President Lyndon Johnson asked John Kenneth Galbraith to write him a speech on economic policy. After glancing at it LBJ said 'You know Ken, the trouble with economics is it's like peeing in your pants. It feels hot to you, but leaves everyone else cold'.
I felt a lot of sympathy with LBJ this afternoon when I listened to a couple of clever mathematicians having a lot of fun with their equations. I thought they were having too much fun – as economists! Good economists should not enjoy maths too much. Whenever they are tempted to show off, they should ask themselves: ‘Is this really necessary? Does it help tell the story I want to tell?’
I also very much agreed with Jamie Galbraith that the story we tell has to go beyond Keynes.
Keynes for the 21st century
| Wednesday, May 18, 2011
Vienna, 18th March 2011
I am deeply honoured by the invitation of the Renner Institute to address you this evening at the conclusion of the conference on Austro-Keynesianism.
‘When the facts change, I change my mind. What do you do, sir?’ Keynes is supposed to have said, but almost certainly didn’t. This is a good text for my own sermon.
What changed my mind was the great recession of 2007-9, which stopped a few months short of becoming another Great Depression.
As Keynes’s biographer I never completely abandoned my faith in Keynes. But there was a clear hedging of bets in the last sentence of that biography, written in 2002: ’Keynes’s ideas will live so long as the world has need for them’. Well yes, but does it?
The extentContinue reading...
Comments on the state of economics
Government Economics Service Conference
| Thursday, January 20, 2011
In 1931 Keynes remarked of a book by Hayek, ‘It is an extraordinary example of how, starting with a mistake, a remorseless logician can end in Bedlam’. If one thinks this through, it tells one all one needs to know about what’s wrong with economics.
Economics is an axiomatic discipline. It proceeds from a very small number of assumptions – maximisation, stable preference, equilibrium - from which can be deduced a very large number of conclusions. These might be considered simply as heuristics – moves to set the argument going. But undoubtedly most economists see them as foundations of their explanations of real world behaviour.
Underlying these operational assumptions is a super-axiom: perfect knowledge. Agents not only know whatContinue reading...
Austerity v Stimulus
The Northern Ireland Economic Conference, Belfast
| Wednesday, September 29, 2010
How much do people mind the deficit? Do they lie awake at night worrying about it? Do they have nightmares about it?
I tended to dismiss such thoughts as fanciful. Households and businesses, I thought, naturally worried about their own budgets, but not about the government’s budget.
I therefore tended to assume that the government had enough freedom over its own budget to do what it thought best for the country, without coming under undue popular pressure to ‘balance its books’.
Of course there were the ‘markets’. But it didn’t seem to me the markets were putting pressure on our government to ‘balance the books’. After all they have been lending to Treasury long-term at 3% This is historically very low. It does not suggestContinue reading...
In its latest briefing note the IMF warned that world growth would slow in the second half of 2010 and the first half of 2011. Meanwhile the cost of Greek government debt has shot up again, despite the ECB rescue-package, and the IMF will soon inject another 2.5bn euros into the Greek economy. Finally, European trade unions are planning a winter of protest against cuts. These are just the latest glimpses of what is happening in the world economy.
The Causes of the Crisis
The turmoil in the Eurozone was caused by the global crisis that broke out in 2007.The deepest cause of the global crisis was the increasing dominance of the financial system in developed economies, as a result of its liberation from national regulatory controls. AsContinue reading...