‘Why economists kept getting the policies wrong’: Perhaps because they forgot Keynes!
- Kamran Mofid
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All said and done, one of the main objectives of this posting is to gather some of the ideas and visions that are shaping our imagination and help fashion them into what I hope to be a vaguely coherent vision – or many visions – of the kind of world we are yearning for and hopefully can and might want to live in. It’s just a beginning and is part of a big conversation, the dialogue, to which many the worldover are contributing.
Globally, the coronavirus has taken a tragic toll on all of us. It has shown us what is important, valuable and worthy. Let’s use this time to open our hearts, minds and imagination to what is possible, and start building a better world. Let this be our legacy and answer to the pandemic.
The ‘dismal science’ in perpetual meltdown: The Fall of the House of Cards
The Delusional Mumbo Jumbo Jargons That Is Modern Economics
“Give me a one-handed Economist. All my economists say 'on one hand...', then 'but on the other...”― Harry Truman
Longing for a One-Handed Economist!!
“Don’t just teach your students how to count. Teach them what counts most.”
‘In spite of the utter failure of academic and professional economists to predict, explain or find solutions to the financial and economic crises sweeping the globalised, marketised world they have created, there is still little challenge to the narrow and one-sided way that economics is taught in our universities. In spite of the fact that economics is about complex human relationships, and is therefore bound to be the subject of debate and disagreement, there is no problem with university courses that only teach the neoclassical pro-market approach.’- Gaian Economics as quoted in Calling all academic economists: What are you teaching your students?
Photo: The Economist
In 1936, Keynes wrote, “Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slave of some defunct economist.”
And now, in 2021, no economist is more prominent than Keynes himself!
Moreover, as today’s events are unfolding, you can be sure that policymakers the worldover are polishing up their economic history books and looking at them through a Keynesian lens!
Keynes: economist, patron of the arts, member of the Bloomsbury Group and architect of
the postwar international order. Planet News/Getty Images
Keynes: The Man for All Seasons- ‘The enduring legacy of John Maynard Keynes’- Alive in the long run
Keynes and the Good Life
Economics as practical wisdom
‘The British economist’s ideas remain as important today as they ever were.’
‘Keynes was a philosopher in the most profound sense. He was a towering intellect in search of the good society— human well-being—on the trail of Aristotle. Keynes today would address not only a searing health crisis and economic turmoil; he would instruct us on how the crisis lays bare the rot of our decayed public institutions, and he would bid us to pursue dazzling new solutions for our time...
‘[A] system where we can act as an organized community for common purposes and to promote social and economic justice, whilst respecting and protecting the individual—his freedom of choice, his faith, his mind and its expression, his enterprise and his property.’
‘Intimately familiar with the history of economic thought and widely read in many fields, producing a major treatise on the nature of probability alongside his famous General Theory of Employment, Interest and Money and a host of penetrating essays, Keynes had a depth of culture that few economists could claim today…
…Influenced by the Cambridge philosopher GE Moore, they thought the only things that had value in themselves were love, beauty and the pursuit of knowledge.’- John Gray
‘Why economists kept getting the policies wrong’
‘After decades of market liberalism and fiscal fundamentalism, policymakers are returning to Keynes.’
This was the heading of an article By Philip Stephens in the Financial Times on 18 February 2021. Lest we forget, papers such as the Financial Times, have been nothing, but cheerleaders for neoliberalism, Thatcherism and all other horrible things that now Mr. Stephens is criticising.
To appreciate the significance and timeliness of this article in aiding a better understanding of the current economic crises, I would like to quote a couple of important and relevant passages.
However, before proceeding further, I would like to share a bit of a nostalgic journey of ‘Keynes and I’ with you:
Kamran and the Keynesian Economics
Economics that Works for Stakeholders as well as Shareholders
That is the Economy for You and Me
… It was at this difficult time that I came to understand that I needed to bring spirituality, compassion, ethics and morality back into economics itself, to make this dismal science once again relevant to and concerned with the common good. It was now that I made the following discoveries:
- Living happily is “the desire of us all, but our minds are blinded to a clear vision of just what it is that makes life happy”. The root of happiness is ethical behaviour, and thus the ancient idea of moral education and cultivation, is essential to the ideal of joyfulness.
- The focus of economics should be on the benefit and the bounty that the economy produces, on how to let this bounty increase, and how to share the benefits justly among the people for the common good, removing the evils that hinder this process. Moreover, economic investigation should be accompanied by research into subjects such as anthropology, philosophy, politics and most importantly, theology, to give insight into our own mystery, as no economic theory or no economist can say who we are, where have we come from or where we are going to. Humankind must be respected as the centre of creation and not relegated by more short term economic interests.
- ‘Economic rationality’ in the shape of neo-liberal globalisation is socially and politically suicidal. Justice and democracy are sacrificed on the altar of a mythical market as forces outside society rather than creations of it. However, free markets do not exist in a vacuum. They require a set of impartiality in government, honesty, justice, and public spiritedness in business. The best safeguard against fraud, theft, and injustice in markets are the cardinal virtues of justice, temperance, fortitude, and prudence, and the theological virtues of faith, hope, and charity.
The marketplace is not just an economic sphere, ‘it is a region of the human spirit’. Profound economic questions are divine in nature; in contrast to what is assumed today, they should be concerned with the world of the heart and spirit. Although self-interest is an important source of human motivation, driving the decisions we make in the marketplace every day, those decisions nevertheless have a moral, ethical and spiritual content, because each decision we make affects not only ourselves but others too. We must combine the need for economic efficiency with the need for social justice and environmental sustainability.
The greatest achievement of modern globalisation will eventually come to be seen as the opening up of possibilities to build a humane and spiritually enriched globalised world through the universalising and globalising of compassion. But for ‘others’ to become ‘us’, for the world to become intimate with itself, we have to get to know each other better than we do now. Prejudices have to disappear: we have to see that the cultural, religious and ethnic differences reflect an ultimate creative principle. For this to happen, the great cultures and religions need to enter into genuine dialogue with each other.
John Maynard Keynes predicted a moment when people in advanced economies would step back from traditional economic imperatives and feel free to concentrate on how to live wisely, agreeably and well. The purpose of the economy, according to Keynes, is to control the material basis of a civilised society, enabling its citizens to explore the higher dimensions of human existence, to discover their own full potential. In our world of prosperity for the few, we seem to have got that backwards. Lives are restricted by harsh working conditions and the common assets of a community are degraded in the pursuit of endless economic growth.
Economics once again must find its heart, soul and spirituality. Moreover, it should also reconnect itself with its original source, rooted in ethics and morality. Today’s huge controversy which surrounds much of the economic and business world is because they do not adequately and appropriately address the needs of the global collective and the powerless, marginalised and excluded. This, surely, in the interest of all, has to change. The need for an explicit acknowledgment of true global values, such as altruism, inclusion, universality, fraternity, sympathy, empathy, sharing, security, envisioning, enabling, empowering, solidarity and much more, is the essential requirement in making economics work for the common good. Economics, as practiced today. cannot claim to be for the common good. In short, a revolution in values is needed, when it demands that economics and business must both embrace material and spiritual values simultaneously.
As it can be seen, given the state of our world today, the world of progress and poverty, elaborate, difficult to comprehend, infused by so much mathematical jargon, economic models and theories, has not delivered the happiness that has been promised because of its failure to satisfy people’s spiritual needs. We have to reverse this. Do not let us carry on constructing a global society that is materially rich but spiritually poor. Let us begin to construct globalisation for the common good.’- Kamran Mofid And The Story of the GCGI: Why Love, Trust, Respect and Gratitude Trumps Economics: Together for the Common Good
Reverting back to the Financial Times article: ‘Why economists kept getting the policies wrong’
‘The other week I caught sight of a headline declaring that the IMF was warning against cuts in public spending and borrowing. The report stopped me in my tracks. After half a century or so as keeper of the sacred flame of fiscal prudence, the IMF was telling policymakers in rich industrial nations they should not fret overmuch about huge build-ups of public debt during the Covid-19 crisis. John Maynard Keynes had been disinterred, and the world turned upside down...
‘... Nations such as Britain might have learned that lesson from the damage inflicted by the ill-judged austerity programme imposed by David Cameron’s government after the 2008 financial crash. And yet. This was the IMF speaking — the hallowed (for some, hated) institution that, as many Brits will recall, formally read the rites over Keynesianism when in 1976 it forced James Callaghan’s Labour government to impose politically calamitous cuts in spending and borrowing...
‘...This is the organisation that in the intervening years had a few simple answers to any economic problem you care to think of: fiscal retrenchment, a smaller state and/or market liberalisation. The advice was heralded as the Washington consensus because of the IMF’s location. My first job after joining the Financial Times during the early 1980s was to learn the language of the new economic orthodoxy...
‘...Financial market deregulation, we were told, oiled the wheels of globalisation. If madcap profits and bonuses at big financial institutions prompted unease, the answer was that markets would self-correct…
‘...The abiding sin threaded through it all was that of certitude. Perfectly plausible but untested theories, whether about the money supply, fiscal balances and debt levels, or market risk, were elevated to the level of irrefutable facts. Economics, essentially a faith-based discipline, represented itself as a hard science. The real world was reduced by the 1990s to a set of complex mathematical equations that no one, least of all democratically elected politicians, dared challenge.
Thus detached from reality, economic policy swept away the postwar balance between the interests of society and markets. Arid econometrics replaced a measured understanding of political economy. It scarcely mattered that the gains of globalisation were scooped up by the super-rich, that markets became casinos and that fiscal fundamentalism was widening social divisions. Nothing counted above the equations.
And now? After Donald Trump, Brexit and Covid-19, it seems we are back at the beginning. Time to dust off Keynes’s general theory.’- Excerpts from Why economists kept getting the policies wrong
Given the significance and the timeliness of the subject, it is pertinent to reflect more on: ‘Why economists kept getting the policies wrong’.
Yes, it is true, many economists got it all very badly wrong and in the process have brought shame to being called an economist!
But, lest we forget, not all economists are guilty, not all are shameful and this, I am proud to declare, includes the current author. Let me explain!
'Today's neoclassical economist is an emperor with no clothes who has fooled us all long enough.'
A reflection on Why economists KEEP getting the policies wrong
1- Has it got to do anything with HONESTY? See below what I mean:
The short letter below to the editor of Times (08/03/2011) speaks volumes on ‘Honesty’ and ‘ETHICS’ in Economics:
Sir, Around 1991 I offered the London School of Economics a grant of £1 million to set up a Chair in Business Ethics. John Ashworth, at that time the Director of the LSE, encouraged the idea but had to write to me to say, regretfully, that the faculty had rejected the offer as it saw no correlation between ethics and economics. Quite. Lord Kalms, House of Lords
Below is how as a ‘Recovered’ economist I tried to rise to the challenges of ‘HONESTY’ in my chosen profession:
‘From 1980 onwards, for the next twenty years, I taught economics in universities, enthusiastically demonstrating how economic theories provided answers to problems of all sorts. I got quite carried away by the beauty, the sophisticated elegance, of complicated mathematical models and theories. But gradually I started to have an empty feeling.
‘I began to ask fundamental questions of myself. Why did I never talk to my students about compassion, dignity, comradeship, solidarity, happiness, spirituality – about the meaning of life? We never debated the biggest questions. Who are we? Where have we come from? Where are we going?
‘I told them to create wealth, but I did not tell them for what reason. I told them about scarcity and competition, but not about abundance and co-operation. I told them about free trade, but not about fair trade; about GNP – Gross National Product – but not about GNH – Gross National Happiness. I told them about profit maximisation and cost minimisation, about the highest returns to the shareholders, but not about social consciousness, accountability to the community, sustainability and respect for creation and the creator. I did not tell them that, without humanity, economics is a house of cards built on shifting sands.
‘These conflicts caused me much frustration and alienation, leading to heartache and despair. I needed to rediscover myself and real-life economics. After a proud twenty-year or so academic career, I became a student all over again. I would study theology, philosophy and ethics, disciplines nobody had taught me when I was a student of economics and I did not teach my own students when I became a teacher of economics.
‘It was at this difficult time that I came to understand that I needed to bring spirituality, compassion, ethics and morality back into economics itself, to make this dismal science once again relevant to and concerned with the common good.’
I then went on to found the Globalisation for the Common Good Initiative to work towards this…’-A comment on a Financial Times editorial (November 12, 2013)
And now I would like to quote you the first paragraph of a letter I wrote to Her Majesty Queen Elizabeth II on 27th November 2008, regarding her question at London School of Economics, when she asked: “Why did nobody notice?”
“I note, with much interest, Your Majesty’s recent visit to the London School of Economics. Given the current financial calamity, Your Majesty asked a very pertinent and important question: “Why did nobody notice?”
I firmly believe that the director of research and his colleagues present there, should have provided Your Majesty with truthful and honest answers. However, given what I have read in the press, I do not believe this was the case. Their failure to do so clearly goes a long way to prove the detachment of economists and the modern neo-liberal economics from the real world. They have turned our profession and subject into a comedy of errors, a dismal science of irrelevance.
This is very sad indeed Your Majesty. An entire profession now appears to have suffered a collapse. Trust and confidence in my profession has all but been demolished, the “dismal science” at its worst.
Many mistakes have been made. Many economists have compromised themselves and their profession by remaining silent, not criticising the extremism and the neo-liberal fundamentalism present in their profession. Lessons should be learnt, someone should be held accountable. Otherwise the same mistakes will be repeated and nobody will believe what an economist says again. In other words, Your Majesty deserves a proper and honest answer…”- Economics, Globalisation and the Common Good: A Lecture at London School of Economics
2- Has it got to do anything with modern economics never discovering and knowing who the ‘REAL’ Adam Smith was?
‘These days I am inspired by the “Real” and “True” Adam Smith, known the world over as the Father of New Economics. We should recall the wisdom of Adam Smith, who was a great moral philosopher first and foremost. In 1759, sixteen years before his famous Wealth of Nations, he published The Theory of Moral Sentiments, which explored the self-interested nature of man and his ability nevertheless to make moral decisions based on factors other than selfishness. In The Wealth of Nations, Smith laid the early groundwork for economic analysis, but he embedded it in a broader discussion of social justice and the role of government. Today we mainly know only of his analogy of the ‘invisible hand’ and refer to him as defending free markets; whilst ignoring his insight that the pursuit of wealth should not take precedence over social and moral obligations.
We are taught that the free market as a ‘way of life’ appealed to Adam Smith but not that he thought the morality of the market could not be a substitute for morality for society at large. He neither envisioned nor prescribed a capitalist society, but rather a ‘capitalist economy within society, a society held together by communities of non-capitalist and non-market morality’. As it has been noted, morality for Smith included neighbourly love, an obligation to practice justice, a norm of financial support for the government ‘in proportion to [one’s] revenue’, and a tendency in human nature to derive pleasure from the good fortune and happiness of other people.
He observed that lasting happiness is found in tranquillity as opposed to consumption. In their quest for more consumption, people have forgotten about the three virtues Smith observed that best provide for a tranquil lifestyle and overall social well-being: justice, beneficence (the doing of good; active goodness or kindness; charity) and prudence (provident care in the management of resources; economy; frugality).
I am very sorry that, no one taught me these when I was a student of economics, and then, I did not tell the truth about Adam Smith to my students when I became an economics lecturer; something that I very much regret and something that am trying hard to rectify, now that I am a “Recovering and Repenting” economist for the common good. At the end of the day, it is our honesty, humility and our struggle to seek the truth that will set us free and allow us to hold our head high...’- The World would be a Better Place if Economists had Read This Book
3- Has it got to do with the fact that modern economics is built upon a pack of lies?
‘The evil that men do lives after them. Global economic crisis has roots back in the 1970s, it was Milton Friedman the economist, Nobel laureate and American Treasury Secretary who convinced Reagan and Thatcher to adopt his policies of small government; deregulation of financial services; free and unfettered markets; low taxation for corporations and the wealthy and privatisation of public services.’...
4- Has it got to do with the fact that the ‘pompous’ economists think their subject is a glorified mathematical science of mumbo jumbo?
5- Has it got to do with the fact that modern economics and economists have forgotten what it means to be human.
6- Has it got to do with the fact that modern economists are mesmerised by perpetual growth?
7- Has it got to do with the fact that modern economists have detached economics from Mother Nature?
8- and finally, has it got to do with the fact that modern economics has corrupted education, teaching and everything else in its path?
Fixing What’s Wrong with Modern Economics by Fixing What’s Wrong with Modern Education
And Now The Good News
The leader of the biggest economy has ditched the Madhouse Economics of Neoliberalism,Laissez faire and all that jazz in favour of Keynesian economics to address poverty, inequality, injustice, ecological degradation and more in the US.
With the help of Keynes, Biden is planning to fight populism, and make the Democrats the party of the many and not the few.
Biden resurrects Keynes to see off populist threat
US embarks on massive stimulus programme to set economy on different path
An article by Chris Johns, The Irish Times
‘A remarkable and radical economic experiment is about to be conducted in the US…
‘Biden took to the stump this week, extolling the virtues of his $1.9 trillion plans. These come on top of $900 billion of stimulus passed by Congress in December and $3 trillion early on in the pandemic. There are hints that once the pandemic is declared over, Biden would like to indulge in even more fiscal largesse. John Maynard Keynes is back.
‘I remember then UK prime minister Jim Callaghan’s 1976 speech to the Labour Party’s annual conference when he famously buried Keynesian economics and embraced the thinking that led directly to the austerity policies and politics of the next 40 years. Biden has not just resurrected Keynes, he’s introducing a bionic version of the long dead economist.
Spend, spend, spend
‘The immediate Biden proposals include additional cheques to be written to almost every US citizen, increased pandemic-related spending, cash for local government and extended unemployment benefits. Infrastructure programmes and other economy boosting measures are waiting in the wings for later this year.
‘After 40 years of the “Washington consensus” that converted Callaghan and lectured the world in terms of fiscal orthodoxy and austerity, why are we going back to policies that were abandoned in the late 1970s? And why is Europe ignoring all this? Where are our cheques, new roads, hospitals and schools?...’-Continue to read