"To understand the man you have to know what was happening in the world when he was twenty." Napoleon's claim helps explain one of the big problems with centre-left economic policy.

He was right. We now have strong evidence that economic conditions in our formative years shape (pdf) our outlook much later in life. People who experienced recessions when young are less likely to own risky assets when they become old and rich enough to do so. Chief executives who saw hard times in their youth run their companies more conservatively (pdf) than others; and central bankers who saw high inflation when young are likely (pdf) to be more hawkish when they are in office.

And here's the thing. For most of us over 40, our youth was characterized by mass unemployment or the threat thereof, something we know to be a cause of great misery (pdf): the jobless rate was over 11% when Starmer (and I!) turned 20, for example. This means the economic thinking of well-meaning people throughout their lives has been dominated by one question: how to create jobs. It's no surprise, therefore that despite scaling back the Green New Deal, Starmer is still promising to create tens of thousands of good new jobs.

But, but, but. The ideas of one era are not always well-suited to the next. As Maynard Keynes famously wrote:

Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.

This is true today - and that "defunct economist" is Keynes himself, and in particular this:

I see no reason to suppose that the existing system seriously misemploys the factors of production which are in use...When 9,000,000 men are employed out of 10,000,000 willing and able to work, there is no evidence that the labour of these 9,000,000 men is misdirected. The complaint against the present system is not that these 9,000,000 men ought to be employed on different tasks, but that tasks should be available for the remaining 1,000,000 men. It is in determining the volume, not the direction, of actual employment that the existing system has broken down.

This passage is pretty much wholly inapplicable today. The volume of employment is satisfactory: we are not quite at full employment, but close to it, especially for skilled workers.

In this context, creating good jobs would be inflationary. Yes, vacancies at decent pay for home insulators, housebuilders, care workers, solar panel manufacturers, nuclear weapons producers and so on would attract applicants. But they'd come not so much from dole queues and the economically inactive as from workers in other jobs. In an attempt to retain their staff their employers would raise pay. The result would be inflation.

Of course, macroeconomic policy can prevent this by either raising taxes or interest rates, both of which destroy jobs as a means of curbing inflation. At near-full employment, such destruction is the necessary counterpart of shifting labour towards a Labour government's higher priorities.

There's another reason why we need job destruction. It's a necessary part of raising productivity. As Jonathan Haskel and colleagues have shown (pdf), a lot of productivity growth comes not from existing firms improving their efficiency but from inefficient plants shutting down and better-performing ones opening. This is why more market competition must be part of any strategy to raise productivity: it encourages the entry of better firms and exit of worse ones.

Which poses another problem: which jobs do we want to destroy? Higher interest rates hit hardest the construction sector - meaning you can say goodbye to Labour's hope of "getting Britain building again." Which suggests that, as Simon says, Labour should break its commitments and raise income taxes, thereby destroying jobs in consumer-facing industries such as retail and hospitality.

These jobs, however, might not be the only ones we want to cut. Keynes was flat wrong. The existing system does seriously misemploy factors of production.

In some cases, this is because of bad policy choices. An excessively complicated tax and benefit system has created unnecessary jobs for lawyers, accountants and DWP bureaucrats. The fact that policy is up for sale has created a big lobbying industry. And our regulatory agencies have been more effective in expanding bureaucracy than in reining in the industries they nominally oversee: Ofgem and Ofcom have over 2500 employees between them.

In other cases, it's because of standard market failures. Asymmetric information means that "genuinely unskilled" fund managers stay in work at the expense of their clients. Unpriced externalities mean that polluting industries are too big - be it the environmental pollution of carbon producers, the risk polluters of the financial system or the intellectual pollution of the legacy media. And agency failures and monopoly have led to the creation of bullshit jobs and excessive workplace surveillance. Friedman was right to
say that "if I spend somebody else's money on somebody else, I'm not concerned about how much it is, and I'm not concerned about what I get" but he should have added that this problem isn't confined to the public sector.

None of these government or market failures will be solved by the standard macro policies of higher taxes or interest rates. They require microeconomic policies which few people other than some "degrowthers"* are thinking about. As Jason Hickel has written:

What industries are already big enough and shouldn't grow any larger? What industries could be usefully scaled down? What industries do we still need to expand? We have never asked these questions. (Less is More, p220)

In this context, we encounter some more defunct economics - the notion that a high wage equals a good job. This is not necessarily the case, even in those cases where wages are equal to marginal product. For one thing, it is the private marginal product that sets wages not the social product, and the two can differ: contract killers (pdf) often have high wages (pdf) but we wouldn't want to create these "good jobs". In the same way, we should aim to reduce, not increase, jobs in socially useless finance, in advising on tax avoidance or in producing pollution.

What we need, therefore, is job destruction. Not just the creative destruction that increases productivity in well-functioning markets, but also the destruction of some jobs to shift labour to higher priorities. Right now, we need less Keynes and more Schumpeter.

Here, however, we run into an unavoidable trade-off. Rachel Reeves has rightly spoken of economic insecurity being "corrosive of individuals' physical and mental health": those of us who spent our formative years in such insecurity are well aware of this. But such insecurity is the flipside of much-needed job reallocation. A big policy question is how to ameliorate this trade-off. A more intelligent welfare state and active labour market policies are part of the answer. What's not part of the answer is the pretence that creating jobs is the whole of the story. It's not 1982 any more.

* A bad word for a possibly good thing.