Economics for a moral end

I’ve read Pigou’s Economics of Welfare, and I talk to students about Pigouvian taxes and subsidies, but never known anything about the man. So I enjoyed The First Serious Optimist by Ian Kumekawa. The author is a Harvard PhD history student (so kudos to him for having a book published so early in his career!), and this is definitely a historical biography rather than an economics book.

As an economist, and one getting specifically interested in welfare economics, I’d have preferred more about the economic ideas. But for less nerdy readers, there is plenty here on the intellectual trends. And the wider intellectual and political context of Edwardian England, the terrible decades of war, depression and war in the early 20th century, and the post-war swing to Labour and the welfare state, is portrayed very well.

At the end of the book, I decided Pigou the man was still a bit of an enigma, but perhaps someone from a privileged Edwardian milieu, who spent his entire adult life at Cambridge, is just a bit too alien. But the arc of his thinking from classical liberalism to active sympathy for the Labour government of 1945 is fascinating. And the tale is quite sad in the end, Pigou seen as a surly recluse, his star not only waning but utterly shot out of the sky by Keynesianism (and, as so often, Keynes comes across here as a brilliant but not very nice man).

(One is also left wondering how scholars of the future will ever write biographies now we don’t write letters to each other any more? Email exchanges, with their more telegraphic form, or skype conversations – these are how we discuss ideas with colleagues. I suppose conferences are recorded so the video of those formal occasions will be available. That, and the Twitter record? )

I like very much the way the book ends: ” His justification for his career, maybe for his very existence, was to serve a moral end. Perhaps it is this part of Pigou’s systematic framework – its self-conscious motivation – that present-day economists would do best to revisit.. …. It would mean accepting what Pigou had declared in 1908 that, ‘Ethics and economics are mutually dependent’ and that ‘Economics cannot stand alone’.”


The big picture – and it isn’t pretty

It’s no easy task to write a reasonably concise (about 200 pp), highly readable, well-informed synopsis of the big trends in global economic history, along with an assessment of how these are likely to play out in the near future. Stephen King, HSBC’s Senior Economic Adviser, has given us such a book in Grave New World: The End of Globalization and the Return of History. As the title indicates, it isn’t an optimistic book. But more of that in a moment.

The book starts with an extract from a speech by Joseph Chamberlain as Secretary of State for the Colonies in 1897. It was an ‘end of history’ speech: in ruling the Empire, he sdai, “[W]e are fulfilling what I believe to be our national mission, and we are finding scope for the exercise of those faculties and qualities which have made us a great governing race….” The Introduction segues into the inevitability that empires that rise subsequently fall. The Whig interpretation of history is still wrong.

The remainder of the book is similarly ambitious and wide-ranging, although consequently covering vast events in a page or two; this can inevitably feel breathless. But this is a worthwhile price to pay for the breadth of reference. For instance, few books by financial market economists about global trends manage to include reference to the work of development economist Arthur Lewis (although I’d like to mildly complain that he’s referred to here as the first black academic at the LSE; he was the first black professor appointed in the UK, and that was by the University of Manchester, where my office is in the Arthur Lewis Building).

The other merit of a wide-ranging book of course is that you learn some things you didn’t know. For me, it was the detail about China’s extension of its economic and political reach in Asia and beyond. For all that China’s path will be turbulent (see Martin Wolf in the FT today), there can be no doubt about where the centre of gravity of the world economy is moving.

The final part of Grave New World is titled ‘Globalization in Crisis’. It describes the multiple weaknesses of existing global institutions but concludes there’s nothing better around than sticking with, and improving, the WTO, the EU, NATO etc. I think one has to forgive the un-stirring conclusion – I certainly have no better ideas, although in glum moments (there are may, watching the news) I rather fear that events in the near future will destroy the existing institutional landscape leaving no option but to go back to the drawing board.

The book ends even more pessimistically than me, however, with an imagined Ivanka Trump Inauguration speech in 2044. Oh my, history is definitely baaack.71coBmyck4L


Enlightenment and anti-Enlightenment

Expectations matter a great deal in the way the economy evolves. When, how and why did this come about? It must have been linked to the capitalist growth take-off, because why would the future be relevant if nothing much ever changed? Emily Nacol’s An Age of Risk: Politics and Economy in Early Modern Britain links it to the British Enlightenment – specifically to the philosophy of Hobbes, Locke, Hume and Smith. She argues that they presented the future as a territory of risk in order to support their arguments about the political and economic order. What’s more, the book says, there were two sides to this: risk as a source of threat to manage and risk as an opportunity for previously unexploited profits. “When the cautious citizen acts with the future in mind, he transforms his social world in the process, now and in the future,” she writes. Hobbes created the fear, Locke introduced the tools of probabilistic calculation, Hume argues for calculated and prudent risk-taking as a path to profitable opportunities which will pay off in the long term, and Smith analyses how institutional structures can manage and mitigate – or exacerbate – risk, in Nacol’s schema.

The book is quite short but does presuppose familiarity with the four philosophers – my wider reading of their work dates back to the late 1970s and PPE, although I dip in reasonably often, so it was a bit heavy going. Having said that, the key insight about the Enlightenment as the moment when thinking about risk, an orientation toward the future, became important is interesting. Especially at what sometimes feels like a moment of anti-Enlightenment when nostalgia for an imagined (and imaginary) past has overtaken us. Time to re-read Paul Krugman’s brilliant 1991 QJE paper on history versus expectations.



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



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: