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 / Autumn 2011 / Issue 64(originally published by Booz & Company)


The Thought Leader Interview: Sylvia Nasar

She was a great empiricist. She wrote a book about poverty [The Prevention of Destitution, coauthored with her husband, Sidney Webb] that should be read today. What’s brilliant about it is that it recognized that poverty was not a homogenous condition — that there are different kinds of poor people, who are poor for different reasons.

Webb showed that while some poverty would be eliminated through economic growth, other kinds of acute, short-term poverty are simply due to unemployment and could be cushioned by having either public works jobs or unemployment insurance. She saw that other kinds of poverty wouldn’t be at all affected by the state of the economy — in particular, the kind of poverty that was passed on from one generation to another. She understood that this kind of self-reinforced poverty required a different kind of intervention.

The politics are rather surprising, because the first person who picked her brain and applied her ideas was the young Winston Churchill. The welfare state did not emerge after World War II; it emerged before World War I. And it was not a coup by the left, nor was it a product of bad times or a reaction to crisis. It was a product of Britain’s boom in living standards, which enabled people to see that there was a process for eliminating poverty through growth, and that we could afford to speed it up.

Keynes and the Great Depression

S+B: The Great Depression is the other major drama in your narrative, with John Maynard Keynes and Irving Fisher playing large roles. What struck you most as you studied Keynes?
I came to really admire his willingness to change his mind. Once one has said something publicly, such as “There’s not going to be a recession,” there’s a human tendency to stick to your guns and keep defending your point of view. Keynes was different. He had a very acute sense of circumstances.

When you look at the world as it went into the Great Depression, you have to remember it was happening in a different time frame in England than in the United States. At the beginning of the Depression, Keynes believed it was caused by monetary mismanagement, and that monetary intervention could cure it. His thinking about this, I discovered, had been heavily influenced by the work of the American economist Irving Fisher in the 1920s. So initially, Keynes was confident that if Britain and the United States went off the gold standard and reversed the deflation, that would end the Great Depression — which, of course, at first looked like just a really bad recession. Well, that didn’t happen.

So Keynes came up with a theory explaining why it was possible for the economy to settle into an equilibrium in which it wouldn’t repair itself. And in those circumstances, he showed why monetary policy might not work, and why government would need to supply the demand that the private sector couldn’t generate. When you look at the chronology of events, you see that Keynes got there in a step-by-step fashion. He was in many ways very conservative; he wasn’t a big government guy.

With the benefit of hindsight, and the subsequent research of Milton Friedman and Anna Schwartz, we can see that perhaps what Keynes thought was general was in fact more special and more particular to the circumstances of the 1930s. Again, the chronology is instructive, and it reinforced my sense that ideas really were important. People talk about the Great Depression as if it were a uniform malaise across the world, but it was not. The United States had a Great Depression, but it wasn’t typical. The Scandinavians, the Japanese, the British — all the countries that went off the gold standard early — didn’t suffer the same kind of extreme collapse. So that suggests, again, they were doing something different, and what they were doing was pursuing different monetary policies, and that experience supports Fisher’s point of view in the 1920s.

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