Thursday, 5 June 2014
Happy (re)Birthday, Keynes
I am grateful for Prayer for the Day (about 05h43 on BBC Radio 4) for pointing our that today, 5th June, is Keynes's birthday.
For almost half a century Keynesianism has been "out of fashion" in British and American universities. I remember when the rot set in, in the early 70s when a lecturer in our Saturday morning three times a year voluntary in-service training sessions organised by our local Economics Association mentioned the new obsession with the Quantity Theory of Money coming from Chicago and dubbed its follwers the "Freedmaniacs"
Unfortunately the Keynesian levers in public policy were becoming less effective, largely through abuse - used for winning elections rather than trying to moderate the swings of the trade cycle. In Britain the Labour Government, with Denis Healey as Chancellor, was the first to abandon them in 1975 and adopt monetarism. In the universities econometrics also became fashionable, students were bombarded with fancy algebra divorced from reality, and one after another definitions of the money supply were introduced to prove that control of it was absolutely the only way to control the economy, which should otherwise be left to the magic of unbridled market forces.
Astonishingly what has been described as this "intellectual talibanism" has survived even the collapse of Lehman Brothers and the subsequent world economic crisis. Light began to dawn towards the end of 2013 when students at Manchester University (what better place for an economic revolt?) complained that their lectures never even mentioned the crash or attempted to analyse its causes, but continued to churn out the same old algorithms, divorced from reality. These studnets set up their own Post Crash Economics Society, called for an end to the prevailing monetarist hegemony and organised their own evening classes to discuss bubbles, panics and crashes.
Despite something of a stet-back in Manchester (I believe one the rebellious lecturers has not had his contract renewed, and one course introduced into the official curriculum has been discontinued) by May this year their revolution had spread to economics faculties in 19 different countries. We could be on the way back to a a subject called "political economy" which relates to other social sciences, recognises that we humans are an odd lot who do not always act according to mathematical rules, takes note of what is actually happening in the world and, when the facts change, changes the theories.
Unfortunately clever students may still be tempted to ignore this real world and try to make a fast buck using High Frequency Trading (HFT) in the City and on Wall Street