The times they are a-changin’
Ever since Brexit and then Donald Trump turned the world upside down earlier this year, economists of all stripes have been scrambling to explain the forces that have led us to this point.
Lots has been written, and there is a surprising amount of consensus — a rarity among economists. In recent weeks, there have been four interventions that have stood out. The first thing that makes them interesting is that they all convey a similar message, which is that today’s political upheaval is a result of an economic model which has brought stagnating living standards, rising inequality and growing insecurity over the past three decades. To defeat the forces of Trump and Farage, we need to break from the past and chart a fundamentally different economic course.
The second thing that makes these interventions interesting is that among the authors are a Nobel prize winning economist, the present Governor of the Bank of England and a former US Secretary of the Treasury. These are certainly not the kind of people that you would usually expect to hear condemning the prevailing economic model or, even bolder still, calling for a radical change in direction. But this is what we are witnessing.
First up, we have Joseph Stiglitz, Nobel Laureate and Professor of Economics at Columbia University. In a recent article titled ‘How the democrats can fix themselves, Stiglitz says that “the days of triangulation are toast” and calls for “fixing the financial sector; incentivizing long-term business growth; rebalancing the tax and transfer system; expanding economic security and opportunity for the middle class; and empowering workers”.
Next up is Mark Carney, Governor of the Bank of England. In a recent speech titled ‘The Spectre of Monetarism’ he talked about the need to “move towards more inclusive growth where everyone has a stake in globalisation”, “redistribute gains from trade and technology” and “turn back the tide of stateless corporations”.
Next we have Larry Summers, former US Secretary of the Treasury and current President of Harvard University. In a recent New York Times article titled ‘It’s Time for a Reset’, Summers called for an end to the race to the bottom by “establishing global minimum standards in areas like labor standards, environmental protections and capital requirements for banks” as well as “a global effort to prevent capital income from escaping taxation”.
Last up we have Mariana Mazzucato, Professor of Economics at the University of Sussex. In a recent LSE article co-authored with Michael Jacobs titled ‘The Brexit-Trump Syndrome: it’s the economics, stupid’, Mazzucato talks about the need to “adopt a much more proactive economic strategy of supporting investment-led growth, using fiscal powers, labour market regulation, public investment and ‘mission-oriented’ market creation to shape economic development.”
Taken together, these recommendations are a good starting point for moving towards an economic model that is fit for purpose for the twenty-first century. None of them are particularly new ideas, but they represent a marked shift away from the economic ideology that has dominated policy making for the past thirty years. Having been long consigned to the murky underworld of progressive think tanks and academia, the fact they are now being discussed by such prominent figures is a welcome step.
Only twelve months ago, the clarion call of central bankers, politicians and most prominent economists was about returning to business as usual*. At last, however, it seems the times they are a-changin’. Business as usual, it is now recognised, has failed great numbers of people.
The tragedy is that it’s taken a global financial crash, ten years of declining living standards and the rise of right wing populism, with all the suffering that entails, to get here. We can only hope that politicians and policymakers are listening.
*I should point out that Joseph Stiglitz and Mariana Mazzucato have long been proponents of the policies they promote in their articles. To the best of my knowledge, however, the same cannot be said of Larry Summers or Mark Carney.