A final bite

Eating with a friend a few days ago, I mentioned I had just finished the new Keynes bio. They asked me who Keynes was.

This is a perfectly legitimate response for someone who has never studied economics. Nor is it surprising, because there is a very real sense in which economics exists in an ivory tower. We know it is there, and from time to time it ventures out – shrouded in numbers and jargon – to issue warnings or prescribe rules. It is unknown in the way God once was: impossible to understand but impossible to ignore.

It is not necessarily an issue. I don’t understand how a fuse box works or why turning my router on and off always fixes it; the world is full of mysteries reserved for specialists.

Still, it is a tragedy for a profession concerned, at its root, with human flourishing. This can be and should be communicated in the language of values and vision, resonating with passion and feeling.

So, even though I have already spoken about the book, I could resist a final few quotes from what has been a truly inspiring read that I recommend highly:

Keynesianism in this purest, simplest form is not so much a school of economic thought as a spirit of radical optimism, unjustified by most of human history and extremely difficult to conjure up precisely when it is most needed: during the depths of depression or amid the fevers of war.

“Down with those who declare we are dumped and damned,” the twenty-one-year-old Keynes cried in 1903. “Away with all schemes of redemption and retaliation!” A better future was not beyond our control if the different peoples of the world worked together, leading one another to prosperity.

I have written about how economic planning is making a comeback. Let us remember vision too.

Common (non)sense

On April 28th 1925 Winston Churchill, then Chancellor Of the Exchequer, gave a speech defending the decision to return the UK to the gold standard:

Every expert conference since the War – Brussels, Genoa – every expert Committee in this country, has urged the principle of a return to the gold standard. No responsible authority has advocated any other policy. No British Government – and every party has held office – no political party, no previous holder of the Office of the Chancellor of the Exchequer has challenged, or so far so I am aware is now challenging, the principle of a reversion to the gold standard in international affairs at the earlierst possible moment.

The deflation required to achieve this had left the UK with years of crushing double digit unemployment and a mutinous General Strike.

It was all for nothing. The build up to the Second World War, itself fuelled by the brutal deflations the gold standard demanded, would force the UK to leave a few years after it rejoined, never to join again.

Today the Gold Standard is seen as a quaint anachronism; a policy whose defects seem so obvious it is hard to imagine how anyone could advocate it in good faith . And yet as the quote shows, everyone thought it was.

The point then is to ask, each and everyday, what are our equivalent beliefs?

Keynes

What we need is a form of society which shall be ethically tolerable and economically not intolerable

Keynes

I have been reading the new biography of Keynes by Zachary Carter: Keynes The Price of Peace. For someone whose knowledge of Keynes starts and ends with: “he wrote The General Theory,” it has been a non-stop parade of incredible facts and stories: he married the most famous ballerina of his day, was a founding member of the Bloomsbury Group – an avant garde set of British intellectuals and artists that included Virginia Woolf – was a syndicated columnist with an audience of millions, and the leading figure in British economic policy – all before he published The General Theory, the work which would found what we now know as Keynesian Economics.

The General Theory was to us less a work of economic theory than a Manifesto for Reason and Cheerfulness, the literary embodiment of a man who, to those who ever saw him, remains the very genius of intellect and enjoyment. It gave a rational basis and moral appeal for a faith in the possible health and sanity of contemporary mankind.

I have been inspired by how Zachary explains Keynes economics in terms of his political beliefs, which in turn were formed by his love of art and culture. Economics, as Zachary tells it, was Keynes way to build a society which could support the creative, artistic lifestyle he loved (Keynes essay on the 15 hour work week should be read in this light). The notion of beginning with a vision of the good life and working outwards seems oddly revolutionary today:

Keynes was a philosopher of war and peace, the last of the Enlightenment intellectuals who pursued political theory, economics, and ethics as a unified design. He was a man whose chief project was not taxation or government spending but the survival of what he called “civilization” – the international cultural milieu that connected a British Treasury man to a Russian Ballerina

In contrast, consider this blogpost by Branko Milanovic, a leading economist on inequality, on how the lives of notable economists today are notable for: “their bareness. The lives sounded like CVs. Actually, there was hardly any difference between their CVs and their lives.”

Krugman, using his own life as an example has responded arguing: “interesting ideas have very little to do with interesting life experiences.

Krugman has a point, although I wonder whether there might be a more hidden cost. I was reminded of a conversation with my brother who, contemplating a career in economics, was disheartened when, Googling the careers of many famous contemporary economists, found they all had the same story: Bachelor through PhD at Harvard or MIT, a stint at the IMF or World Bank, then back to academia with some policy work sprinkled in. It looks like an impossible barrier from the outside.

At the same time, lunch at Cambridge with Bertrand Russel followed by drinks at Virginia Woolf’s house is not exactly more accessible.

Macroeconomic Folk Tales

Inflation, Employment, and Debt (IED) are three of the most important macroeconomic variables and unlike manufacturing output or GDP, they are also highly tangible for people. The first job and the first mortgage are customary rights of passage in many countries. We interact with prices constantly, usually to complain about how they’re rising.

As a result of their prominent place in the public consciousness, IED each have an associated ‘folk tale’:

  • For Debt it is the familiar story of the ‘household budget,’ where governments, like households, must keep their budget balanced and not live beyond their means. Government borrowing is like excessive use of a credit card: high risk and prone to catastrophe. The story usually involves mentioning your personal share of the debt ($69,060 in 2019 for the US), inter-generational debt slavery, imminent crisis, and the word ‘trillion’ as many times as possible.
  • For Inflation the story is hyperinflation. Whether Zimbabwe, Argentina, or Weimar Germany, inflation is always and everywhere a genie in a bottle. A wheelbarrow of money becomes less valuable than the wheelbarrow itself and bank notes are used as kindling.
  • The Employment story has two sides. For the (well) employed it is a narrative of individual success. Your high salary, your promotion, and your position are the product of your intelligence and hard work. The antagonist is the welfare recipient, who by the same logic refuses to work or apply themselves. Whether the ‘ ‘welfare queens’ of the US or Australia’s ‘dole bludgers,’ the story is the same; people are only a welfare check away from kicking back on the sofa with a can of beer.

These folk tales are not restricted to the general public and can be found coming out of the mouths of prominent politicians, economists, and Central Bankers.

These folk tales are more than just harmless stories. The idea that stories matter would have have been a controversial claim in economics even a few years ago (much to Keynes chagrin). Today, it has found support in Nobel Laureate Robert Shiller’s work on ‘Narrative Economics.’ His research, which has focused on large meta narratives from ‘labor saving machine’ to ‘confidence,’ shows that the stories we tell each other dramatically effect economies by changing our collective behaviour.

The question then is how to construct more accurate and helpful folk stories around IED, because the current crop are not fit for purpose. The German government is clearly not a household when investors are willing to pay for the privilege of lending to it. The Coronavirus has exposed millions of people to the awful reality of involuntary employment. Two decades of deflation in Japan should be the folk story we turn to when someone mentions inflation, not Zimbabwe.

Time to think about the next generation of stories.