Spring has sprung
Yesterday’s post on the economics spring clearly struck a nerve, getting by far the most hits i’ve had for a single blog entry. Try searching for ‘economics spring’ on Twitter. OK, it’s not trending like Beiber, but an arcane debate about seemingly obscure matters has simply swished around the Interweb. Is it just lucky that Keen decided to lay into Krugman in early April — printemps dans l’hémisphère nord? Or are some deeper forces at work?
Andrew Lainton says that ‘this week will be remembered as the end of the beginning of the end of neo-classical economics’. 3Spoken reckons it’s like the famous Cambridge capital controversies of the 1970s. Then, my external PhD examiner Geoff Harcourt and others battled the neoclassical mainstream on the definition of capital. Despite having the utmost respect for Geoff i’m not so sure the analogy is correct because Krugman hasn’t tackled Keen with any rigour, and anyway, the capital controversies were mostly swept under the neoclassical rug until now. That said, Keen is breaking new ground.
To reiterate a point by Keen, it’s all kicked off because mainstream economists have been exposed to the harsh light of practical reality. Previously, the discipline was so technical and inaccessible that outsiders had no choice but to trust most of its pronouncements. The economies of the rich world were mostly booming, so why question the high priests? But the global economic crisis makes it demonstrably clear that something smells fishy. If most economists got it so violently wrong, maybe the very foundations of their discipline were rotten?
A host of interested outsiders who are quite capable of technical argument but maybe not formally trained in economics have suddenly got interested. It reminds me of a related, but distinct argument made by Ha-Joon Chang. Some of the most successful examples of economic development ever have been achieved completely without economists. The technocrats behind South Korea’s economic boom were mostly engineers, not dismal scientists. Singapore‘s first finance minister, Goh Keng Swee, in his book Socialism That Works: The Singapore Way, said that: “The book of rules tells you very little and precedents borrowed from advanced countries have a nasty habit of coming apart in your hands.” As Keen says, maybe economics is too important to be left to the economists.
Keen v. Krugman also comes at a time when many people are questioning the power of banks. Despite protestations otherwise, the neoclassical model of banks is ideological. It pretends that financial institutions just take a cut from transactions between lenders and borrowers, a bit like Ebay charges a small percentage on sales. Keen’s view says otherwise. Banks aren’t like Ebay; they’re more like a sausage factory. They actually make money (in more ways than one) so they’re immensely powerful and rich. As I said in a post last year, bankers ditched their bowler hats and bought Ferraris, an outcome which has been immensely damaging to society.
And to the extent that they do handle flows of cash, they’re a bit like the butcher who takes a prime cut home at the end of the day. They know how it’s made, they traffic loads of it and they take a large chunk home, thank you very much.
Anyway, enough of the dodgy analogies. It’ll be interesting to see if spring has really sprung, and if so what form the new economics takes. I strongly suspect that it’ll feature lots more inter-disciplinary work; that it’ll involve more than just academics; and that the old paper journals will look increasingly irrelevant.