With his 1995 bestseller, The State We're In, Will Hutton tapped into the spirit of the times with a book that voiced brilliantly the concerns many people shared about the decline of public service, the increased uncertainty affecting many people's prospects, and the alienation of the financial system from the needs of businesses and households. It was an optimistic book, however, and for some time from 1997 the New Labour government looked as though it would tackle some of the structural problems of British society.

In this new book, Them and Us, the concerns and preoccupations are the same, but the tone is more pessimistic. These are darker times. Behind us, or perhaps still with us, the Great Financial Crisis, the worst recession since the 1920s, and the disheartening authoritarianism combined with incompetence of a supposedly progressive government. Ahead of us, the need to reduce an unsustainable national debt, the occasion for the new government to try to reshape the state, and no clarity about the sources of growth and optimism.

Meanwhile, the banks carry on as if nothing had happened. Latest reports suggest City bonuses will amount to £7 billion this season. Surely a 'bonus' is supposed to be a special top-up payment for outstanding individual performance? Or have I missed something?

Much of the book is concerned with understanding the nature of social fairness. What does the science of human nature – including the recent literature on behavioural economics –  tell us about it? And moral philosophy? Hutton is trying to argue those on the centre-left away from the assumption that progressive taxation and redistributive taxation are both necessary and sufficient for a fair society. This in fact conflicts with deeply rooted notions of fairness, he argues, which emphasize individual responsibility for self-improvement, and question the acceptance of notions of 'need' which are personal and change over time. “Many on the left refuse to accept the legitimacy of the debate about how fairness is to be cast and financed, preferring instead to think that egalitarianism and redistributive taxation are self-evident virtues,” he writes (p79).

Hutton instead is in the territory of proportionality and desert, rather than universal entitlement. He is sympathetic to Amartya Sen's emphasis on capabilities. “Circumstance and contingency are part of the human condition,” he writes.

With these philosophical footings, the book ranges widely over problematic areas of the modern British polity – banking, the media, democratic institutions. It's interesting that so many authors now (including me in my forthcoming The Economics of Enough: how to run the economy as if the future matters, out in late January 2011) are focused on the institutions and processes through which we organize ourselves collectively. On the media, Hutton writes: “Liberalism surrounded by this capacity for hysteria is likely to be hard to sustain.” (p11). He argues that the corporately-owned media and PR industry are degrading the public realm, and adds: “the importance of the BBC as a countervailing force – with its guaranteed income courtesy of the licence fee, commitment to impartiality, huge investment in news-gathering and sheer scale – can hardly be overstated.” Although he takes the BBC to task for being affected by the surrounding hysteria, its central and strategic commitment (pdf file) to impartial and accurate news is clear.

On the banks, I wholeheartedly agree with much of Hutton's condemnation of the industry's structure and practices except for one thing. He blames competition in banking for the problems. The evidence doesn't support this – as our CEPR report Bailing Out The Banks set out – and on the contrary I'd agree with Simon Johnson (in his 13 Bankers) that concentration in banking and the consequent political power is the source of the crisis. Banks are too big and collude in rigged market structures, not too small and competing madly with each other.

This is a quibble. The book's a terrific read. It will make your blood boil with anger and stir you to action – or at least, help offset some of the paralysed gloom likely to be our lot for the next period. As he concludes, we deserve better – so let's do something about it.

With pouring rain as the backdrop to my Sunday morning snuggle, a BBC News headline on the radio made me sit up: not only is it the 20th anniversary of German unification, it's also the day the German government has made its last payment of reparations from the First World War. Naturally, I threw off the duvet and made a beeline for my copy of Keynes's The Economic Consequences of the Peace, the 1920 book that did more than any other to make his name as a public intellectual. Keynes resigned from the UK's Versailles delegation rather than play a part in a reparations settlement he believed would be horribly damaging. The subsequent course of history proved him right. He ends the chapter on reparation by saying:

“The policy of reducing Germany to servitude for a generation, of degrading the lives of millions of human beings, and depricing a whole nation of happiness, should be abhorrent and detestable – abhorrent and detestable even if it were possible, even if it enriched ourselves, even if it did not sow the decay of the whole civilized life of Europe.”

He went on to predict more or less the subsequent German hyperinflation, quoting Lenin as saying the surest way to destroy capitalism is to debauch the currency. Great risks in Europe, he said, had become unavoidable.

Today's context of international indebtedness is, of course, nothing like that shaped by the Great War and the Versailles peace treaty. But this weekend's milestone for Germany is a timely reminder that debts have real and lasting consequences. And also that those in positions of power should reflect carefully before imposing conditions on whole nations. Finance is not an abstract matter of zeroes and ones zipping around the world's computers; it is livelihoods, trust, social relations. The current crisis stems in part from global imbalances of Asian saving and western borrowing. The Asian reserve mountains built on those high savings are themselves the reaction to the determination never again to have to bow to an imperious International Monetary Fund, as several governments did, in humiliating fashion, in 1997-98.

Thoughts of the First World War also sent me back to Paul Fussell's brilliant and evocative classic The Great War and Modern Memory, an analysis of why that war is still vivid in our culture after nearly a century. He writes that the young men who marched off to the front in 1914 belonged to a unique generation. “It believed in Progress and Art, and in no way doubted the benignity even of technology.” But the Somme was a moment in human history of profound disillusion. “[The war's] dynamics of hope abridged is what makes it haunt the memory.”