Monday, August 23, 2010
Rebooting Capitalism, Post-Keynesian Edition
"It was Joan who set me straight. Joan Robinson. Joan, who, as a young academic in Cambridge, had sat each evening at the feet of John Maynard Keynes upon his return from a day in London, to catch up on his latest thoughts and relay them to his disciples in the other colleges. Keynes himself died in 1946 and Joan in 1983, which is a pity: not least because, were he or she alive today, they would be straightening out a few other people the way Joan helped me back in 1970.
At the time I was experimenting with indicators of consumer and business confidence to see whether they could improve the ability of Wynne Godley's models of the British economy to track the data of the day. Statistically speaking, they did a creditable job, so when Joan asked what I was doing and I told her, I was nonplussed when she replied that it was "not the point".
"Confidence indicators tell you only about the present," she said, "and that is not very important." What Maynard was concerned about, she went on, was "animal spirits" – the optimism of businessmen to borrow and spend today, even though the resulting output can be offered for sale only in a future that is intrinsically unknowable."
The tiny problem with Keynesianism is summarized neatly here. It's that animal spirits are necessary for commerce, but not sufficient for prosperity.
Consider it this way. The great bubble of the noughties was caused by animal spirits unleashed to their fullest. The result, today, is austerity.
So if all you want to do is blow bubbles, and revive a brain-dead zombieconomy, then stimulating animal spirits is the way to go. But if you want to build a fundamentally better economy, well then you've got to do more.
You've got to, in short, transform animal spirits into a high purpose, into a human spirit. One that is the will to create meaningful, enduring, thick value. That's the central challenge of 21st century economics.
Excellent summation of the current situation -- the quad crashes (Dotcoms, credit, housing, then stocks again) has people overly cautious.
But I must hasten to remind you what Joan said:
“The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists.”
That remains as true as ever today