Before they were swept along by the latest incarnation of US Right anti-intellectualism, National used to have some smart people. One of the last to go was Simon Upton. You might not always or even often agree with the man but at least he is informed and has the capacity to engage in serious debate beyond fallacious slogans, which is more than can be said for any Nat today.
Anyhow, Upton reports he has been reading Robert Skidelsky’s Keynes – The Return of the Master, which gives a Keynesian analysis of the causes of the economic crisis and the solutions. He makes some very important points:
“the crash has exposed an intellectual failure long ago identified by Keynes: the fallibility of the efficient markets hypothesis as a reliable tool for modelling all economic behaviour. Financial tools designed to cope with manageable risks have been hubristically extended to the management of irreducible uncertainties. Far from limiting risks, they have magnified them. The conflation of uncertainty with risk has exposed the limits of laissez faire.”
“Skidelsky questions the unmitigated benignity of globalisation. Keynes considered that globalisation ran political risks that should at least call for caution on the part of policy makers.
The issues have changed since the 1930s. Today it is the health and environmental safety of long supply chains that raises consumer concerns.
One thing is clear. When uncertainty engulfs markets and the trust on which billions of transactions rely evaporates.”
“He wants a restructuring of the way economics is taught. Modern economics has masked radical uncertainty with sophisticated, but ultimately fallible, mathematics. He invokes Keynes’ injunction that economics is a moral rather than a natural science. Economics must be imbibed in the company of history, moral philosophy, sociology and politics.
He insists that macroeconomics must be protected from the encroachment of the methods and habits of microeconomics. The claim here is that we can’t construct our understanding of the macro picture – the world of peoples, governments and cultures – from a model of rational expectations held at the micro level. The macro world is one of conventional or herd instincts that, left unchecked, can lead to disaster.”
I agree with the last points vehemently. At university, budding economists can graduate without having had any real instruction on alternatives to neoclassicism or the social and political context in which economics takes place. Mainstream economics has forgotten that the economy is for people and of people. Instead, it sees people as factors in its beautiful equations that look nice but it reduces all human nature to a ‘rational’ quest for more (more money, more stuff, more, more, more) – real humans are too messy to fit neatly into the equations. Because of that it so often fails to correctly predict actual human behaviour.