Mark Blyth for Age of Economics - Full interview

the sort of the old standard school that we've been criticized in a structural reform Supply site dominance monetary dominance everything that we've grown up with that is changing and it's changing because the world has changed and it's also changing because economists have changed and they're beginning to realize the limitations of looking at the world in this way we don't live in that world anymore and in a sense our economics has got to change and catch up with the world that we live in and the world that we're going to have to live in going forward capitalism is what capitalism is but the form that we've been using has hit the buffers what we now need to do is get off a kind of a linear process model into a much more circular model and then work at different scales of deployment of firms Industries households to make that work and become more sustainable and until we get to the point of having Star Trek matter replicators where literally there are no more resource constraints then we will have market exchange and we will have price mechanisms Etc it's going to be very different once we really grapple with the green transition and hopefully get to the other side and hopefully that happens in my lifetime and I get to see it because the news is about stuff it's about people right people and politics and sports games and whatever right and then 10 minutes after if a commercial break comes back and it's the economy right as if it was an entirely separate sphere of the world right so if you get up in the morning it's like well I'm until one o'clock I'm going to be dealing with the polity and family from too on we can do the economy right and that kind of weird sort of bifurcation the economics also encourages us to make to think about it in the world in that way [Music] okay why does economics economics matters because it's the only social science that manages to do two things the first thing is to explain the world so does anthropology so does political science right what's so special about economics economics is also a thing in the world economic knowledge is not just endogenous it's causal if markets believe certain things to be true they will make allocation decisions which affect the world this is what Donald McKenzie the economic sociologist referred to quoting a line from Milton Friedman that Financial Theory and it's not just Financial Theory economic theory in general is an engine not a camera it's something that is powering the world in a certain direction rather than simply passively recording it so it's a way to explain Market relationships it's a way to talk about certain sort of causal Dynamics in the world but what it also does is it sets off this boundary between the world Politics the social the family Etc and then draws this rather bright line on this thing called the economy the world of market exchange and then also uses a set of technical asset of mathematical and other statistical techniques to describe that world in a sense bring it into being and that is what we react to in terms of politics if you will the political economy now nobody else gets to do this right that's what makes it very powerful and the last thing that economics does is it's a language of power if you get to dictate what is efficient and what is inefficient if you get to say what is optimal I mean think about the whole language of constrained optimization this is an Optima this is an equilibrium clearly that's a good thing you don't want to be out of equilibrium right then you're in a very interesting position politically because again you're able to set boundaries on what we can and cannot try in the world and I'll give you a very simple example of this the way that we mean thinking and modeling the economy for the past 30 years with the vertical Phillips curve and a natural rate of unemployment and all that sort of stuff means that wage militancy attempts by workers to bargain for and improve their law simply can't work right it will simply disappear in the form of inflation or higher unemployment and Yeah we actually look at the world now and we know that that curve is completely horizontal or at least highly skewed you can have any amount of unemployment you want it are pretty much constant rate of inflation in fact we haven't seen inflation in anywhere significant from the way we usually think about it for 30 years and what we found in the United States for example is that over the past three to four years you can raise wages at the bottom and it doesn't result in inflation so that means that that's wrong now that's important because what you're saying is you can't try that you shouldn't try that it will end badly and then when it happens you go oh well it seems to work out okay that that's politics not just economics foreign if only that distinction were as clear as we would like it to be there is the question to what extent economic knowledge is the science with the capital S to me scient relies upon constants and really sort of doesn't try and model social entropic systems highly complex open with non-linear Dynamics as engineering equilibrium which is essentially what economics does and that's part of the reason it kind of gets into trouble it's not fit for purpose for the system it's examining hence the calls that various people are making for a new new models and new ways of thinking about economics now do policy makers really do engineering well they'd love to think so but I'm not sure that they do either the ability to look up different policy interventions to cure social problem X and look at the requisite RTC score and say that's the one I think that's hubris I don't think that that's really Engineering in that sense so I would sort of question if you will those two starting points on this one and I'd add another one to it which I think is important what matters less are the formal models that we work with and more the folk models that are in people's heads that's what politicians ultimately have and that's what they respond to and I'll give you a couple examples of this back in 2014 the bank of England did a quarterly report on how money is made money Creation in the economy and they basically said yeah it's endogenous money the loanable funds theories is pretty much crap really Banks get banking licenses so they can get insurance most of the money in circulation is in the form of credit and they pretty much got it backwards now this is hugely consequential as I mentioned because it means that things you get taught in economics like crowding out and all the rest of it are probably deeply flawed so it matters that politicians know this right so well of course they gave that report to all the people in the House of Commons and then a couple of years later someone went along and kind of popped quizzed them and said how is money made in like well Grandma goes and puts her money in the bank and then that's loaned out to a firm so you didn't break the folk model right you can have all the kind of technical knowledge you want you can have that debate inside the academy and inside policy making circles but you've got to be able to actually hit the folk models that are in the heads of policy makers and in the heads of people out in the world right if at the end of the I'll give you another example of this um mmt theorists love to say that well if there's a public sector deficit that means there's a private sector Surplus so that means that's good because then private sector will pay more well yeah but causal identity accounting identities are not causal identities if you go to Germany for example German economists love to point out that the 1979 and 1981 economic advisors report pointed out that when there was a large budget deficit in Germany the public like saved more rather than spent more what matters is the behavioral response and what is it that's priming and behavioral response it's the folk models in your head not the formal models that we write down so I think that those relationships are much more contested and need to be more contested than they actually are it can do absolutely I mean I'm not saying that this is sort of some set of you know bogus math foisted upon the world it can be incredibly useful and incredible Illuminating I wouldn't waste my time in large chunks of my life thinking about it and writing about it if I didn't think that was the case but you know there's the way that we think about it can also have deleterious effects so let's go back to the oecd 1984 jobs report which made the case for flexibility in labor markets when you read that now it's a very interesting document because at a time when we're concerned with the fragility of Labor markets the costs that have been thrown onto workers the lack of compensation mechanisms and insurance mechanisms we talk about precarity all these sorts of things none of that is imaginable in that world where basically allowing markets to be more liquid allowing the labor markets to be more flexible but there's no people in that report there's no question as to what will these policy forms due to single mothers trying to get to work right and I think what's happened and partly this is the past 15 years of the turn towards kind of empirical micro and the way that sort of macroeconomics is reconfigured itself after the Great Recession uh and also a generational shift in what economics is interested in an economist they're interested in general I don't think that report could be written now I think that what we're writing now is when when piketti first started doing his work the kind of the mainstream old God was like oh we don't do this that's nonsense you don't have to think about distribution I can't imagine an economist actually coming out now and saying you don't have to think about distribution right so I think that there's been a shift in orientation and that then leads us into you know well where should economics be applied and I I if one thing is clear it's in the economics of the climate crisis but there's been a great deal of consternation on Twitter and elsewhere about whether the economics we're using is actually adequate I remember as an oecd meeting and someone pointed out that if you basically run the models backwards on the estimates of economic losses from climate change using the standard models then essentially if you go back to the ice age when New York City was under several hundred meters of ice you should only get be losing four percent of GDP right so clearly that's that's wrong and that type of thinking can do harm but if we're aware of those limitations if we're sensitive of those limitations then it can be applied in ways that are incredibly helpful to society going forward we have to do a green transition every country has to do we have to do it as a planet the cost of this are huge but what's even more important is how you get there and that's going to require enormous amounts of if I may bribery to the most vulnerable and most affected groups to basically wean them off of carbon how do you do that well partly it's politics but partly it's economics and partly it's thinking about how do we do this in the best most Equitable way that's a question of justice but it's also a question of efficiency in economics yeah the the environment workers you referred to was by Steve Keane looking that's right it was Steve you're right absolutely it was it was a great presentation very very disturbing yeah and uh criticizing nordhaus William nordhaus the uh yes Nobel prize-winning Economist um but I did want to ask one follow-up you mentioned the the 1984 report and how things have changed but structural reforms are still essentially the the centerpiece of economic policy and the advice is still about flexibility and competition what's your assessment on that today do you think um it's changed to reflect these realities and how the discipline has changed or is there still a sense that if we get the structure of policy settings right the market will self-organize and so therefore it hasn't changed that much in terms of what the fundamental advice is I think that you're still right but it will become less right over time I think that there's a shift away from the kind of standard sort of three equation new Keynesian model where the supply side determines everything I think that people are once again thinking about demand as its own thing and the importance of demand and rethinking a lot of the fundamental architecture to do with trade-offs between unemployment inflation Etc that are built into those supply side models which lead you then to say structural reform is what you need to do now the thing about it is it's not as a structural reform is meaningless right I mean Italy hasn't grown in 20 years is it all because of structural reform no if you look at the structural reform indices during the 1990s and in the early 2000s Italy was one of the best performers so clearly that's not the only thing holding them back being impossibly the wrong currency and then being having a very old society that doesn't generate a lot of domestic demand when that's what the growth model demands that's probably it and I think there's a beginning to be a realization of this I saw something very interesting the other week and it was a research publication from one of the hedge funds and is there a good Bellwether for like how people in the mainstream think about economics call them the economic users the customers in a sense and it was a very interesting piece because what they said was if we all accept now interestingly said this the there's no such thing as a good recession right it's not therapeutic it doesn't clean out the system you never get back to where you were before and the IMF basically crunched the numbers on all the recessions they could find and they basically proved this but what they also showed was that countries that did have good structural reforms right the ones that had more flexibility better buffers Etc and it depends on what you mean by structural reform right in many ways Denmark is a wonderful example of structural reform but that's not what's usually in the folk model of structural reform uh but nonetheless the countries that have actually got you know good structural policies tend to do better coming out of recessions I totally accept that I think that's probably true right if you have a crappy slurrotic cartilized labor market this resistant to change and you have a recession it'll probably be harder to get out than one that allocates labor a bit more efficiently I've got no problem with that is that the answer to everything is that what we do in policy I think that's part of the problem that we've been facing up to for the past decade or so and I think that the wheels are beginning to turn on now yeah it's also very related to this issue which is everybody talks about right now which is resilience and um it's very clear that if you talk to um economists who believe very much in structural they'll argue that basically the more flexible things are the more you'll be able to absorb a shock so more structural form means more resilience whereas if you come at it from more in engineering Natural Science point of view then the more efficient you try to make these markets the problem you create for resilience so there's very different perspectives it's really hard to reconcile them as we move forward and there's still a lot of talk by the way on the cleansing effect of uh recessions and that the zombie firms will go out of business and um you know this is a good thing but uh yeah yeah on Nazi on that one though I think this is slightly different um the real example of the cleansing recession one is the expansionary fiscal contraction right and I just do not see that one coming back anytime soon after the disaster that was the European and British experiments with this so that one's gone now you know to us to the latter one you know are we basically holding up sectors which are never going to come back um maybe is it actually the case that the the American solution of given expanded unemployment benefits may actually be better in the long run for getting out of a recession than putting everything in multiples for a year and a half maybe I'll I'm even willing to go probably on us like I say it's not as if you know structure doesn't matter it deeply matters but I think we have to recognize that it's not the thing that matters and I think that's where the essence where the waiting is changing shall we say I'll propose what I said earlier it can do and I think the economics more and more is beginning to focus on these things um but let's take a couple of them for example right so let's talk about the contrast between the old and the new on this for a very long time the go-to answer from the entire profession on climate change was carbon tax carbon tax carbon tax and as a sort of a technical solution a sort of pigovian tax on this would yeah it totally makes sense get it great wonderful why hasn't happened then well and then basically everyone gets embarrassed and walks out of the room and the reason is politics because for it to actually matter it would have to be levied in such a way it would make those sectors extinct now in a way that's kind of what has to happen and it's a very blunt weapon for doing that there are other ways of getting there but the fact that we don't think of it that way we think of it as some kind something akin to basically a vat tax or a syntax or maybe some kind of of pollution talks it's just completely inadequate for the task at hand unfortunately because if that's your main policy till you're going to have to do at such a level that it just basically destroys the thing you're trying to regulate and then basically economics that doesn't have an answer right just doesn't have an answer well other economics and other economists do have answers to that which is basically things like hey we seem to be in this environment that Sebastian Malibu recently called Magic Money land because people are willing to lend us trillions of dollars of States at a negative real rate which we can lock in for 20 years why don't we just use that and just decarbonize Society through massive Investments yeah well that's still an economic argument right so basically it depends the sort of the old standard school that we've been criticized in a structural reform supply side dominance monetary dominance everything that we've grown up with that is changing and it's changing because the world is changing it's also changing because economists have changed and they're beginning to realize the limitations of looking at the world in this way we don't live in that world anymore and in a sense our economics we've got to change and catch up with the world that we live in and the world that we're going to have to live in going forward can it work with race and class yes absolutely a condom and if you think about um's book The Color of Money um just a brilliant sort of you know expose of the systematic exclusion of African-Americans from Finance in the United States it's an economic argument right and and good economic arguments that point out not just injustices kind of blind spots in our logic are incredibly important weapons in the Arsenal of Reform and stability so again I think that economics can do a fantastic job whether it has done a fantastic job is a different question [Music] oh this is great this is the taleb one the skin in the game right should you have skin and again so here's an interesting here's a I was thinking about this just a while ago because the skin in the game question for economists is the same one that was asked around 2008 in 2009 with credit rating agencies so in order to get listed you need to have a CRA say that you're okay so they issue a report on you and give you a rating and then when it turns out you're rating complete junk and the world blows up you should be liable for it right no it was just an opinion right and I think that basically economics and economists have exactly the same thing going on so if you think about the effect of the late Alberto alicina on economic cut decisions at the European uh commission and other areas around 2010 with the expansionary austerity argument well that basically caused the Lost decade of growth in Europe arguably it led to the impoverishment of hundreds of thousands of people in southern Europe lives in businesses were destroyed because they tried something which was prima facie logical and actually when you thought about it for five minutes just more than a wee bit Daft and it blew up in their face now should he be partially responsible for that that's an interesting question I don't know how to call that one if you did what you're doing is you're presuming a degree of scientific exactitude and economics which simply isn't there and I think it would be unreasonable to expect that but then by the same token if they want that protection if you want that liability protection economies should be a lot more careful about what they propose right you can't have it both ways if you don't believe that you have the scientific exactitude to make exact point predictions that when they go wrong you're willing to have skin in the game for then don't say that you actually are this master science that has it all figured out right and so that's basically what to press on there foreign that's like the question of what do we mean by value right if you ever want to confuse a Marxist just basically sitting down set about him or her down and say tell me about value and then come back two weeks later they'll still be they'll still be talking um as to what capitalism is so one way to think about capitalism is the way that Carl pollyani the Hungarian historian and uh kind of economists from the um 19th century in the mid 20th century thought about it which was the commodification of everything the creation of everything for um sale value rather than use value and the rise of one big Market that is completely interconnected so that's one way of thinking about it the updated version of that is probably Bronco milanovic's book on capitalism so it is the only the only game in town and I used to spend a lot of time thinking about what this thing was and then I just finally realized that I didn't need to right so here's how I think about it the following is absolutely true markets and market exchange and very complex Market societies have existed for thousands of years the Romans had mortgage markets right the French at the time of the Revolution and the the era of paper money had derivatives right Floyd around so we can be quite sophisticated in this and you know user value versus exchange value and all that I'm not sure that they really work as Concepts um our markets prevalent yeah are they useful yes do people use them yes um are they great ways of passing information around and all the rest of it yes absolutely and the form that we have now is one that works on a kind of linear process and here's what I mean by this you have X you want to turn it into y you may or may not add value in the process and then you end up with a ton of waste and not kind of linear version of capitalism in markets has been powering us for about 200 years I think that that's coming to its end and in fact given the need for a green transition it is coming to its end so in opposition to the sort of the Bronco view of the world you have the key role model view of the world is the donor now I like that as a metaphor but in terms of the practicalities of building the donut Bronco had a couple of nice tweets on this where he just did back of the envelope calculations and said if you want to bring up the bottom to even halfway up the oecd you basically have to take half of the oecd's wealth and give it to the bottom this would be the largest redistribution project in human history it's just never going to happen but I'm not sure you have to think about it that way I think we can think of a different form of capitalism one people who talk about which is related to the donut stuff but it's different the circular economy the whole idea of treating waste no longer is waste of thinking about these as closed loop systems of going to flows rather than linear processes and the fact that you have things like large mining companies around the world for example thinking about just stopping mining because the grades are so low now and the technology is better that they can go back and mine all the waste that they dug out the ground right so you can go there rather than go further down shows that there's a way in which we can get much better at this like no one's really ever cracked recycling if you do right and you think about plastic recycling through bacteria or the rest of it right then the gains you can get in this are enormous and then you can do these scale tricks whereby you could have closed loop systems interacting at different levels which is much much more of a kind of complex systems natural systems biological systems way of thinking about capitalism and modeling and doing it rather than the kind of 19th century equilibrium engineering approach which I think has really reached the end of its tether so long-winded answer to say essentially in capitalism capitalism is what capitalism is but the form that we've been using has hit the buffers what we now need to do is get off a kind of a linear process model into a much more circular model and then work at different scales of deployment of firms Industries at households to make that work and become more sustainable and that's part of what we'll have going forward now if we crack this we will still have capitalism because I will have stuff and you will sell stuff and we will exchange three markets but it'll be a very different one and that's what's important yeah I mean I would just go back to where we left it off before I don't think it can survive in its current form because it's essentially it's a kind of a linear process monster that uses tremendous amounts of energy badly to create enormous amounts of waste that we can't deal with and we need to basically get to a much more closed-loop circular form of capitalism operating at different scales with multiple levels of redundancy and that can be done so I think you know that's it but here's the weird thing let's go back and think about capitalism as a Thing If you Define capitalism as voluntary interaction through a price mechanism in order to exchange goods and services then we've always had capitalism right the Roman Empire was capitalist no but that's that's a crazy thing to say because ninety percent of the work was done by slaves right so if a 90 of societies Society was run by slaves is also capitalist and we're also capitalists then the word becomes meaningless so in a sense you can sort of elevate it up and say well we've always had markets we've always market exchange we've always been capitalist and and I think that's kind of right but at the same time when you think about concrete historical social formations where markets have been employed Pace the Roman Empire etc etc then they're massively different and surely the fact that 90 of production was done by slaves Mars more than the fact that they had a mortgage market for very rich Romans so again the devil is in the details here if we Define it in that broad way it lasts as long as we lost because market exchange is really really efficient and until we get to the point of having Star Trek matter replicators where literally there are no more resource constraints then we will have market exchange and we will have price mechanisms Etc it's going to be very different once we really grapple with the green transition and hopefully get to the other side and hopefully that happens in my lifetime and I get to see it but uh it will you know to quote Star Trek again it's capitalism Jim just not as we know it so it's a very interesting it's a very interesting question because in a sense if you go without broad definition of capitalism does it serve the needs of humanity well the fact that we've got about 7.2 billion people on the planet the if you look at Broncos work on a global inequality while the Midwest and the north of England have been slashed Asia has grown more than it's grown in a hundred years etc etc there's lots of stuff there that seems to be working but again it's working against limits and it basically is unsustainable and it can't go on that way so does it serve those needs I think on a short term basis the efficient allocation of goods and services through a price mechanism using some form of money that is reasonably well accepted if not guaranteed it's a pretty reasonable way of organizing stuff is it the the Zenith of human civilization is it sort of like you know as Hayek would have it that basically there's a line beginning with tacitus running through the Middle Ages and ending with the British Empire and the rise of Sterling before it all goes wrong with socialism in I don't think that's really a sustainable claim um alongside these markets there are always States and States come in lots of different flavors so Chinese communism which was a phrase that we thought we'd forgotten and told you reminded us no we are actually Communists we're quite serious about this and that's one um Russian petrol crypto capitalism is another one uh American we don't really give a damn about anybody else any really care about inequality and we might not even care about climate change is another one and there are lots of different formations out there they're the things that matter most impacting people's lives not the fact that all of those countries use markets so I think we need to dial back the sort of like Center of civilization as the rise of Market society and think about the sort of real States and social formations and social movements Etc the is the world that we live in there isn't the economic right because that's what people react to that's where they live that's what's important I used to say to my students years ago if you think about it there used to be the show on CNN probably still there called headline news and at 10 minutes of the hour you tend to the start of the hour and then for 10 minutes you get the news and the news is about stuff it's about people right people and politics and sports games and whatever right and then 10 minutes after if a commercial break comes back into the economy right as if it was an entirely separate sphere of the world right so if you get up in the morning it's like well I'm until one o'clock I'm going to be dealing with the polity and family from two on we can do the economy right and that kind of weird sort of bifurcation the economics also encourages us to make to think about it the world in that way I think that's got to go I think that that's really what's got to go for it to become sustainable [Music] thank you foreign

Channel: Age of Economics

Views: 23,615

Keywords: anthropology, political science, knowledge, Donald MacKenzie, Milton Friedman, market, equilibrium, Phillips curve, unemployment, United States, RTC score, money, House of Commons, MMT theorists, OECD, mechanisms, Great Recession, Piketty, GDP, FEMA, William Nordhaus, Keynes, IMF, flexibility, Pigovian tax, Taleb, skin in the game, Alberto Alesina, Europe, Kate Raworth, capitalism, 19th century, Star Trek, Middle Ages, socialism, British Empire, Xi, crypto capitalism, inequality, CNN, Russia

Id: nGB7OQtc47s

Length: 31min 33sec (1893 seconds)

Published: Mon Feb 13 2023