The second volume of Robert Skidelsky’s monumental three-volume intellectual biography of John Maynard Keynes, covering the period 1920 to 1937, was titled The Economist as Saviour. Keynes had not only saved Britain, capitalism and the global economic order as it then existed, but he had also saved economics, as a discipline. The trans-Atlantic financial crisis, the Great Recession and the continuing economic turmoil in the West have rubbished the reputation of economists and economics. Today, an economist is seen less as a saviour, and more as an undertaker!
Reminding us of the continuing relevance of the wisdom of Keynes for this post-Keynesian world, and why, 60 years after his death, Keynes is still the “most important economic thinker in the world”, his devoted biographer Skidelsky has written a new book Keynes: The Return of the Master (Allen Lane/ Penguin, 2009).
“Any great failure should force us to rethink fundamental ideas,” says Skidelsky, adding, “the present economic crisis is a great failure of the market system.” It is not just a crisis of economies but a crisis of economics, so it is not just the world economy but the discipline of economics that needs saviours.
To facilitate precisely that, and that too in Keynes’ own home base of Cambridge, England, last week Skidelsky joined billionaire George Soros to help run an Institute for New Economic Thinking (INET). Mr Soros has been a relentless critic of the ideas that contributed to the Great Recession, and has put his money where his mouth is, contributing $50 million to set up the institute (www.ineteconomics.org).
Both Skidelsky and Soros believe in Keynes’ famous view that “the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas.”
Taking Keynes’ dictum forward, Soros and friends are investing in the creation of “new ideas” to restore legitimacy to the discipline of economics. INET’s mission statement is: “To create an environment nourished by open discourse and critical thinking where the next generation of scholars has the support to go beyond our prevailing economic paradigms and advance the culture of change.”
As Skidelsky says in his new book, a la Thomas Kuhn (Structure of Scientific Revolutions), “Ptolemaic astronomy was overthrown by the Copernican revolution. Newton’s physics by Einstein’s revolution, and so on. A similar accumulation of anomalies has occurred within the New Classical macroeconomics paradigm, of which the present crisis is the latest, and most egregious, example. The time is ripe for a new ‘paradigm shift’, which needs to build on Keynes’ original insight into the nature of behaviour under conditions of uncertainty.” (p.114)
Mr Soros and his colleague from Soros Fund Management Robert Johnson have roped in a galaxy of economic thinkers from around the world for INET’s advisory board that includes two Indian economists — Amartya Sen and Y Venugopal Reddy — the scholar and the practitioner. The group also includes George Akerlof, Axel Leijonhufvud, Josepth Stiglitz, Kenneth Rogoff and China’s Yu Yongding.
INET’s Johnson was in New Delhi last week, before rushing off to Zurich to join Mr Soros for a meeting with Dominique Strauss-Kahn, managing director of the International Monetary Fund, to talk about Greece and Europe’s economic crisis. Constantly interacting with the real world, says Mr Johnson, gives them a ground-level view of high economics and helps INET deliver on its mission statement. Mr Johnson hopes to create a network of thinking economists in India who are willing to take a second look at their discipline and help its renewal. What the world needs is not just a “new economic architecture” but “new economics”, he says.
At an INET conference last month in Cambridge (UK), Mr Soros renewed his battle against rational expectations theory and new classical economics. “Economic theory has modelled itself on theoretical physics,” complained Mr Soros. “It has sought to establish timelessly valid laws that govern economic behaviour and can be used reversibly both to explain and to predict events. But instead of seeking laws capable of being falsified through testing, economics has increasingly turned itself into an axiomatic discipline consisting of assumptions and mathematical deductions — similar to Euclidean geometry.”
Staging intellectual revolutions is easier said than done and we can only hope that Mr Soros, Mr Johnson and the INET initiative will succeed in launching initiatives around the world for the paradigm shift in economics and the teaching of it that we need. This new thinking is needed not just in mainstream economics but in applied areas like finance, accounting and management. Disciplines with little discipline!
It is not clear how many centres of teaching of economics and finance in India offer their students a new perspective on their discipline and how many are questioning the basics. How many have studied the experience of the past two years and incorporated lessons learnt into their course syllabi and teaching?
Changing modes of thinking is, of course, not the same as changing course content. But a good place to start would be to return to the teaching of classics. Getting every student of economics to read Keynes in the original may not be a bad idea at all. Reading Skidelsky’s new book would be a good place to start.
The website of the Institute for New Economic Thinking is www.ineteconomics.org
