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Conference like its 1999

September 28th, 2010

A long time ago, I read an article whose author had read through all the leading economics journals from the 1930s. The striking finding was that only a tiny proportion of the articles published in those years concerned the Depression and what to do about it. This struck me as a disastrous state of affairs, and has been one factor in pushing me to comment on the important issues of the day, rather than to a narrow specialisation.

But, having attended the Australian Conference of Economists for the last couple of days, I have to say that a future historian of economic thought will be able to rewrite much the same article about the current crisis. Only a handful of papers presented at the conference have dealt with the crisis, even indirectly, and most of those have concluded that we only need marginal adjustments to our current way of doing things.

The opening plenary session, for example, was on inflation targeting and the main message was that, all things considered, inflation targeting worked pretty well in the Global Financial Crisis. Some tweaks might be needed in the future, but then again they might not. This was the same conclusion as at the Reserve Bank 60th Anniversary meeting earlier this year, and I find it pretty hard to believe.

About the best I can say is that, against this background, my Zombie Economics book stands out.

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  1. Alice
    September 29th, 2010 at 06:57 | #1

    Funny title for this thread but its apt. very disappointing to hear there was a distinct lack of focus on the GFC. Has macro turned inward and become microscopic in its focus and its solutions?

  2. conrad
    September 29th, 2010 at 07:12 | #2

    I guess that’s not surprising. Like every other field, most people are going to keep on doing what they are good at (or perhaps used to) even if something new pops up. This isn’t surprising, because people have to fulfill grants and write papers, the first of which you almost have to do above other stuff and the second of which is no doubt easier to do on stuff you already know. Perhaps you are luckier to have more time as a full time research person than others.

    I can’t vouch for economics, but I guess the other problem is that most of the best journals take more theoretical and mathematical stuff, and it’s hard to apply that sort of stuff to some problems quickly, even if the journals would take it — indeed, I imagine it’s hard enough just to collate and collect the data sets that you would need in support of your arguments in many cases.

  3. Chris Warren
    September 29th, 2010 at 09:43 | #3

    Like university history and politics, university and establishment economics generally stay within “acceptable” bounds.

    University history and politics are generally locked into the Western paradigm where European colonists developed the world for the good of all, and university economics generally believes that capitalist recessions are avoidable through manipulating economic levers.

    So when they get to $1,000 conferences they all sing the old tunes.

    Again, and again, and again ….

  4. Liz Ferrier
    September 29th, 2010 at 10:03 | #4

    @conrad
    yes this is a good point. This inflexibility and apolitical stance is hard wired into university research through the current system of incentives and rewards. Even when funded research does come up with findings of great relevance to our current social problems (say the opening plenary session showed agreement that inflation targeting had not served us well in preventing or addressing the GFC) I can’t think of any funding schemes or top tier journals interested in follow up research (or second order research that applies the findings) – rather new research projects are preferred. Perhaps the current emphasis on research ‘quality’ and ‘innovation’, works against intellectual engagement with the most urgent issues of the day.

  5. Uncle Milton
    September 29th, 2010 at 10:23 | #5

    @conrad

    This is a poor excuse. At the American Economic Association conference held last January, there were papers on the impact of fiscal policy (in the context of the recession), banking and the financial crisis, and the mortgage market and the financial crisis.

    The reasons for lack of interest among Australian academic economists in the crisis are: not many of them do macro; few of those who do have any interest in policy matters; and fewer still have any interest in changing the paradigms of a lifetime.

    Or, as the old joke has it, “How many economists does it take to change a light bulb?” “None, because they all go by the light they went by in graduate school”.

  6. September 29th, 2010 at 11:39 | #6

    I did a similar reading exercise on past issues of the Economic Record. I read a lot of issues from the 1940s-1960s. I got a good impression. I was struck with the quality of the articles and their relevance. I was impressed with the readability of the journal and the interesting policy-relevant discussions. Maybe it was a matter of researchers picking ‘low hanging research fruit’ but the early papers of Max Corden, Murray Kemp and Nuggett Coombs were far more interesting to me than the sort of research that is produced these days.

    Much (not even close to all) economic research in Australia today is a scramble to secure promotion. Papers need to have a technical emphasis to display the skills of the presenter and often to focus on a insignificant issue that noone else has looked at to show originality – most of the research in the finance area is just a sleep-inducing, econometric abyss. Generally there seems to be a lot of empirical work but not much thinking. The imperatives to secure promotion on the basis of applying standardised techniques to various problems distorts research priorities. I notice some students who approach me seeking a research topic start with a technique they wish to apply and are scouting for a problem.

    Those doing quality applied work that does involve real thinking and using 100% of their brains rather than a formulaic technique – or simply addressing real issues – find themselves fairly alone and often drift off into consulting where distortions are of a different type.

    One issue seems to be lack of confidence in their discipline. Many economists don’t want to get involved in applied work because they lack confidence in what they are taught or teach. They would prefer to be irrelevant because no-one will put their thinking to the test.

    I recall that in the aftermath of the 1987 stock market crash that I asked a leading macroeconomist what he thought the macroeconomic implications of the crash would be. He looked dreamily around the room and remarked that when he finished his current blah, blah, blah research he would get around to thinking about it. Maybe this was sensible caution but I was astonished at his lack of interest in a major macroeconomic event.

  7. Donald Oats
    September 29th, 2010 at 18:01 | #7

    It is odd. Einstein gave advice to the president, via letter, concerning the prospect of a German bomb (ie nuclear), and what needed to be done about it in the USA. Policy advice of the most incredible and serious kind! And a scientist, a physicist to boot!

    Surely a few economists are capable of breaking with tradition and taking a risk…considering how a single lever like interest rates might not be able to keep the ship smoothly sailing when the seas are rough.

  8. jquiggin
    September 29th, 2010 at 19:03 | #8

    I agree with much of what Conrad, hc and others have written. The absence of work on the crisis can be explained, but not excused. The US profession is a bit better, but still I think a lot more needs to be done.

  9. James Haughton
    September 30th, 2010 at 11:23 | #9

    Perhaps you should have promoted reform of the profession by showing up with a shotgun and chainsaw and going for the brain-destroying head shots. “Alright you primitive screwheads, listen up!”

  10. September 30th, 2010 at 15:30 | #10

    Pr Q said:

    About the best I can say is that, against this background, my Zombie Economics book stands out.

    I started to lose respect for formal economics in the early nineties when it seemed unwilling or unable to deal with the most signficant changes confronting the post-Cold War global economic system: the financialisation of the OECD and the industrial statism of NE Asia. Come to think of it, economics does not really have much of a handle on the other mega-event: the digitalisation of industry.

    None of which mega-trends fitted at all well into the prevailing neo-liberal Harvard MBA mind-set. This model is built to deal with the economics of market tradeable goods. Nothing wrong with that as far as it goes. But we have very much “been there and done that” to death.

    Since the mid-eighties the Big Money action has been the macro-economics of the financial world. Since the early nineties fall out from the S &L scandals and entrepreneur rorts I have been obsessed with “financialisation”. In fact I was the first person in the blogosphere to use the expression “financialisation”, way back in 2003.

    About this time Leavitt started to get the rock-star treatment. And his fame only got larger even after his headline theory got shredded by Steve Sailer.

    A crisis is as much a story as theory. Its worth noting that the best treatments of the financialisation of industry has come from journalists, Michael Lewis & Matt Taibbi and Steve Sailer.

    The best economist treatment of the GFC has come from economists who also moonlight as journalists or bloggers: Nourbini, Krugman and the esteemed host of this blog. And lets not forget artists like Oliver Stone, Tom Wolfe and Brett Easton Ellis have all added the necessary color to this somewhat arcane picture. Their depictions have not been flattering.

    If you want a serious theoretical treatment of the way finance interacts with economics you have to go back to Keynes and Minsky, spiced up with a bit of Tobin and Samuelson. But neo-classical economics does not have a very good handle on financialisation, mainly because it treats all economic transactions as equal, whether they are socially useful or not.

    As in so many other areas one is forced to go “back to the classics” My own guide has been Hilferding. “I am not a Marxist” but it it striking how Marx foresaw capitalisms tendency to replace industrial utility (use value) with financial profitability (exchange value) as the measure of all economic things. And, just as Marx predicted, this process is causing a colossal polarisation of the distribution of wealth, see Krugman on the Great Divergence. And this polarisation has been correlated with a tendency for capitalism to self destruct (GFC).

    Truly, the financial bourgeoisie are turning into capitalisms grave diggers.

  11. Alice
    September 30th, 2010 at 19:56 | #11

    @Jack Strocchi
    Agree Strocchi. Quite an insightful comment but why is it you dont sound like the same Strocchi to me???.
    It is causing a colossal polarisation of wealth.

  12. Alice
    October 1st, 2010 at 09:55 | #12

    Well while economists conference like its 1999 and governments think like its 1999 – the crisis is making people take to the streets in europe like its 1848 – only its not the monarchy that has them angry – its the banks and the now austerity measures and the IMF post crisis.

    And do we blame them? I dont. Id be out there with them.

    AT least one nation has thrown the EU and the IMF out the door and looks set to not pay its debts. It is time the financial oligarchies are broken down and brought to heel, and the colossal polarisation of wealth repaired lest the people do it for those in policy making decision processes who dont have the stomach for it.

    The micro nature of modern macro does not help. It hinders us all to have economists with no courage for the big issues, with no courage to speak out, who subjugate their intelligence to mindless petty problems and intricacies deep inside a statisical programme writing in a language only their haughty cohorts can understand – perhaps even specialising in out how banks can make even more money from the rest of us. It really is completely exasperating when the big picture just sails straight past them unnoticed.

  13. Sam
    October 1st, 2010 at 13:13 | #13

    At the moment I’d be happy if policy makers just implemented the prescriptions that existing orthodox macro policy already gives. What’s the point in more research if no one important acts on the findings?

  14. Nick R
    October 1st, 2010 at 14:06 | #14

    Good call Sam

  15. pablo
    October 1st, 2010 at 17:34 | #15

    The only economists punters regularly see on tv are those that work for banks. You get the impression they are on a reasonably long leash from their bosses, just so long as the bank logo is clearly visible. Most seem only invited aboard to talk the likelihood or otherwise of an RBA interest rate rise. Ask yourself, since joining the Grattan Institute, have you seen much of Saul Eastlake, ex-Westpac economist? I’m scratching but outside of Ross Gittins, Steve Keen, Frank Stillwell, Warwick McKibbon and JQ where are they?

  16. Alice
    October 1st, 2010 at 18:05 | #16

    @pablo
    Exactly Pablo – invited to talk about the possibility of an interest rate rise – yet across Europe we are seeing the most savage plans to cut assistance to the poor and the most defenceless in order to save the banks.

    Is this not the same miserable policy that proliferated in the great depression and deepened and widened it. Where are the Keynesian solutions to the GFC?. One short sharp stimulus to save the godforsaken financial institutions and a pittance to social programs relatively. Once the banks were saved they are now dictating austerity measures to be imposed on the poor and the middle classes across the globe.
    We would have been better off letting the wretched banks fail that they rob the poorest of social benefits to save theirb damn lending and toxic debts. If it was 1890 the banks wouldnt even be around now dictating how governments should be running their budgets. And that bastard Lloyd Blankfein is now threatening the British government not to impose Basel 111 regulations on his company or they will pack up and go elsewhere where there is no regulation.

    They should have let Goldman fail.

    We havent learnt a damn thing.

  17. Alice
    October 1st, 2010 at 19:59 | #17

    @pablo
    Pablo – they are noticeable for their absolute silence on the GFC.

  18. Alice
    October 3rd, 2010 at 07:16 | #18

    The Sunday Telegraph has a font page heading “Party like its 1979″. Im sure they only just thought of that…after looking here.

  19. Kim Weatherall
    October 6th, 2010 at 11:05 | #19

    Interesting John – a couple of my law colleagues have been making exactly the same point about the legal academy. We have a whole lot of regulatory scholars in the law field – and the GFC certainly looks like a big regulatory failure – and yet we’re not seeing much legal engagement with it either.

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