What have we learned since the crisis?

I’ve been looking at some of the essays in What Have We Learned: Macroeconomic Policy After the Crisis. It’s edited by a chandelier of luminaries – George Akerlof, Olivier Blanchard, David Romer and Joseph Stiglitz. The contributors are equally distinguished, including Janet Yellen, Mervyn King, Stan Fischer, Andy Haldane, Helene Rey, Jean Tirole…. and more. The essays I’ve read – and my focus has been the ones about implications for macroeconomics itself rather than specific areas of macro policy – are very interesting.

Collectively, this book adds up to an acceptance by about the most impressive cast list of macroeconomists you can imagine, that actually macro does need a lot of rethinking. Blanchard writes: “The contours of future macroeconomic policy remain vague.” Structures of policy and thinking about the relations between monetary, fiscal and macroprudential policy, is still evolving. Stiglitz, more pugnacious as one might expect, writes: “Market economies on their own are not necessarily efficient, stable, self-correcting.” George Akerlof is kinder on the profession – he says that while macroeconomists failed to predict the crisis, there has been successful post-crisis management with “good economics and common sense.” But David Romer worries that macroeconomists are not in a position to prevent another crisis: “The relatively modest changes of the types discussed [in the book] – and that policymakers are putting into place in some cases – are helpful but unlikely to be enough to prevent future financial shocks from inflicting large economic harms.” He says the academic and policy communities have not given enough serious consideration to deeper ideas and reforms.

I’m on the Romer and Stiglitz side of the debate. Still, even if you’re at the radical end, the other essays, ranging over fiscal policy, financial regulation, exchange rate arrangements, capital account issues and monetary and macroprudential policy, look very interesting. Some chapters seem standout – for instance Claudio Borio on the financial cycle, the whole section on regulation. It’s a conference volume – looks like it was an outstanding conference.

 

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Ideas universally believed

Recently I bought a 2nd hand copy of Jane Jacobs’ 1969 The Economy of Cities, a Pelican paperback edition. I first read it years ago but had somehow lost my copy – or maybe it’s somewhere in the house, just mislaid.

Anyway, this, from the first page:

“We are all well aware … that ideas universally believed are not necessarily true. We are also aware that it is only after the untruth of such ideas has been exposed that it becomes apparent how pervasive and insidious their influence have been.”

The universally believed idea she wants to knock down in the chapter is that city economies evolve at a later stage after rural economies; but I’m not sure it has yet given up the ghost entirely. But her sociology of knowledge is surely spot on, with its account of distinguished experts, career built on the old dogmas,  dismissing bold new claims.

The Enlightened Economist book prize shortlist, 2014

The year has flown past, and it’s time to announce the list of contenders for the Enlightened Economist Prize this year. Last year’s winner was Jeremy Adelman’s biography of Albert Hirschman, The Worldly Philosopher. A reminder of the rules: this is my personal choice among the books I happened to read in the past 12 months, no matter when they were published. The prize is that I offer to take the winner out to dinner should we find ourselves in the same city.

With that, here is this year’s shortlist.

Made in the USA: The Rise and Retreat of American Manufacturing Vaclav Smil (review)

How Asia Works Joe Studwell (review)

The Confidence Trap David Runciman

The Blunders of Our Governments Anthony King & Ivor Crewe

The Second Machine Age Erik Brynjolfsson and Andrew McAfee (review)

The Unwinding George Packer (review)

The Son Also Rises Gregory Clark (review)

Capital in the 21st Century Thomas Piketty (review)

The Idea Factory Jon Gertner (review)

Complexity and the Art of Public Policy David Colander and Roland Kupers (review)

Deep Sea, Foreign Going Rose George (review)

Finding Equilibrium Till Duppe and Roy Weintraub (review)

The winner will be announced in a couple of weeks.

Mavericks, mistakes and mum

I caught up earlier this week on the drama Castles in the Sky about Robert Watson Watt and his invention of radar. My mum had been a young (18) radio location operator on the outskirts of London during the Second World War and liked to talk about it, so I was very interested, and thoroughly enjoyed the programme. It turns out there is an active Robert Watson Watt society which is raising a statue to him in his birthplace, Brechin. I knew nothing about him before this.

Kathleen Coyle is in this group of early radar operators

The story very much brought to mind two excellent books. One is Tim Harford’s Adapt, about the structures that enable significant innovation – the ability to accommodate mavericks and mistakes, the importance of skunkworks and so on. The other is Most Secret War by R.V.Jones, about scientific intelligence during the second world war, including the decryption and encryption work at Bletchley Park. It’s also concerned with this question of how ideas work and fruitful failure can mesh with bureaucracy and order, and with the deep problem of information, the signal and the noise.

Where’s the plan?

Exciting news – the next ‘Perspectives’ title will be launched very soon and it’s Kate Barker on how to tackle the housing market’s problems. Housing: Where’s The Plan? is officially out in a couple of weeks but can be ordered now. Kate, as well as being a former member of the Monetary Policy Committee, wrote two major reports on planning and on housing supply a decade ago, so we are delighted to be publishing her follow-up recommendations.

To quote the blurb from present MPC member David Miles: “No one can speak to the housing supply issues facing the UK with the same authority as Kate Barker. This clear, concise analysis of UK housing issues makes a series of policy recommendations that are both feasible and desirable. An excellent account of the state of UK housing – admirable in its coherence, clarity and precision.”

As the book points out, housing policy has multiple aims and there are unavoidable trade-offs. That means no silver bullets. But she does have a list of meaningful policy reforms to suggest.