency loans.
15:06The dominant thinking in Europe at the moment is exactly repeating the mistakes, I believe,
15:12certainly as far as Greece is concerned, as was made at the end of the First World War.
15:15There comes a point, if you visit upon countries things they can never deliver, it will end
15:19in tears.
15:20If you look at what's happening in the Eurozone today, riots on the streets of Greece, general
15:25strikes in Spain, general strikes in Portugal, you can see, well, aren't we just failing
15:32to learn the lessons of history here?
15:35I think he would have said, let's make Greece strong so then they can repay their debt.
15:40As long as the debtor pays, the creditor is happy. But as soon as the debtor gets into
15:45difficulties and if he's a very important debtor, the creditor has also problems because
15:51he won't get his money back.
15:55Faced with the crisis affecting the people of Europe today, Keynes would undoubtedly
15:59have come up with some solutions.
16:02In fact, years after the Treaty of Versailles, he'd unveil a plan for countries to work
16:09better together. But first, there was a more basic question. How to steer the economy itself?
16:18To tame the economy, to make it work for us, Keynes realised you first had to understand
16:24how it worked. But that's easier said than done.
16:28Keynes came to believe that economies were fundamentally unpredictable. In fact, he noticed
16:33the times when the economy looked most predictable were usually the times when things were about
16:38to go disastrously wrong.
16:46It certainly felt like that in 2008, when the global financial system imploded after
16:51one of the longest booms in history. Many claim now to have seen it coming, but at the
16:57time, many more behaved as if the good times would go on and on.
17:07Being too sure about the economic future was another mistake that Keynes had warned about
17:1180 years ago. Because he'd made the same mistake himself.
17:28After resigning from the Treasury after World War I, Keynes retreated to the sanctuary of
17:33his old college, King's, in Cambridge. He was a lecturer and later a bursar, looking
17:43after the college's finances. He had a special interest in probability theory, a branch of
17:51mathematics that tries to predict the future from the evidence of the past.
17:56When he wasn't writing or studying, Keynes was often betting on the financial markets.
18:01He needed money and he thought speculation was a good way to get it. But it was also
18:05a great way to test his belief that probability theory and statistics could help predict the
18:11way markets were going to move. He had very mixed results.
18:16In his early years as an investor, Keynes sat in bed every morning, poring over reams
18:21of statistics about currencies, shares, bonds and commodities. When he was sure he'd worked
18:27out which way the market would move, he'd make the deals.
18:38The Cambridge academic David Chambers has spent a lot of time studying the future of
18:43The Cambridge academic David Chambers has spent a lot of time studying Keynes' investment
18:48strategies.
18:53Given this economic knowledge that he had, this great thirst that he had for numbers
18:58and statistics, he believed, I think, that he could define, delineate the business cycle.
19:05And as a consequence of that, he would be able to pick when was the right time to be
19:10in the stock market, to own shares, and when was the right time to come out of the stock
19:15market into, say, bonds, government bonds in particular, or alternatively cash.
19:23But none of Keynes' elaborate calculations pointed out the disaster just around the corner.
19:31Wall Street before the crash in 1929 looked a lot like the tail end of our market boom.
19:38Investors could see no end to the good times. Armed with the very latest mathematical models,
19:43they thought they had everything covered.
19:46Then the bubble burst. World markets collapsed and Keynes lost money, along with millions
19:52of others, paving the way for the Great Depression. His confidence in predicting the future was
19:57gone.
19:59He would have bitterly reproached himself for not foreseeing the Great Depression, but
20:04he came to the view that the future is not like that, that anybody who happens to predict
20:11it right is likely to be doing so on the basis of luck rather than judgement.
20:17Then he changed the way he invested, became a wealthy man. He'd learned lessons about
20:23the way economies work that we still struggle with today. That you can never get rid of
20:29uncertainty and that economies are made up of people, not numbers.
20:35More than anyone, Keynes wanted economics to be respected as a modern science, but he
20:40knew it was never going to be a science you could reduce to a set of equations or iron
20:45predictions, because economists were always going to have one extra thing to deal with
20:50– human nature.
20:53If you don't know about the future and you're trying to get a fix on what's taking place
20:58at any moment in time, you would defer to the crowd. The crowd is moving in a certain
21:04direction. They must be right. The crowd's buying. Why are they buying? I must buy too.
21:08The crowd's selling. I must sell too. It's very animal. It's very herd.
21:14In normal times, any economic textbook, now or in Keynes' time, tells you when something
21:19gets more expensive, people buy less of it. And when it's cheaper, they buy more.
21:25But not when you get bubbles.
21:29Then Keynes realised a different side of human nature took over. The side that says when
21:33a house or share goes up in price, you should buy more of it because it's going to go up
21:38some more. Which of course it does, because everyone's thinking the same thing.
21:45But eventually, the bubble will burst. It always does.
21:52In the years before 2008, did we forget what Keynes had taught us about herd psychology,
21:58bubbles and the uncertainty of economic life? Did the bankers, investors, politicians and
22:05the rest of us simply get too confident in thinking the good times would go on forever?
22:11I think in as much as people actually sat down and thought about what were the risks,
22:16what are the uncertainties, then quite clearly a large number of people were manifestly found
22:21wanting. And of course, if you don't know what you're doing, it's not surprising that
22:25you end up being smashed to bits and that's precisely what happened.
22:30Keynes' big ideas that countries shouldn't beggar their neighbours, that markets are
22:35unpredictable, all came out of his own experience. Now the arrival of the Great Depression produced
22:41his most important idea yet and added real urgency to his need to tame the economy.
22:47What he realised was that economies might sink, but that's not the end of the story.
22:53In the early 30s, the outside world was deep in gloom, with dole queues lengthening and
22:59factories closing everywhere. But Keynes' life was blissful.
23:05By now, he was famous and he'd shocked even his own family.
23:10He was the first person in the world to have a job.
23:14Art, books, love affairs, for Keynes this is what life was all about.
23:20But he understood probably more keenly than his Bloomsbury friends did.
23:25He was a man of the arts, he was a man of the arts, he was a man of the arts,
23:31he was a man of the arts, he was a man of the arts.
23:36He was so into art that he'd even plant a nursery for his art school,
23:41He understood, probably more keenly than his Bloomsbury friends with their inherited wealth,
23:47that money kept the whole thing afloat.
23:50You couldn't have a civilised society without a well-functioning economy.
23:55When he was back in the real world on Monday morning, he could see the British economy
23:59wasn't working at all.
24:04Britain had been in a slump for years.
24:07Classical economists said that if workers would just agree to wage cuts, businessmen
24:11would invest again, create jobs, and the economy would revive.
24:16But Keynes disagreed.
24:19He thought the way to recovery was being blocked by pessimism or low animal spirits.
24:26The big insight of Keynes behind all of this was that a market economy is not self-stabilising.
24:32And when you get very big changes in animal spirits, in sentiment, where people who are
24:37producing to sell in the future suddenly worry that actually maybe there won't be
24:41the demand in the future, so they stop producing, to get out of that low output trap can be
24:47very difficult.
24:51Keynes' realisation that an economy could stay sunk indefinitely was a radical break
24:57with conventional thinking.
25:02The classical approach said the economy would get better, we just had to give it time.
25:07Looking around, it seemed obvious to Keynes that it wasn't getting any better.
25:11And it seemed blindingly obvious why it wasn't.
25:14Every time someone lost their job and joined the dole queue, they had less money to spend.
25:18So that meant fewer goods were being bought, and would probably mean more job losses.
25:23You could get caught in a downward spiral with no obvious way out.
25:30Keynes thought the low animal spirits in the business world were now infecting everyone.
25:39In a radio broadcast in 1931, he made a dramatic call for action.
25:48The slump in trade and employment are as bad as the worst which have ever occurred.
25:55Society and enterprise, both individually and nationally, must be the cure.
26:08Keynes might have died almost seven decades ago, but out here in the Arizona desert, his
26:13big idea for getting the economy moving again lives on.
26:22At Gila Bend, they're building the biggest solar power plant of its kind in the world.
26:33The site covers over three and a half square miles.
26:38Nearly a million mirrors will capture enough energy to provide 70,000 American homes with
26:44clean power.
26:47For the people in this remote region, and for John Maynard Keynes, probably the most
26:52important thing this plant will produce is employment.
26:56Between my wife and I, we probably spent two years out of work.
27:01Thank God, not at the same time, but we took some very significant hits.
27:12The company that sources our manpower tells me they receive 300 resumes per day.
27:18There's a lot of people looking for work, and the people who have jobs out here feel
27:23very lucky to have their jobs.
27:27In effect, this plant is part of a vast Keynesian experiment.
27:31In the wake of the crash, the US government stumped up three quarters of a trillion dollars
27:36for projects like this one to create jobs and growth.
27:44In normal times, say the people who run this site, they would have raised a billion and
27:48a half dollars to get things going from commercial banks.
27:52But these aren't normal times.
27:55Because of that downturn, we had to look for alternative sources of financing.
28:04Of course, in this context, the federal loan guarantee program here in the US has helped
28:09it out a lot.
28:10In fact, without that kind of public programs, this plant could have never been a reality.
28:20Now we're used to governments using their cash to try to bring the economy to life in
28:24hostile environments where private money is drying up.
28:29But back in Keynes' day, it was a much more controversial idea.
28:39In the 1930s, Keynes spent weekdays at his home here in London's Bloomsbury district.
28:46He wrote countless articles and pamphlets explaining how something could and should
28:50be done to tackle this Great Depression.
28:54In normal times, Keynes thought monetary policy was the best way to help the economy.
28:59You cut interest rates to encourage people to borrow and spend more, and companies to
29:03invest.
29:04But when animal spirits were really low, that might not be enough.
29:09Companies might not see the point of making new investments, and people might not want
29:13to borrow, no matter how low the interest rates are.
29:17That's when Keynes thought government needed to make up the gap with more public spending.
29:25Keynes suggested the government should hire people to demolish South London and then rebuild
29:30it.
29:31He wasn't serious, but he was making a serious point.
29:33If the government borrowed to create jobs, people would spend more, confidence would
29:39rise, and the economy would recover.
29:42If you picked the right moment, he insisted the extra spending would pay for itself by
29:46producing higher tax revenues.
29:48Well, of course, he did have enormous trouble trying to persuade the Treasury, the so-called
29:52Treasury view, that you should borrow at the bottom of a business cycle.
29:57In economic terms, what you need is more demand in the economy, and you can do that in the
30:03ways that Keynes suggested.
30:04Naive Keynesian prescriptions of simply responding to depressions and recessions by raising the
30:10budget deficits as if this had no effect on other economic, no adverse effect on other
30:15economic variables, I really think are very dangerous policy prescriptions.
30:21In the 30s, Keynes found that most British politicians had a similar view.
30:25High borrowing was dangerous.
30:28He thought he might have a more receptive audience in America.
30:32After all, he was now a celebrity on both sides of the Atlantic, and the economic situation
30:37in America was desperate.
30:42Gross national product was down to almost 70 percent, you had unemployment nationally
30:46at 25 percent.
30:48But in places like Chicago and Detroit, unemployment was up to 50 percent, over half the population
30:55unemployed.
30:57President Hoover's solution to the Great Depression had been spending cuts and tax
31:01rises.
31:02He'd made an argument we've heard others make more recently.
31:07Balancing the country's books would create confidence and encourage investment.
31:12Didn't happen.
31:13Never has happened.
31:14When you cut back government spending in a situation such as a recession or depression,
31:22demand goes down, unemployment goes up, and it's a vicious circle.
31:29Confidence isn't restored when unemployment goes up.
31:32When business goes down, confidence is eroded.
31:38Hoover's successor, Franklin Delano Roosevelt, had a different approach.
31:44Again, echoing arguments made today, he thought the government should spend its way out of
31:50trouble.
31:51This nation is asking for action, and action now.
32:06When Keynes arrived in America in 1934, there's no evidence that he persuaded the U.S. government
32:12to adopt Keynesianism.
32:15They were doing it anyway.
32:22The New Deal, a vast program of government-funded projects to put armies of jobless to work.
32:29Ever since, it's been the celebrated example of a Keynesian effort to boost flagging economies.
32:39And there's no more iconic project of that era than this one.
32:46Hoover Dam.
32:50Built across the Colorado River, bordering Nevada and Arizona, it was the biggest construction
32:55project in the world.
33:01I would call it a Keynesian project, absolutely.
33:04The government stepped in with money, built a deficit, and out of that came Hoover Dam,
33:12which gave thousands, tens of thousands of people a new life, money to spend.
33:24Armies of workers from across America tunneled for five years through mile upon mile of mountain
33:30rock to build what was, in effect, a vast power generator, providing electricity for
33:36huge swathes of the country.
33:39It primed the economy, a $165 million investment which produced billions in growth, economic
33:48growth.
33:57Just eight miles away is Boulder City, built to house the workers building the dam.
34:09All these houses along these avenues are what we now call dingbat houses.
34:14They were the homes built for the workers.
34:17They were put up to last through the construction of the dam, very quickly built, but because
34:23people stayed, which they didn't anticipate people would do, families still live in them.
34:28Roger Schoaf runs the town's hotel.
34:31He thinks Boulder City shows how, in a depression, extra government spending can trigger private
34:37spending and investment too, adding to the economic benefits.
34:42It's what Keynes called the multiplier.
34:46By the end of the second year, they lived in a town, a full town, fully operating town
34:52with retail stores and restaurants and medical facilities and recreational facilities.
34:58It happened in less than two years.
35:03Critics of Keynesian spending plans often say the benefits are fleeting and the costs
35:07permanent.
35:09But Boulder City took root and thrived.
35:15Those who still live here say if it hadn't been for the New Deal, this would still be
35:20desert.
35:26Hoover Dam might have helped the local area, but it's actually a myth that the New Deal
35:31ended the Great Depression.
35:36It took a world war and all the extra government spending that went with that, finally to bring
35:42the economy out of the doldrums.
35:47You might wonder whether a world war was really the best test of Keynes' arguments, but ever
35:52since then, so-called Keynesian policies have been what governments do when faced with emergencies.
36:00And the crisis of 2008 was the biggest emergency anyone had seen for a long time.
36:07When the global financial system crashed, the world faced the real possibility of another
36:11Great Depression.
36:14Governments had been preaching the free market for years, but faced with this economic disaster,
36:20they reached again for the old Keynesian levers.
36:24It was a classic Keynesian response.
36:26When individuals stop spending money and when businesses stop spending money, if the government
36:30also stops spending money at the same time, then what happens?
36:33The economy basically crashes.
36:37The aim was to boost confidence, or animal spirits, by making it easier to borrow, invest
36:42and spend.
36:44In 2009, with the global economy still tottering, leaders gathered in London to endorse a Keynesian
36:52rescue plan for the entire world.
36:55This is the day that the world came together to fight back against the global recession.
37:01I find it very hard to explain the collapse in world trade of over 15% in six months,
37:07between the end of 2008 and the beginning of spring 2009, in terms of anything other
37:12than an extraordinary collapse of animal spirits or confidence.
37:16Now, some of that was turned round in 2009, but by no means all.
37:23Even that great rescue plan of 2009 wasn't all that it seemed.
37:28For all Gordon Brown's talk, Britain's own stimulus package was actually one of the smallest,
37:33because the government was already borrowing more than any other advanced economy.
37:38So even a Keynesian Prime Minister like Gordon Brown didn't think Britain could borrow a
37:42lot more.
37:44His successor believes in borrowing much less.
37:48After Brown, Britain elected a Prime Minister who, on one fundamental point, appears to
37:53disagree with Keynes.
37:56Some of the normal things that governments can do to deal with a normal recession, like
38:00borrowing to cut taxes or increasing spending, these things won't work because they lead
38:06to more debt, which would make the crisis worse.
38:09The only way out of a debt crisis is to deal with your debts.
38:14I suspect that Keynes probably wouldn't have used exactly the Prime Minister's formulation.
38:19I think that Keynes would have accepted at some point that you have to head back towards
38:24a more balanced budget, particularly if you don't want to stack debts onto future generations.
38:29To me, the remarkable thing is that countries like the UK that have a choice are voluntarily
38:38putting themselves through austerity.
38:40And almost certainly, we know what will happen.
38:45The economy will get weaker.
38:49Unemployment will go up.
38:51And there will be an enormous amount of unnecessary suffering.
38:58This argument will run and run on both sides of the Atlantic.
39:03In Arizona, the massive spending programme that built this solar power plant and let
39:08thousands clock on for new jobs hasn't been a miracle cure for the US economy.
39:15Maybe the medicine didn't work because the dose was too small.
39:18Or maybe the mountain of debt weighing on most Western economies means the Keynesian
39:24route to recovery is simply shut off.
39:27We are in a stratosphere today that we just have not seen before.
39:32And maybe it's fine, but no other countries very rarely have seen these kind of debt levels
39:37– public, private and other measures.
39:40There are risks.
39:43By the 1940s, Keynes was riding high.
39:47His theatre here in Cambridge was thriving.
39:49He was back in the Treasury helping finance the Second World War.
39:53And his books were being hailed as masterpieces.
39:57But he had one last big idea to pursue, with profound implications for the world then and
40:04now.
40:07Keynes' ideas for fixing broken economies had now been tested.
40:11But towards the end of World War II, he got a chance to leave his mark on the entire global
40:16economy.
40:17In a more integrated world, he was more convinced than ever that countries needed institutions
40:22to force them together, make them cooperate.
40:26The catastrophe after World War I could never happen again.
40:37The single most important trip to America that Keynes ever took was in 1944, to the
40:42exclusive resort of Bretton Woods in New Hampshire.
40:47He was joining delegates from over 40 different countries, all charged with laying the foundations
40:52of a new post-war global economy.
40:57They wanted to rebuild the system, not just from the war, but from the Great Depression.
41:02The financial system had just been destroyed.
41:07The economic chaos of the 20s and 30s was largely responsible for the war, Keynes believed.
41:15Countries had all focused on charting their own path, without very much thought for what
41:19was going on around them.
41:22The world had paid a terrible price for that failure to cooperate.
41:29There was a real determination among officials, both in London and in Washington, that we
41:36couldn't do this again, that we had to fix the world's economy, that we couldn't go back
41:40to the kind of economic crisis we'd had before, because we couldn't afford another world war.
41:51As representatives from across the world gathered here at Mount Washington Hotel, elsewhere
41:56there was still ferocious fighting.
41:58But once the war was over, Keynes knew for the world economy to prosper, countries would
42:04need to work together much more closely.
42:08Only two delegations at the conference really counted, Keynes' British team and the Americans.
42:16Both agreed that there should be controls to prevent currencies fluctuating too wildly
42:21against each other.
42:23They agreed, too, that institutions that later became the World Bank and International Monetary
42:27Fund should be there to foster trade and growth in poorer economies.
42:33Well the big gain from it was the recognition that countries need to work together to resolve
42:38their macroeconomic problems.
42:40It's just not enough to pretend that you can do it as an island.
42:44You may be an island geographically, but you're not economically.
42:50But on one crucial issue, Keynes failed.
42:54The Americans were adamant that rich exporting countries like them shouldn't have to spend
42:58more and export less to balance world trade.
43:02It was weak countries with big trade deficits that had to shape up.
43:07If everyone at Bretton Woods had accepted Keynes' logic that it takes all sides to keep
43:12the global economy in balance, the world today might be in a lot better shape.
43:22This old East German television tower is a symbol of reunified Germany.
43:28These days, feelings of European unity are in short supply.
43:35Ministers here in Berlin want struggling Eurozone countries to impose tough measures to get
43:41their economies into shape.
43:43The stronger countries have been willing to help by offering massive loans, but I don't
43:48think Keynes would have thought that was enough.
43:52Keynes thought that for the global economy to work, there had to be a two-way street.
43:57So weak countries that had run up a lot of debt with the rest of the world, they did
44:01have to become more competitive, learn to pay their way.
44:05But the rich exporters had to do their bit as well.
44:08They had to spend more on other countries' goods and export less, become a bit less competitive.
44:15That's a bit of Keynesian advice that doesn't go down well in Germany at all.
44:21If you say Germany should export less and become less competitive, the public would
44:25say that's mad.
44:28Why getting us weak when others are already weak?
44:32And certainly that's the wrong conclusion.
44:37There are signs of movement on Germany's side of the street.
44:45Domestic car sales have been going up.
44:51But exports are still a central plank of the country's economic policies.
44:57And car exports are up by almost a third in the past two years.
45:04German consumers have been spending more lately, but not enough to provide much of a selling
45:08opportunity for struggling countries like Greece.
45:15That's a very popular approach to tell German private houses, please spend more, don't be
45:19so greedy with your money.
45:22But I think that's wrong, because people look at their income and say, I can't afford simply.
45:28And that's true.
45:29I mean, we have had very weak wage increases during the past years.
45:33And that's the point where you have to have higher wages.
45:36And these higher wages will certainly spend, and then German consumption will certainly
45:40be much stronger than it was in the past, and that will help us.
45:48Memories of hyperinflation are still raw in Germany.
45:52Few want to put their hard-won economic stability at risk for their weaker European neighbours.
45:59The divisions between countries at a global level are even clearer.
46:03Leaders pay lip service to Keynes' dream of a truly coordinated global economy, where
46:08the strong work with the weak for the benefit of all.
46:12But there's little sign of them actually doing it.
46:15Sure, it would be great to have better multinational institutions, and Keynes was a pioneer in
46:20that.
46:21He was a big believer.
46:22And I think in order to fix the international financial system, that would be very helpful.
46:26And maybe somebody with the sort of magnetism and gravitas and stature of Keynes could somehow
46:33catalyse that.
46:35But he is a rare person indeed.
46:40Keynes left an extraordinary legacy.
46:43He didn't just transform economics, he changed the lives of billions of people around the
46:48globe.
46:52Back in Cumbria, it's clear what Keynes has done for them.
46:56Government intervention will help keep Pirelli's tyre factory open and provide a lot of employment.
47:03In the political mainstream, there aren't many who challenge Keynes' basic message
47:08that you can't leave economies to drive themselves.
47:13Keynes was a very dominant force in the 20th century, and my guess is he will remain a
47:18dominant force in the 21st century, which is why I think he will go down as one of the
47:23greatest economists the world has produced.
47:26Eighty years ago, building this dam eased the Great Depression.
47:30With the government borrowing more cheaply than ever before, you might think the case
47:33for New Deal-type investments was equally strong today.
47:37But given the sheer volume of public debt, no one can promise that piling on more borrowing
47:42will be a miracle cure.
47:45What is thought of as a typical Keynesian solution to get more debt, borrow money, spend,
47:51spend, spend and cut taxes, that needs to be used more judiciously here because at the
47:56end of the day, you've got to get rid of this debt.
47:59This is a very long haul.
48:02I don't think anything just boosts your way and zooms your way out of this.
48:07There just is no magic bullet.
48:11And what of Keynes' final big idea, that countries are all in it together?
48:16Since Bretton Woods, the world has grudgingly accepted that we have to cooperate to prosper,
48:21but we're struggling to make it work in practice.
48:25He'd be worried.
48:27He'd be very worried.
48:29He'd be very concerned about the growth of inequality worldwide.
48:33He'd be very concerned that there was a return to beggar-my-neighbor policies.
48:38I have no doubt that he would be warning of regional war and all its dangers.
48:46He'd be very frightened that the circumstances that led to war in 1418 and 3945 were on a
48:53slow burn basis unfolding in front of us again.
48:57Today, his admirers believe, perhaps the biggest thing Keynes could do for us right
49:02now would be to remind us of the traits that guided him all his life, imagination and optimism.
49:10He came along and was willing to examine these profound problems in ways that no one had
49:15done before.
49:18His great legacy is that fundamental belief in humanity, that fundamental belief in the
49:22ability of government and of society to dedicate itself to helping those that are less fortunate
49:28and need our help.
49:40In 1946, Keynes suffered a fatal heart attack in his beloved Sussex Downs.
49:49In 1962, he left a legacy that changed the world, but he also left an enigma.
49:56He thought we should try to tame the power of money to make it work for us, but he also
50:01taught us that economies were fundamentally unpredictable.
50:07It's a contradiction we're still grappling with today.
50:19It's a contradiction we're still grappling with today.
50:49It's a contradiction we're still grappling with today.

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