Governments Can Affect Employment: A Critique of Monetarism, Old and New

Abstract

One of the distinguishing features of the present British government is the extremely strong position it has taken on questions which have taxed and puzzled economic theorists for decades. Indeed, it is often remarked within the Conservative Party that a long tradition of Tory pragmatism has been overthrown by the Thatcherite fundamentalists. Nowhere is this clearer than in the realm of employment policy, where the government contends:

‘The one thing clearly not responsible for unemployment is the lack of demand.’ — Employment: The Challenge for the Nation

Department of Employment (1985)

Note that this is stated without qualification. There is no attempt to distinguish between the short and long term, nor to distinguish real from nominal demand. In this area, the government has always been absolutist

‘Let us be quite clear. Let us be absolutely clear. You will not reduce unemployment by increasing what governments spend or borrow.’ — Nigel Lawson, Chancellor of the Exchequer, Conservative Party

Conference, 10 October 1984

Gavyn Davies is Chief UK Economist at Goldman Sachs and a Trustee of the Employment Institute. This text was first published in September 1985.