Did anyone forecast the Great Recession that has created so much suffering across the world for close to a decade? The answer is yes, but they tended to be from outside positions of power and either kept quiet or were ignored.
The Bank of England’s Chief Economist, Andy Haldane, recently claimed that ‘big improvements’ have been made in its ability to forecast the British economy. If this is true, it is undoubtedly welcome.
Haldane highlights the failure to take account of high and rising borrowing levels, but still admits that the Bank is ‘not going to forecast the next recession’, since their ‘models are just not that good’.
Greater forecasting success fell to more heterodox economists, those from outside the mainstream, whose work was more prescient. Continue reading →
“It is strange that two authors that have provided us with the deepest understanding of the workings of modern capitalism, Marx and Hayek, have little to say about specific economic policies. Marx advocates the broad but undetailed policy of central or collective planning and public ownership. Hayek’s policy stance is diametrically opposed to that of Marx but is hardly less bland: we are offered the generalities of more market competition and extended private ownership. Hayek, like Marx and his followers, has very little to say in detailed, policy terms. The common blindness to varieties of capitalism disables their theoretical systems in policy terms.
The way out of this difficulty is to place the detailed analysis of capitalist institutions and of national and corporate cultures at the centre of the stage. Institutional economics thus provides a fruitful approach to the formulation of relevant and operational economic policies. With the notable exception of Veblen, many leading institutionalists in the past have been deeply involved in the development of economic policy. Much of this work was based on empirical study, but there is no reason why work in the future should not be guided by the deepest theoretical and methodological insights. Instead of empty formalism there is the possibility that economics may thus be capable of providing inspiration and sagacious guidance for those in government, finance and business.”
Geoffrey M. Hodgson (1999), Economics and Utopia, p.148
There is much to admire and draw on in Hodgson’s reboot of ‘old institutionalist’ economics, Continue reading →
The German Bundestag. Change is needed on all sides involved in the current crisis, not least in Germany.
The German government’s ‘record’ post-unification budget surplus of nearly 24bn euros was in the news this week. As a percentage of GDP it is a mere 0.8%, but compared to the UK’s deficit of just under 4%, they seem to be doing relatively well, at least in terms of the desire expressed by many politicians for governments to ‘live within their means’. And this surplus does not seem to have come at the expense of economic growth. The German economy grew by 1.9% in 2016, the fastest in the G7 group of the largest economies in the world.
So how is this possible? Quite simply, it is down to the competitiveness of German exporters, achieved at the expense of ordinary German workers over the last decade or so.
Firstly, the deregulation of the labour market put downward pressure on wages at the bottom of the scale, so that Germany now has record numbers of low-wage, insecure jobs. Continue reading →
Economist Michael Kitson dispels some myths about public and private debt and discusses the importance of public investment in new technologies. This video is especially relevant to today’s world of largely sluggish growth in output and productivity. Some of these ideas might help the world economy, and particularly the UK, to do a little better.
I have written many posts on the level and changes in inequality of wealth and incomes, both globally and within countries. There has been a ‘wealth’ of empirical studies showing rising inequality in incomes and wealth in most capitalist economies in the last century. There have been various theoretical explanations provided for this change. The […]
“We must go round about to find the roots of our own beliefs. In the general mass of notions and sentiments that make up an ideology, those concerned with economic life play a large part, and economics itself (that is the subject as it is taught in universities and evening classes and pronounced upon in leading articles) has always been partly a vehicle for the ruling ideology of each period as well as partly a method of scientific investigation.”
These words were written twenty years ago by distinguished Cambridge economist, the late Ajit Singh, and are somewhat prophetic on the evolution of the world economy and the causes of today’s political trends.
He compares the situation in the 1990s with the ‘Golden Age’ of capitalism during the 1950s and 60s, which saw rapid growth, low unemployment, and rising wages for the majority in many countries. He puts this down to broadly Keynesian interventionism by the state in cooperation with employers and trade unions. This was more effective in some countries than others. Nevertheless, he predicts that unless such conditions are restored, and the benefits of globalization are spread more widely through deliberate policy, the liberal international order will lose its legitimacy and prove unsustainable. I could argue with some of this, as I am not a fully convinced Keynesian, but the broad theme is telling. And so it goes… Continue reading →