Brave and humble economists

Someone on Twitter (@kestontnt) sent me a link to an article on The Economics of Courage by INET’s Robert Johnson in a recent issue of the OECD Observer. The courage it calls for is that required to stand out against the conventional wisdom, which is what INET is all about of course. I’m optimistic that the conventional wisdom in economics is shifting significantly, although maybe that’s because last week was such an encouraging one, with a workshop led by Wendy Carlin on INET’s new CORE curriculum programme, and a fabulous session at the Rethinking Economics conference.

Robert Johnson’s article cites HL Mencken’s well-known essay on ‘The Dismal Science’ (in [amazon_link id=”1440083754″ target=”_blank” ]Prejudices, 3rd series[/amazon_link]) on a brave Professor Nearing who was kicked out of the University of Pennsylvania for daring to challenge the status quo; and also a book I don’t know, by Norbert Häring and Niall Douglas, [amazon_link id=”0857284592″ target=”_blank” ]Economists and the Powerful: Convenient Theories, Distorted Facts, Ample Rewards[/amazon_link].

[amazon_image id=”0857284592″ link=”true” target=”_blank” size=”medium” ]Economists and the Powerful: Convenient Theories, Distorted Facts, Ample Rewards (Anthem Other Canon Economics)[/amazon_image]

The sociology of any academic discipline involves insiders, successful in a discipline in its current form, who are resistant to outsiders suggesting that they’ve got it all wrong. There are also incentives against change in any existing system – promotion and success depend on publishing in the top journals, which want small advances on the existing body of knowledge; there is little reward for changing course materials and teaching methods whereas the time cost is large; for any individual caution is a better bet than radicalism; and so on. Against that, there is the intrinsic reward of intellectual discovery, the humility that really ought to arise from both the recent track record of economic forecasts and an appreciation of the consequences of simplistic ‘market knows best’ thinking – and a bit of courage. But refusniks opposed to the status quo have more company now than at any time in the past 50 years.


In the tentacles of vampire cephalopods

The next book I read is going to be Grigory Yavlinsky’s [amazon_link id=”0300159102″ target=”_blank” ]realeconomik: The Hidden Cause of the Great Recession[/amazon_link]. On paging through, it’s apparent that the book is about the moral and social norms then permit the market economy to function well – and their breakdown as a major contributory factor to the crisis. I’m sure I’ll agree – it was a big theme of [amazon_link id=”0691145180″ target=”_blank” ]The Economics of Enough[/amazon_link] (out soon in Italian by the way as Economia dell’abbastanza). Yavlinksy – an architect of Russia’s transition to a market economy –  ends with a call for a restoration of moral principles in politics and the implementation of public policy.

If only it were as easy as the kind of people who go into politics deciding they have to act in the public interest. That’s a good start, obviously. However, the book has just one sentence that touches on oligarchy and doesn’t mention the illegal economy at all. New estimates suggest the shadow economy ranges in size from 18% of GDP on average in the EU to 40% in Sub-Saharan Africa, 35% in the post-socialist economies. That’s £1 in every £5 or £3 respectively generated outside the law and the tax system. Activity on this huge scale must be facilitated by both the banking system and by law enforcement turning a blind eye.

And then there are the legal ‘vampire squids’, to apply [amazon_link id=”B003F3FJS2″ target=”_blank” ]Matt Taibbi’s[/amazon_link] brilliant image to the still-in-denial banking industry. The world economy is ententacled by vampire cephalopods, whether operating inside or outside the law. Of course social norms must change, but I fear that won’t be enough.

[amazon_image id=”0300159102″ link=”true” target=”_blank” size=”medium” ]Realeconomik: The Hidden Cause of the Great Recession (and How to Avert the Next One)[/amazon_image]