What is to be done?
Economists’ teeth are ground almost to the bone, they’ve been gnashing them so much over the crisis. Their wails reverberate globally.
On the one side, new Keynesians like Paul Krugman and Brad Delong advocate spending more to bridge the gap until demand recovers. Cutting government expenditure too much now, they say, would delay any eventual upturn and make it more muted. In the UK, leftists like Duncan Weldon highlight the probably woeful impact of last week’s budget cuts on unemployment, now at 8% and forecast to surge.
Today’s competitive markets, whether we seek to recognise it or not, are driven by an international version of Adam Smith’s “invisible hand” that is unredeemably opaque. With notably rare exceptions (2008, for example), the global “invisible hand” has created relatively stable exchange rates, interest rates, prices, and wage rates.
Spending more now, these kind of people argue, will swell the cost of borrowing and bury governments beneath a mountain of debt. The other night I heard British Tory grandee Francis Maude say that cuts were necessary in order to prevent the debt pile lingering for two decades or more.
I lean toward the Keynesian side. I’ve no idea where Maude got his two decades from, and anyway the Office for Budget Responsibility predicts that the budget will raise British borrowing, not lower it. In my view it is right to attack the cuts. They will delay the recovery, throw more people on to benefits and weaken the health and education services.
But whatever you think, neither side is saying much that is new. We’ve suffered this sort of state-versus-market ping pong for decades.
The lack of novelty results from problems with economics as a discipline, not just from particular commentators’ blindspots. Economics is taught as a ‘science’ which has decided all the basics and which is focused on ‘solving’ specific normative issues. The discipline sees people as self-interested utility maximisers who broadly act rationally. A host of ‘discoveries’ follow from this basic methodology: the efficient markets hypothesis and general equilibrium theory to name but two.
…you should be wary of all those seductive ideas peddled by heterodox thinkers [which] are not taken seriously by the academic community…
What a recipe for medicrity! The result, a deafening ding-dong of old ideas, scotches any chance of economists producing radical solutions to the crisis. What is to be done? Not much, apparently.
By radical, I don’t mean Trots rioting in Oxford Street or goose-steppers in the East End. I mean the radicalism of Smith and Ricardo; of Jevons, Walras, Marshall and Keynes, all of whom have since been assimilated into the mainstream.
The word radical comes from the Latin radicalis meaning “of roots” and from radix, meaning “root”. Most modern economists get nowhere near explaining the roots of the crisis because they’ve limited themselves to what they imagine to be the specifics. But there’s little doubt that radical solutions are needed, and they should sweeep away old totems.
There’s no way of knowing in advance what a truly radical view would be, because if we did it wouldn’t be radical. But radicalism usually means rethinking foregoing ideas, just as Marx stood Hegel on his feet. It means breaking with history and seeing things with fresh eyes, without spurning the achievements of the past.
One thing common to economics of almost every hue is that it aggregates. Little attention is paid to context. Keynesians usually deify the state, while neoclassicals laud the individual. Old socialism, in what Anthony Giddens called its ‘cybernetic’ version, ignored small-scale, local behaviour, assuming that people all work in similar ways everywhere.
What if economics were to abandon this broad-brush approach, turning its attention to the real things that affect local groups? The approach of thinkers like Schumacher in Small is Beautiful is well-known, but maybe its time has come. The New Economics Foundation focuses on community action whilst acknowledging the need for global institutions.
Any new, radical economics will probably come from those who have few connections with the status quo, who have no interests in sustaining the current regime. This probably rules out the universities, or at least mainstream economics departments.
Maybe the ultimate radical position would be that economics, as it is currently defined, has had its day? Maybe economics isn’t about scarcity; it’s about providing for each other. Perhaps we need a more social, context-orientated science, capable of seeing nuance. Whatever the future of economics, we have to move beyond the repetitive, state-versus market table tennis of the moment.