Global (Dis)order

I’ve been on a run of reading history books, and am about to finish Adam Tooze’s The Deluge: The Great War, America, and the Remaking of the Global Order 1916-1931. It’s beyond my professional competence to review properly, in the sense that the book clearly has a distinctive perspective on the way Woodrow Wilson used America’s financial lifeline during and after the war, and the Treaty of Versailles negotiations, to shape the impending American Century. My guess is some historians would disagree about how purposeful this exercise of financial power was. Nevertheless, to the non-expert reader, this is a brilliant and compelling book – above all for taking a global perspective. I particularly liked the inclusion of substantial sections on Japan and China, and on India and the seeds of collapse of the British Empire. It is easy for a west European to forget for example the role of Japan in Siberia, and to concentrate on Russia’s western borders.

91HjfjpIRfLThere are also illuminating perspectives on the impact of the war on America itself, including the deployment of the new Federal Reserve Board and the governance of the US economy. Tooze points out that before Wilson committed to support the Entente, substantial private finance had been directed to the war effort: “Through the private business contacts of JP Morgan, supported by the business and political elite of the American Northeast, the Entente was carrying out the mobilization of a large part of the US economy, entirely without the say-so of the Wilson Administration.” When the US officially entered the war, the state’s role in the management of capitalism expanded greatly, only to be firmly contained again in the post-war era. It is often forgotten how severe the post WW1 recession was, even in the US – Tooze underlines its impact on the inter-war order. (Another book that focuses on this event, in a fascinating albeit maverick interpretation, is James Grant’s The Forgotten Depression)

Another very interesting thread running through The Deluge, at least for economists whose only perspective to date comes from Keynes’s famous The Economic Consequences of the Peace, is Tooze’s argument that Keynes’s polemic was a distortion of the truth. Tooze argues, contra Keynes, that the Germans tricked the Entente into the armistice, rather than the other way round. He agrees that the book reflected widespread disillusion with the Treaty, but also contributed to its loss of legitimacy and “helped to further poison the atmosphere between London and Paris.” It might not even have helped Germany, Tooze suggests: “A good faith effort to honour the Treaty, even if it had fallen short, might well have steered the Weimar Republic away from the ruinous crisis of 1923.” Furthermore, Keynes painted the alternative financial settlement he suggested as “an entirely novel idea, a great opportunity that had been missed at Versailles,” knowing well (as he had been there) that it was discussed at Versailles and rejected by Wilson (not Clemenceau). For if there had been greater generosity toward the Germans, the British and French would have had to seek debt write-offs from the US. “The result was grossly to misrepresent the politics of the peace making process,” Tooze concludes.

As it happens, I was (nearly) finishing the book at the Trianon Palace hotel in Versailles where the treaty was signed. Another fine historian, Margaret McMillan (The War That Ended Peace and Peacemakers) was attending the same conference. Here she is in front of the commemorative plaque.IMG_3905


Industrial strategy

There was a timely new arrival at Enlightenment Towers this morning, Efficiency, Finance and Varieties of Industrial Policy, edited by Akbar Norman and Joe Stiglitz.


Ahead of the launch of the Policy@Manchester and SPERI Industrial Strategy Commission, I’m trying to build a list of the best existing resources. Aside from the academic papers (loads – and also this great blog post Stian Westlake pointed to), my off the top of my head picks so far are Geoffrey Owen’s From Empire to Europe, David Edgerton’s Britain’s War Machine, Dani Rodrik’s One Economics, Many Recipes and Joe Studwell’s How Asia Works.

Other suggestions? There must be loads.

Truth is possible – and important

For reasons too lengthy to go into, I just read In Defence of History by Richard Evans (first published 1997). It’s a spirited counter-attack on the post-modernist/structuralist attack on history, particularly its most extreme versions. Consider for example Barthes’ claim that history is, “A parade of signifiers masquerading as a collection of facts.” Evans argues that postmodernist historians make the false claim that ‘traditional’ historians naively take historical documents at face value, whereas they are well aware that the degree of transparency of historical texts varies: to pit naive belief in the documents against knowing relativism about texts is to create a false duality.

Richard Evans has been back in the news as he acted as an expert witness for the High Court in the trial portrayed in the new film Denial. As he has noted on Twitter (@RichardEvans36), this account of the court battle between disgraced Holocaust-denier David Irving and the historian Deborah Lipstadt is extraordinarily timely. His book seems newly timely as well in the post-truth, alt_facts era; history is shaped by the present but not only by the present, and the search for truth is meaningful. As he tweeted again earlier this month:



What *is* consumption?

In between visits by my students to office hours today I picked up again Thomas Schelling’s Choice & Consequence and re-read the final essay, ‘The Mind as a Consuming Organ’. Recently I wrote something about this for the FT. It’s such a rich essay – well, I’d be overjoyed to have written any of the essays in the book.

The bit that resonated today was this reflection on consumption:

“Take the rational consumer in economic theory: what is he consuming?

“What do I consume when I purchase The Wizard of Oz? Physically I buy a book or a reel of videotape. But that is a raw material. I ‘consume’ two hours of entertainment. But should I say that, like Dorothy, I consumed a trip to Oz … the adventure, with the risk and poignancy and exceitement and surprise?…

“There is no question but that part of what I get from a two hour movie or two hours with a book is ‘two hours’ worth’ of something…. But do we consume the contents of the story or just the time?”

These were profound questions in the early 1980s, but more so now a high proportion of rich consumers’ expenditure goes on experience goods. The underlying question is what is being maximised when an economic agent maximises their utility – and what are the implications for welfare economics of preference formation over emotions or mental processes. I don’t know the answers, but standard economics will struggle more with ill-defined and relative or fluid preferences than with any number of financial crises.

Imagination and economics

Martin Wolf has always been super-gloomy. In 2016 he really came into his own, as the year delivered him so much to be gloomy about. His latest column in the Financial Times is a great example, ending with a prediction that authoritarian nationalism is centre stage and will change everything about the world order.

The column alludes to Benedict Anderson’s Imagined Communities, so I went back to the book today. I’d underlined this definition of ‘official nationalism’: “An anticipatory strategy adopted by dominant groups which are threatened with exclusion from an emerging nationally-imagined community.” Not so much the left-behinds as the ‘once-aheads, really don’t like their loss of status in a changed nation’.

As Wolf puts it: “[T]he politics of nationalist resentment are not just an upsurge from below. They are a tactic of power-seekers.” He argues that economics is bound to find itself in opposition to official nationalism: “Perhaps the greatest contribution of economics is the idea that societies will gain more from seeking to trade with one another than trying to conquer one another. … The wise relationship between states, therefore, is one of co-operation, not war, and trade, not isolation. This brilliant idea happens to be correct. But it is also counter-intuitive, even disturbing. It means that one might gain more from foreigners than fellow citizens.”

So brace yourselves, fellow economists. The Govian war on experts will continue.