Ecoblog

Here's an excellent piece of rapid debunking of Treasury rhetoric by Robert Chote, Director of the Institute for Fiscal Studies. The basic point he makes is important. The Treasury would like to write recent economic history to be as consistent as possible with the "end of boom and bust" Brown used to boast of. The official account from the budget is that "the productive potential of the economy grew by almost 3½% a year inLabour's first term and then by roughly 2¾% a year thereafter until thecrisis hit and trend growth fell to 1% a year for three years". Odd to make "trend" growth fall for just three years, isn't it?As Chote says, the alternative (and more plausible) view is that trend growth has been pretty constant at 2.6% since 1997, but that worldwide falling prices (from ex-USSR raw materials and Chinese workers) blinded policy-makers to the fact that they were running highly inflationary policy throughout the period when growth was higher than trend. So the end of "Tory boom and bust" in fact meant the arrival of Gordon's alternative: "HUGE boom, followed by HUGE bust". Over and above the intrinsic interest of the analysis, there is an important point here about the political manipulation of history. Why are public servants involved in massaging facts for political reputations? Can we have a real Parliament with the equivalent of the US's Congressional Budget Office  since we can no longer trust the Treasury to give us plain data?

James Kwak has a great post about cultural transmission between Wall Street and the Treasury. It could just as easily have been written about the City and Westminster for the UK. Krugman also has a deflating piece saying: "First, there’s no longer any reason to believe that the wizards of Wall Street actually contribute anything positive to society, let alone enough to justify those humongous paychecks.". John Kay has a similar point about the infection of public service by the banking lobby: "But the illusion was at its most influential at the highest levels of government. Investment bankers had become the most powerful political lobby in the country and there was no vestige of political support for action to restrain City excess. Light touch regulation was not just a matter of policy but a matter of pride."

Why this flurry of meta-economic pieces? It used to be the ultra-liberals from West Virginia who were preoccupied with the process by which lobbies turned policy to their advantage. When centrist economists start to blog about Bourdieu, the French structuralist Marxist sociologist, something important is happening.

I think these pieces reflect two undercurrents. The most immediate is that the bankers seem to have won. They have been bailed out, they can now grow again, and, importantly, so can their bonuses. This seems extraordinary: while we have been waiting for reform of this value-destroying sector to churn slowly out of the political process, the banks have been rebuilding their balance sheets and now claim a return to profitability.We may have a generation of high taxes to payfor the bail-out, but it seems the party is back. In disbelief, the economists are searching for tools that can analyse the causes of this scandal, and Bourdieu is a pretty good start.

The second undercurrent is the realisation from within the profession of economics that it is powerless. When push comes to shove, wonga rather than right wins. A crisis for a discipline makes it turn to others who had a better theory of the role of knowledge in society.

Gideon Rachman is the emblematic "good liberal" of my generation. He viewed the world from his office at the Economist since the late 80's and saw the unfolding of the idea of individual freedom---a sort of British, whig ideal of the Victorian era--- and reported its good progress. Since moving to the FT a couple of years ago, that view has been harder to sustain. In December '08, he became a europhilic advocate of world governmen. During the latest Gaza war, he reported the thrill of the return of history in our lives. And today, he almost writes that Thatcherism is dead.  Almost, because he feels that if the Alternative cannot supply an alternative "ism", the last hegemony holds its place.  Although I don't think that is true --- beliefs can be generally seen to have failed before a new model emerges --- he is right that the difference between 1979 and 2009 is that Thatcher used the economic crisis of the winter of discontent to launch a coherent assault on all that was wrong with the late bi-partisan Keynesianism of 1966-1976. But Gideon choses the wrong date for comparison, I think. 2009 is like 1974, not 1979. The failure of modernising Keynesianism was clear then, in its response to the oil shocks. But the inertia of old system  extended its life for another five years. During that time, the ideas of Chicagoism was turned into the politics of Thatcherism.  Expect the same sort of timetable today. Our political systems, entirely captured by the finance industry (read this De Long post, please), will have a final go at making money manager capitalism work. It will fail just as the reflation of '74-5 failed. The game-changing election to prepare for is 2015.

Cannon Dr Alan Billings in the homily slot on the BBC's morning news program suggests that crumbling banks and crumbling buildings are a good moment to hand trust over to God. For Voltaire, these were moments to retract that trust. More positively, for Rousseau, they are moments to understand that we are not a passive audience in the face of destruction.

What if nationalisation is here to stay?

When the diplomats get blogging, the bloggers get diplomatic ...

It's the banks cleaning up, not the government

The government is being rolled in flour by the banking lobby. It is painful to watch and should stop.

Dixit and Nalebuff's "Game Theory - a guide to success in business and life" offers a glimpse into what went wrong with economics. Jovial economics is a genre that will come seem very pre-crunch. 

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