2018 marks 24 years since I first took an interest in what is sometimes referred to as the ‘dismal science’. Not a particularly notable landmark, though it is more than half my life. And I certainly have not spent all that time with my nose in books about economics, although I have spent quite a bit of it like that, maybe more than is good for me.
Apparently it was the Victorian historian Thomas Carlyle who coined the phrase dismal science in the 19th century. I am sometimes inclined to agree, when observing a malfunctioning economy and its malfunctioning stewards in government and business. But more often I am prepared to be optimistic that we can find solutions to the problems of humanity. Some of them might even come from studying economics!
Keynes looked forward to a time when the economist’s role in society would be akin to that of dentists, as humble, competent fixers of minor problems. Notwithstanding a call from the UK’s current environment secretary during the campaign for Brexit to pay less attention to experts, economists and their ideological categories of supply, demand and growth have become extremely powerful and accepted, even if with passivity, resignation or incomprehension.
This essay is about economics, but it adopts a personal approach. It tries to convey to the interested reader how the ideas which I attempt to communicate in my admittedly eclectic blog posts arise from quite a bit of studying, from the school classroom through university all the way to the blogosphere, interacting with my enthusiasm for applying economics to world events.
Back to school
Something told me that economics might be useful for understanding the world. My brother had studied it at school and as part of his university degree. At first I didn’t have a clear idea of what it was about, but I thought that it had something to do with money and that money was important. The modern world has in part been created through the desire for personal gain or, unfortunately for so many, mere survival, so I think I was on to something.
It was a bit of risk, as I didn’t know if I had any aptitude for economics. My other A-level subjects (exams taken at 18 to secure university entrance in the UK) were English and Maths, which I had been studying from a tender age, and did reasonably well at. The tutor keeping an eye on my academic progress suggested that my combination of subjects would be a good one for getting into a good university economics course, maybe even at Cambridge. If I could write and add-up, and do economics to boot, I had some potential.
This encouraged me and I began to plug away, with some relative success, which gave me confidence, and further encouragement, and so on. I began to follow economic developments in the news, which was a struggle to begin with, amid a wealth of obscure terminology, but eventually I started to understand some of it, and it was nice to see some application of economic ideas outside the classroom.
Keynes and the General Theory
But it wasn’t all success. After a lot of hard work, I missed out on getting in to Cambridge. The interviews didn’t go too well, as I never was that great at thinking on my feet, as opposed to considered reflection in an essay, written in my own time.
Still, there remained the option of applying again, a year later. I kept that optimistic thought in mind, and plunged into reading by and about John Maynard Keynes. I started to read his magnum opus, The General Theory of Employment, Interest and Money. In the 1990s, with a right-wing government still in power and trying to continue Margaret Thatcher’s legacy, and the obsession in macroeconomic policy with inflation targeting rather than trying to achieve full employment, Keynes’ ideas were not popular, in economics or almost anywhere.
I had some inkling that there were quite a few Keynesian academic economists at Cambridge, and that having a good knowledge of Keynes would boost my chances at interview, if I could manage to present them clearly.
The General Theory is not an easy read, and indeed, Keynes intended it for his fellow economists rather than the public. I can’t pretend that I understood it fully, but it inspired me. In a short space of time, the great man had convinced me that mass involuntary unemployment represented a genuine malfunctioning of the economy and could be remedied through judicious government policy to expand aggregate demand.
I also read Robert Skidelsky’s magnificent biography of Keynes, which at the time was still awaiting its third and final volume.
I had become a Keynesian. As a result I was drawn to The Guardian newspaper’s Monday economics page, at the time written by Will Hutton, whose The State We’re In, a left wing critique of the Thatcher revolution, had recently become a bestseller. Many people were sick of the government, after more than 16 years of right-wing policies and increasing political scandal. But what could or would take its place?
Tony Blair was Labour leader, and had rebranded the Labour Party as ‘New’ Labour. With the party’s sights set on the next election, less than a year away, these were optimistic times for the centre-left. But first I had another Cambridge interview to try to get through.
Left Keynesianism and the Cambridge School
I was gutted after missing out on a place at Cambridge for a second time. But at least the interviews had gone much better overall and I felt I had done myself justice. According to the tutor who had interviewed me, it had been desperately close. Oh well, I still liked economics, particularly of the Keynesian variety, so I wasn’t put off. Bristol University had a reputable department, so I hoped the course there would be sufficiently stimulating.
In the meantime, I continued to read academic books with a left- or post-Keynesian orientation, often written by the intellectual heirs of Keynes and the ‘Cambridge School’. They relentlessly made the case for national and global Keynesian policies. These included expansionary monetary and fiscal policies to raise aggregate demand and achieve full employment, incomes policies to keep inflation under control, and international cooperation to manage global capital flows and stabilize exchange rates, which it was hoped would make national Keynesianism possible.
These kinds of policies were terribly unfashionable in the 1990s, and still are, but their radicalism and optimism that a different and much improved world was possible really appealed to me.
Tony Blair’s Labour Party won the 1997 election in a landslide, but by then he had distanced himself from Will Hutton’s more interventionist policy package, most likely to appease the influential right-wing press.
Orthodox neoclassicism and frustrating times
The course at Bristol was pretty orthodox, with a focus on neoclassical economics. Equilibrium, the natural rate of unemployment, rational expectations, lots of maths and not much Keynes left me frustrated and, to be frank, a little bored. Many of my fellow students were there to get a degree which would get them a well-paid job, probably in the City of London. There was little opportunity for controversy or debate with them. Still, I plugged on. I managed to put a leftist or Keynesian slant into many of my essays, with varying results.
The library offered something of a retreat and I spent time there reading the kind of economics books that actually interested me. Needless to say they were not on the course reading list. I also dipped into the Cambridge Journal of Economics now and again, which was full of articles with a critical heterodox (non-mainstream) and often Keynesian focus. There was plenty to keep me interested but a lack of interest in the course itself led to some poor exam grades, with one year to go.
Nicholas Kaldor and the problems of growth and development
During the summer break before my final undergraduate year, and with the prospect of studying plenty of course options that I had actually chosen, things began to look up. Back in the library I found a collection of essays by Cambridge Keynesian Nicholas Kaldor. They covered growth and development, macro theories of distribution, technical change and critiques of monetarism and equilibrium.
Overall they adopted a structural or macro approach to economics, in stark contrast to the neoclassical mainstream. They also made the case for economic policies to promote the usual left-Keynesian goals of full employment and rising living standards, reduced inequality, and greater stability in the global economy. This was all very refreshing and inspiring, but a far cry from what I had been taught for two years.
Back in class for my final year, things did pick up a bit. At last we were given the chance to apply economic theory to practical problems: inequality and globalization, the minimum wage, workless households and European economic and monetary union (EMU) being some examples. I still couldn’t resist slipping some leftist material into my essays, which occasionally backfired, but actually it seemed to help this time, showing that I had read and thought about ideas beyond the reading lists.
I wasn’t done with economics, and felt that I wanted more of it, beyond that year. I had found my third year course on development economics really stimulating, particularly the analysis of industrialisation, structural change and industrial policies to promote them. Here was much of what I had read in Kaldor over the summer, and this opened up a new direction.
The course tutor was busy finishing his PhD dissertation with the School of Oriental and African Studies (SOAS) in London, alongside his teaching at Bristol, and I began to look into postgraduate courses in development economics. The SOAS brochure described their economics department’s orientation to political economy, and this seemed right up my street.
SOAS, political economy and industrial policy
One year at SOAS studying an MSc in Political Economy of Development was, intellectually speaking, far more interesting than all of my three years at Bristol. I learned about growth and development, institutions, industrial policy, and the economies of South East Asia. Most of the economists at SOAS were oriented to heterodox thinking, and many were influenced by Marxism, something which is extremely rare in economics departments nowadays, though less so for other social sciences. One doesn’t have to be a socialist to benefit from such ideas. After all, much of Marx’s writing was a deep analysis and critique of the workings of capitalism.
I spent the summer writing my dissertation on industrial policy in Malaysia. Malaysia was an interesting case, as its economic policy encompassed redistribution in favour of the ethnic Malays in order to maintain political stability, in contrast to the economies of North East Asia such as Japan and South Korea.
It also attempted an industrial policy to encourage more rapid development, with mixed results. It did have some success with this, although it didn’t grow as fast as the North East Asian economies during their ‘miracle’ phases. But maybe this was never on the cards.
I learned from Mushtaq Khan, my course tutor and supervisor, that the political and institutional context is all-important to the kinds of industrial policies that will succeed in a particular country. Few developing countries have the sort of historical legacy inherited by Japan or South Korea prior to their growth ‘takeoff’, but they could still adopt policies which accelerate structural change and development.
By the time I finished my course, I had considered continuing for a PhD, but decided that my head was rather too full of ideas for the time being and that it wasn’t for me. But I was no longer a strict Keynesian. I had taken on board new ideas from the realm of political economy and economic development.
While I would remain wedded to exploring ways that societies can achieve the goals of economic progress, social justice and individual liberty, in the spirit of Keynes, my understanding of how to get there had changed irrevocably. Khan had made the clear point in one lecture that ‘capitalism is not nice’, but how else are poor countries going to fight poverty and raise living standards?
I had also absorbed the importance of considering power and conflict in economics as well as improved my understanding of structural or macro factors in shaping the incentives and constraints of individuals and social groups within particular societies.
Leaving my studies behind, I continued to read about economic issues, but my interest subsequently waned for a few years.
The global financial crisis and resuming a keen interest
Jumping ahead to October 2008, and the world financial system was on the brink, poised to plunge into the abyss in the absence of substantial government intervention. Suddenly the world and its economic problems had become much more interesting and there was surely a need for some radical ideas to improve matters. It seemed that Keynes and even Marx were back, at least for a while.
Across the world, governments injected capital into the banks, and cut interest rates dramatically, ramping up spending and cutting taxes, in order to boost demand. Despite all of that, the world economy went through a deep recession.
The Global Financial Crisis (GFC), the eurozone crisis, austerity, political instability, the rise of populism, climate change, inequality and sustainability. There was a great deal to read about, and to talk about. Encouraged by a good friend, I started blogging on the kind of economics that I had taken an interest in once again. I started devouring material on Marx, Keynes, development, state intervention and China.
Eclecticism and blogging, beginning with Marx
One of the first was a little book by SOAS professors Ben Fine and Alfredo Saad-Filho, Marx’s ‘Capital’, which in 200-odd pages, brilliantly summarizes and discusses Marx’s magnum opus Capital. The latter is more than 2,500 densely written pages, so that is no mean feat. If the original proves too much of a struggle, or if you need a guide to it, Fine and Saad-Filho’s book is highly recommended. I can vouch for the latter as, when I managed to get through Capital a few years later, it proved indispensable.
With my interest in economics revived, and with no course-dictated reading lists, I tended to focus on heterodox economics. Sometimes it was post-Keynesian, sometimes Marxist, and sometimes more eclectic. I also renewed my interest in industrial policy and development, as some of heterodox literature argued that Keynesian policies were insufficient to ensure widespread prosperity. Sluggish recovery in the wake of GFC had put industrial policy, broadly conceived, back on the political agenda.
Given the nature of the GFC, the work of Hyman Minsky was also highly relevant. Minsky was a post-Keynesian, but his work on finance was highly original. He argued that ‘stability is destabilizing’, and that periods of seeming economic calm tend to lead to increasing financial fragility and ultimately to a crisis, which could be prevented or mitigated by government policies.
He called for ‘Big Government’ (fiscal stabilization) and financial regulation by a ‘Big Bank’ (the Central Bank) as ways to save capitalism from itself, in the spirit of Keynes long before.
Minsky has influenced a number of economists who have analysed the deeper causes of the GFC, and even predicted it some years before. These include the late Wynne Godley, Steve Keen of Debunking Economics fame and Michael Pettis.
Pettis works hard at keeping political bias out of his analysis. For example, he argues that greater inequality can boost growth if investment is constrained by a lack of savings, but if the latter is not true, then it will reduce consumption, which can in turn reduce investment and growth. Hence ‘trickle-down’ economics can work, but it can also just as likely fail.
Among other current original and insightful heterodox thinkers who have influenced me in recent years, I would cite Richard Koo with his idea of Balance Sheet Recessions, Michael Hudson, and The New School’s Anwar Shaikh, whose monumental work Capitalism aims to provide an alternative body of economic theory to mainstream ideas of perfect and imperfect competition and economic crises. Shaikh calls his approach classical-Keynesian economics, although he remains critical of the post-Keynesians.
I also have time for the ever-engaging Ha-Joon Chang, one of the last remaining heterodox economists in the Cambridge Department of Economics (the rest have found places in less well-known economics departments or in schools of business or development, as mainstream ideas have tightened their grip).
Finally I should mention my former dissertation supervisor from SOAS Mushtaq Khan, whose work focuses on institutional economics and political economy, industrial policy and late development, corruption in developing countries and critiques of the World Bank’s ‘good governance’ agenda.
My blog earns its title from that of my course at SOAS. What I learned there still inspires me. While I admit that my posts taken as a whole can be rather eclectic, I am currently most inspired and informed by the work of Khan, Shaikh and Pettis.
Khan’s institutional and political economy approach to development; Shaikh’s focus on profitability, ‘real competition’ and capitalism’s periodic crises; and Pettis’ work on balance sheets and global imbalances: all are highly original and, while they draw on many of the ideas of the great economists of the past, none are slavish disciples, arguing endlessly about what, for example, Marx or Keynes really thought or said.
I will continue to be influenced by economists such as these, who focus on coming up with new and useful ideas, intended for real world application and employed to improve the lot of humanity in the widest sense. For me, that is something truly worthy.