From Chapter 20 of [amazon_link id=”019953764X” target=”_blank” ]An Autobiography[/amazon_link] by Anthony Trollope:

[amazon_image id=”019953764X” link=”true” target=”_blank” size=”medium” ]An Autobiography (Oxford World’s Classics)[/amazon_image]

“Nevertheless a certain class of dishonesty, dishonesty magnificent in its proportions, and climbing into high places, has become at the same time so rampant and so splendid that there seems to be reason for fearing that men and women will be taught to feel that dishonesty, if it can become splendid, will cease to be abominable. If dishonesty can live in a gorgeous palace with pictures on all its walls, and gems in all its cupboards, with marble and ivory in all its corners, and can give Apician dinners, and get into Parliament, and deal in millions, then dishonesty is not disgraceful, and the man dishonest after such a fashion is not a low scoundrel. Instigated, I say, by some such reflections as these, I sat down in my new house to write [amazon_link id=”1853262552″ target=”_blank” ]The Way We Live Now[/amazon_link]. And as I had ventured to take the whip of the satirist into my hand, I went beyond the iniquities of the great speculator who robs everybody, and made an onslaught also on other vices;–on the intrigues of girls who want to get married, on the luxury of young men who prefer to remain single, and on the puffing propensities of authors who desire to cheat the public into buying their volumes.”

[amazon_image id=”0199537798″ link=”true” target=”_blank” size=”medium” ]The Way We Live Now (Oxford World’s Classics)[/amazon_image]

The sheen is at last coming off the splendour of our own Melmotte-ian episode.

Reading the latest news about the behaviour of Barclays Bank employees in the City (following up on the misselling of PPI plans to the tune of £1.3 billion by their high street colleagues and the ‘aggressive tax avoidance’ the bank practiced until stopped by the government, at a saving of £500m for the taxpayer) sent me back to Charles Kindelberger’s [amazon_link id=”0230365353″ target=”_blank” ]Manias, Panic and Crashes: A History of Financial Crises[/amazon_link]. He writes:

“The forms of financial felony are legion. In addition to outright stealing, misrepresentation, and lying, there are many practices close to the line.”

As he notes, bubbles themselves can be swindles. The line between irrational exuberance and immoral swindling is fuzzy.

Kindelberger notes that a traditional punishment for financial crime involved sewing the miscreant in a sack with a wild creature (snake, monkey, wildcat etc) and throwing it into a river. This, he notes, seems excessive. Nevertheless, the emergence of the extent and scale of crime during the preceding boom marks an important turning point in the cycle, the book says.

“The curtain rises on revulsion, and perhaps discredit.”

No ‘perhaps’ about it, I would say. It really is time for the financial sector to rejoin the same moral universe as the rest of us.

[amazon_image id=”0230365353″ link=”true” target=”_blank” size=”medium” ]Manias, Panics and Crashes: A History of Financial Crises, Sixth Edition[/amazon_image]

A PS: for those who haven’t yet come across it online, there is a terrific chart showing a history of financial crises. A friend who knows me well sent me one as a gift – it is a terrific present for anyone of the anorak tendency.

A new paper by Professor Nicholas Crafts of Warwick University dropped into my inbox today, Saving the Eurozone: Is A Real Marshall Plan The Answer? This means ‘real’ as in ‘structural’ or ‘supporting the real economy’, which economic historian Prof Crafts points out was the purpose of the original Marshall Plan. He writes:

“Faster productivity growth in the euro periphery could help improve competitiveness, fiscal arithmetic and living standards; the main role of a real Marshall Plan would be to promote supply-side reforms that raise productivity growth. This would repeat the main achievement of the original Marshall Plan of 1948.”

In advocating this course of action, he points out that a plan of this kind, investing in infrastructure for example, would not alleviate the need for fiscal federalism and effective European-level democracy – these steps being the lesson of the 1930s experience. But it would support those moves by encouraging faster growth in the southern periphery. One of the most striking tables in the report contrasts the dismal productivity performance of Greece, Italy, Spain and Portugal from 1995-2007 with the much faster productivity growth of 2004 accession countries such as Lithuania, Estonia and Poland.

Productivity in the Eurozone

The paper is pretty sobering – what analysis of the Eurozone isn’t? I think the Marshall Plan analogy is an interesting one. In a nice OECD book I have, [amazon_link id=”9264155031″ target=”_blank” ]From War to Wealth[/amazon_link], published for the 50th anniversary of its founding as the Organisation for European Economic Cooperation, Marshall’s speech is quoted:

“The remedy seems to lie in breaking the vicious circle and restoring the confidence of the people of Europe in the economic future of their own countries and of Europe as a whole.”

He strongly emphasised the need for co-operation – hence the OEEC.

Professor Crafts’ Real Marshall Plan would link Structural and Cohesion funds conditionally to specific structural reforms. He suggests this might achieve a 1% point a year increase in productivity growth. The paper concludes:

“The experience of the Gold Standard’s collapse in the 1930s suggests that seeking to keep the eurozone intact by imposing a ‘golden straitjacket’ on the policy choices of independent nation-states is not a viable option. This points to fiscal federalism with genuine democracy at the EU level as the long-run solution; a new Marshall Plan may not be a substitute for reforms of this kind, but it can certainly serve as a valuable complement.”

[amazon_image id=”9264155031″ link=”true” target=”_blank” size=”medium” ]From War to Wealth: 50 Years of Innovation[/amazon_image]

My dear sister-in-law, not an economist at all, heartily recommended to me [amazon_link id=”0141046481″ target=”_blank” ]What They Teach You At Harvard Business School[/amazon_link], by Philip Delves Broughton. Finally I got around to it – this is a 2 or 3 commute book. It’s a very well written description of the author’s MBA course in the mid-2000s, and a mixture of compelling and repelling.

Compelling because the book is extremely well written and it’s also interesting to find out what they do teach at HBS. Repelling because this was the height of the boom and the ethos of many of the author’s classmates is rather shocking. Most wanted nothing more than to make money – jobs are ranked by remuneration, with venture capital firms at the top, followed by investment banking. I must be naive, but was terribly shocked – as was this book’s author – to learn that many students maximise the financial aid they get from HBS by buying an expensive car and parking their savings with their parents in order to minimise their apparent assets when applying.

HBS is famous for its case study method, and for the intensity with which students have to work. It emerges on the whole pretty well from this book, trying to instil business ethics and teaching entrepreneurship, although the book ends with a series of suggested changes ranging from barring professors with no business experience from teaching entrepreneurship to ending the brutal and counterproductive grading system.

On the other hand, the student body, at least in those boom years, seems very unappealing even seen through the diplomacy of the author. As one student puts it pithily: “If you want to change the world, get on a plane to fucking Darfur.” The MBA course is about money.

This book was published in mid-2008. There was clearly a kind of collective madness earlier in the noughties, facilitated by the tax code making debt interest tax deductible. I know that now, wearing my hindsight spectacles. But what, I wonder, do today’s Harvard MBA students aspire to?

[amazon_image id=”0141046481″ link=”true” target=”_blank” size=”medium” ]What They Teach You at Harvard Business School: My Two Years Inside the Cauldron of Capitalism[/amazon_image]

Sad individual that I am, I’ve been thinking and reading recently about the state of economics. One conclusion is that any assessment is confused by the existence of different tribes of economists, so not only do non-economists mix up one for another, but economists themselves also make assertions that only speak to their own tribe. In a famous article, Life Among the Econ, Axel Leijonhufvud described the separate castes of Macro and Micro. Here is my quick (and far less amusing) guide to today’s key distinctions.

1. Macro and micro still differ enormously, but a more important distinction is overlaid on it, academic versus applied. Many academic macroeconomists adhere to Dynamic Stochastic General Equilibrium models and are, in my view, away with the fairies. This approach is exemplified by Mike Wickens’ textbook, [amazon_link id=”0691152861″ target=”_blank” ]Macroeconomic Theory[/amazon_link]. (I like him enormously but not his models… sorry, Mike.)

2. Sticking with macroeconomics, City and financial market economists probably form their own category. Their preoccupation tends to be asset markets and global financial flows, for obvious reasons. There is a high variance in the quality of their work, although this is difficult to judge from their frequent media appearances.

3. A third group of macroeconomists are often really microeconomists who feel compelled to try to make a sensible contribution to the policy debate because they are so exasperated by Group 2 above. Among them is my good friend Jonathan Portes.

4. The gap between the academic and practical world is smaller in microeconomics – more academic micro-economists do directly policy relevant empirical research, and there are more think tanks and research centres doing this cross-over work too. Microeconomics has been open to behavioural research, experimental methods and so on. However, there is still a gap, and too many academics are still inflicting a narrow and reductionist version of micro theory on impressionable young minds.

5. Finally, there are the people who have been refusniks from mainstream economics for many years and find it hard to accept that the crisis has made the mainstream far more open to a range of ideas than it has been for decades. Another friend, Paul Ormerod, may be in this category – his new book [amazon_link id=”0571279201″ target=”_blank” ]Positive Linking [/amazon_link]is about network theory, and paging through it suggests he thinks the mainstream has a long way to go before network models are seen as acceptable. Maybe he is right – but on the other hand Andy Haldane at the Bank of England has advocated this approach in his financial stability role, and network theory is used in many of the applied working papers I read on telecoms markets. Anyway, in general the ‘heterodox’ economists are in the habit of being oppositional, for understandable reasons.

[amazon_image id=”0571279201″ link=”true” target=”_blank” size=”medium” ]Positive Linking: How Networks Can Revolutionise the World[/amazon_image]

There may well be other categories I’ve not thought of – maybe others can think of more. Sociologist Dave O’Brien of City University has suggested to me that the existence of other tribes has been useful for those economists in the mainstream citadel who want to deflect criticism of the subject. The present confusion is perhaps more suggestive of a subject in a state of intellectual flux – or at least I hope so. It would be a silver lining to the economic stormcloud if economics itself responded with reflection and reform.