On economic amnesia

Economists, one might assume, have something useful to say about the current problems afflicting the world economy. Yet, since the crash of 2008 there has been a considerable amount of reflection in parts of the discipline about its failure to anticipate the crash and its failure to offer effective prescriptions for getting the economy out of the hole it’s in. Of course, elsewhere in the discipline it is business as usual – with a range of prescriptions for privatisation and deregulation at the microlevel and fiscal restraint at the macrolevel.

This week’s Nobel announcements are salutary in that respect. Olaf Storbeck described them as a prize for the Ancien Régime. He was criticised for doing so, but his intervention might be better seen as simply the most recent in a chorus of disapproval directed at an approach to macroeconomics that came to dominate the field. Thomas Sargent, who shared this year’s prize, did as much as anyone to propel rational expectations and new classical macroeconomic models to the forefront of the field, and his macroeconometric work has been hugely influential. That is why he was awarded the Nobel prize. But that can be separated from the question of whether, looked at from a broader perspective, such models actually shed much light on the way the economy operates.

Some see the solution to the problems afflicting macroeconomics as the need to search for new ideas. Paul Krugman has recently argued, on the contrary, that the problem is that the discipline has amnesia. Read more of this post

Global Political Leadership – The Need For Bravery And Vision

Today I posted over at Dale & Co:

The global financial system continues to convulse. The latest shock to the system is the exposure of an alleged $2bn fraud at UBS. Grave concerns about the external regulation of the financial system are reinforced by equally serious concerns about the internal regulation of investment banks. And, lest we forget, this $2bn bet that went wrong follows commitments by investment banks that they had overhauled their governance structures so this sort of thing wouldn’t happen again.

Today finance ministers are meeting in Poland to see if they can work out what to do to stave off the implosion of the Eurozone, and closer to home the political classes are still digesting the proposals contained in the Vickers report.

The seriousness of the financial crisis is hard to overstate. But even so the political diagnosis of the problem lacks vision and bravery. Read more of this post

The riots and the return to the big picture

Last week’s riots were shocking. The effect upon the many communities, families and individuals affected was undoubtedly profound. They have prompted plenty of soul searching and a wide range of diagnoses. If we are optimistic we should hope that they act as a catalyst for addressing problems of urban Britain that have been developing over many years.

The riots have not shown the political classes in a great light. There was the slow response from the Government – was this really a situation sufficiently serious to justify curtailing our vacations? There was the muddle over who has shaped policing strategy, leading to a potentially damaging war of words between the Government and senior police officers. And there is the extraordinary range of illiberal and disproportionate measures that David Cameron has seen fit to propose in response to the crisis. He seemed intent on manufacturing a full blown moral panic in order to take a worryingly authoritarian turn. Liberal Democrat MPs are clearly very uneasy at the way in which Mr Cameron has changed his tune from those far off days of compassionate Conservatism.

The riots have pushed just about everything else to the back of the news agenda for the last week. That is deeply unfortunate for at least two  reasons associated with this period of momentous – indeed unprecedented – economic turmoil. Read more of this post

Greece and the augurs of global disaster

Current events in Greece are genuinely transformational in more ways than one. Clearly the Greek economy is in a heck of a mess. It is not at all obvious whether either of the future directions on offer – eye-watering austerity, on the one hand, or default, exit from the euro and return to the drachma, on the other – offers the better economic route forward for Greece. But it is clear which direction European authorities see as better for the wider Eurozone.

Greek default would create turmoil and render the viability of the Spanish, Italian and Irish economies questionable as creditors sought to reassess and downgrade their holdings of sovereign debt. It would pose serious questions for banks across the Eurozone, in particular in France and Germany. While Greece accounts for a very small component of total Eurozone economic activity it is the symbolic significance of a default – and the profoundly negative chain of events that it could set off – that is feared. Read more of this post

Dr Cable: the Cassandra within Cabinet?

Vince Cable seems to be occupying a somewhat awkward role in Government as the Coalition enters its second year. While continuing as Secretary of State for Business, Innovation and Skills, he appears to be acting as agent provocateur-in-chief of the new style Lib Dem “opposition within government”. He popped up as the surprise guest at the recent Fabian Progressive Fightback conference. And ConservativeHome placed him squarely at the top of their Yellow B**tards Premier League.

Yet, while this role appears rather awkward from the point of view of cabinet unity and collective responsibility, you get the sense that it is more congenial to Vince personally.

Vince is at it again in an interview in the current New Statesman. Read more of this post

Follow

Get every new post delivered to your Inbox.