Macroeconomists like to model the economy with no reference to history, institutions and culture. A good theory, according to the agenda, is one that is generally applicable to as many situations as possible; anything human is too concrete, too ad hoc and not abstract enough for this grandiose project. We had The General Theory that was immortalized into the IS-LM and later the Stochastic General Equilibrium (DSGE) model. The popularity of the IS-LM lasted long enough and the model is still a foundation of many textbooks. The DSGE model and its predecessors took the prominent position after its perceived failure in the 1970s and is still running strong in the academia.
I have been teaching economics since 2000. It has been getting more and more difficult to teach macroeconomics. A typical textbook tells the same old story: some smart people have discovered a trade-off between growth/unemployment and inflation, and some other smart people later discovered that this only happens in the short run, and once we figure out how to tame inflation we will be optimally happy ever after with reasonable real GDP growth and tolerable unemployment. I don’t mind starting with some ancient history–that’s how I feel about it, since most undergraduate students were born after 1999–but it is hard to explain why we need five or six chapters on the topic. I would like to spend more time on the sequel: the Great Moderation, the Great Recession, zero lower bound of the interest rate, secular stagnation and the death of inflation. We are lucky if the textbook manages to devote a chapter.
I met Eric in the mid-1990s when we were students at the Master of Science in Economics and Philosophy at the London School of Economics. We had a small group from different countries and backgrounds who hanged like to out and did our armchair philosophing. To me, classes are merely a gateway to a topic, and the real learning comes from after-class conversations over beer, starting at 6pm, on each weekday. Eric and his co-author Mark Blyth take a dialectic approach to their topics; this reminds me of my many conventions with the group. They are not writing a thesis on a grandiose general theory. In the era of Twitter, they know that starting a conversation and having timely impacts are far more important, and genuine. Supposedly, they chat over the Internet and used Siri or something to transcribe their dialogues into a script. I got the Kindle version on June 17, about three months since the West was getting serious against COVID-19 and less the a month since the killing of George Floyd in Minneapolis, a city I have been living for 10 years. Taking about timeliness.
There are two types of public anger, according to the authors. One is rooted from justified moral outrage against injustice: income inequality, systematic racism, to name a few. The other grew from tribalism. Sport fans and hooligans are a trivial example, nationalism and ethnic supremacy are the deadlier ones. Many movements involve both types of public anger and people in anger want to be heard. Economists who infamously coined the term rational expectation are probably the least trained to study emotion among all social scientists. This book is trying to fill the gap.
Philosophers would agree that the economy is an open social system that intervenes with culture, history and politics. Anger is not something unfamiliar to anthropologists, historians, psychologists and political scientists. Not every economist is ignorant about the role of anger. In Dialogue 4, the authors invite their economist friends from the past to the conversation: Karl, John and Mikhal. Karl pointed out that labor is not just another factor of production as our models describe. They are living creatures and they will organize to act against the market forces especially if the latter are driving towards an unfavorable equilibrium. To save the day (or capitalism) John proposed that the government could step in. The outcome would benefit workers at the cost of higher inflation and smaller profit margin. Mikhal thought this is a quick fix and did a reverse-Karl: the empire, or the capital, or the people with capital, would strike back, as it did in the 1970s and the 1980s. Economist slash political scientist Albert O. Hirschman describes market forces as exit and political movements as voice. Maybe we need to add “whisper” to describe the influence of business elites on the governments.
The authors end the main dialogues of the book with new tools to deal with the new economic environment. Dual interest rates are not entirely new. A national wealth funds based on private equity and data dividends may be more daring. These are new topics to me so I will withhold my opinions for now–I am an academic, I only write on an economic topic after two rounds of referee reports in three years. There is, however, a disconnect between this chapter from the rest of the book. In the midst of both moral outrage and tribalism, who would have the will and the power to work out some fo these ideas? The book has convinced me that no economic ideas alone would prevail without an understanding of politics and the societal backlash precisely because of these ideas. To date, neither Bernie Sanders’ MMT nor Andrew Yang’s UBI (or his version of data dividends) have made a mark significant enough to shift the platform of the party. The implementation of some of the creative ideas in the book rely trust in governments and central banks, which is currently in shortage.