by Richard Truss
from Signs of the Times No. 44 - Jan 2012
In 1998, the Queen asked some of the assembled economists at the London conference on the banking crisis, why none of them saw it coming?
An ironic reversal of the story of the emperor who had no clothes! Of course some economists had indeed seen a crisis looming in that all good things have to come to an end, and sooner or later the debt bubble had to burst, but they were the eccentric few who still held to economics' role as the "dismal science". Most had long since moved beyond that to a far more upbeat view that capitalism was now universally acknowledged and proven as the instrument of continuous enrichment. Things could only get better.
I am not aware of their response to the Queen, but the events of the crash and ongoing crisis, have since led to a lot of questioning of the established economic orthodoxy. One of the best I know is in a new book by Tomas Sedlacek, a leading Czech economist and advisor to Vaclav Havel, "Economics of Good and Evil".
In it he revisits the sources of human wisdom - the ancient myths of Gilgamesh and the Garden of Eden, the biblical, the insights of ancient Greek philosophy, the teaching of Jesus and Christianity, and then the beginning of modern economics, with Bernard Mandeville and his Fable of the Bees, Adam Smith and of course, John Maynard Keynes among others. We only need to return to our sources and find what is needed now.
So, with the myth - myths he defines as what never happened but always are - of the Garden of Eden, the "original sin" is consumption for its own sake, not being satisfied with what one has. So the repeated "ate" sums this up. We are insatiable creatures, or so at least mainstream economics assumes, forgetting that most of our desires are artificially created, today largely through the power of advertising. So economic progress has become a self-evident unquestioned good and the GDP figures and credit ratings of nations are signs of national virility and patriotic pride. Just look at the hurt and anger in the United States at their recent credit-rating downgrade.
The institution of the Sabbath is another reminder that economic growth is not the be-all-and-end-all of worthwhile life. Work is so that we can enjoy it and its fruits, not an end in itself. This concept, Sedlacek suggests, is foreign to today's economics - "Today we only know growth for growth's sake, and if our company or country prospers, that does not mean a reason for rest but for more and higher performance. If we believe in rest at all today, it is for different reasons. It is the rest of the exhausted machine, the rest of the weak, the rest of those who can't handle the tempo." This is because economics today is all about the "How" rather that the "Why". To ask why we need to have more and more, or to ask what is real utility (or better still what is really for the best for society as a whole) risks bringing the whole system crashing down.
And what of the current debt crisis? Here Sedlacek turns to the first mention of the economic cycle in human history, and that is Joseph's interpretation of Pharaoh's dream about the seven fat and seven lean cows. Joseph's response in his new exalted post is to build barns and store the grain over against the forthcoming lean years. Just what western governments should have done, but singularly failed to do, in the good years up to 2008. The first example of Keynes' anticyclical fiscal policy.
The New Testament also has much to say about our current predicament, with its central message of the free undeserved grace of God. So we saw this echoed in the recent bank bail-outs. Huge sums were poured out on what most would see as undeserving recipients. Those who sin most are forgiven most, just like the woman in the gospel with the precious jar of ointment. The aim was of course to recapitalise the banks so it could be business as usual, but in fact what has happened should change everything. The bankers themselves are now indebted and dependent on the public largesse, which surely means that we can now see things differently and challenge many of the previously unchallengeable assumptions. One of these goes back to the father of modern economics, Adam Smith, that there is an Invisible Hand which in an almost mystic way controls economic affairs, and that this Invisible Hand will somehow always bring good from the evil and mess of selfish individuals. This latter view goes back before Smith to Bernard Mandeville's Fable of the Bees - public benefit comes from private vices. All this connects, says Sedlacek, to a form of social Darwinism, where markets select the best, i.e. the most adaptable, players and eliminate the bad ones, so that the fittest survive. And all this happens with little or no external control. So Lehman Brothers was allowed to go the wall, whilst totally against this modern economic nostrum all the other banks were bailed out.
All ways of seeing the world begin with a dream, vision or intuition, and then a leap of faith, whether the dreamer be Joseph in Egypt, Isaac Newton under his apple tree or Adam Smith and his Invisible Hand. Each dream is then reasoned upon and hardens into unquestioned orthodoxy. But then soon or later along comes an Einstein and our whole way of seeing the world changes. Perhaps now we at that point of transition in our economic world-view.
If the lesson of the present crisis is that some of the fundamental assumptions of economics are bogus or at least inadequate, then we need no longer be in thrall to them, and no longer see economists as infallible modern priests. Instead economics can resume its proper role an invaluable servant in our quest for a more fulfilled and sustainable life, taking its place alongside the other social sciences, but also with the humanities.
It was reassuring to read in Sedlacek's book that John Maynard Keynes himself looked forward to this moment -
'the day is not far off when the economic problem will take the back seat where it belongs, the arena of the heart and the head will be occupied or reoccupied by our real problems - the problems of life, of human relations, of creation, and behaviour, and religion'.