Meghnad Desai takes a class in economic theory to conclude there is none to weave together or explain the happenings in world economy
Hubris: Why Economists Failed to Predict the Crisis and How to Avoid the Next One
It must be the craziest of times if Meghnad Desai finishes a survey of economic literature quoting Karl Marx. Greece notwithstanding, most countries of the world are certainly better off just now than at any time since the global meltdown of 2008. China, India and large swathes of Africa and USA have reasons to be cheerful. Yet there is no economic thought that can convincingly claim to thread the performance of these economies, forget about offering any reasonable forecast of where they are headed. Even Marx, despite getting a far more sympathetic treatment as Desai says, has no convincing line of interpretation to offer.
The reality of the 21st century economics is that there is no new economic thought to offer, after the Keynesian and New Classical models have run out of their explanatory powers.
Desai, instead, puts on his hat of a newspaper columnist to suggest an explanation based on the business cycle scales of 50 years or more, as conceived by Kondratieff, and then breaks those up into smaller time chunks to explore what happens in specific neighbourhoods of the globe. “The alternative explanation I have offered in terms of a dynamic disequilibrium model of capitalism, using the ideas of Marx, Schumpeter, Wicksell and Hayek, has the merit
of being able to weave together a global story with real and financial factors interplaying their roles against a background of political changes,” he writes.
Since the book is called Hubris, the emeritus professor of economics at the London School of Economics is careful to point out: “The discussion about the cross-country linkages (are) at an informal journalistic level, but no attempt to weave together a systematic theoretical account”. He is aware of the limitations of what he has to say and postpones any reference to them till the very end of the book—in fact, the last chapter. The book is, instead, a tour of the discipline of economics from the time of (obviously) Adam Smith. Others have attempted it before and quite in a deluge since the onset of the meltdown, but Desai, despite coming in late, does it wonderfully well. It is almost a classroom lecture and the sort of classroom that does not exist in possibly any university yard in India. That itself, Desai’s excursion excluded, makes it a signal addition to the shelf.
It lays out clearly how every economist pushed forward their arguments as they gained confidence with their tools to address the economic challenges of the era. Ricardo, Walras, Wicksell and Marshal, down to Robert Lucas, are all studied in detail and without any bias, which makes it easy to stick to their conclusions instead of what many authors offer, which is their own interpretation of those conclusions. Desai particularly offers a detailed treatment of the Rational Expectations School. As this math-heavy segment has often not been understood in most Indian universities even now, there has been a huge gap among graduate students of economics in India who don’t have even a nodding acquaintance with the subject. And since this segment is vital to figure out each fork on the road where the financial architecture conceived by Wall Street made the wrong turn, an understanding of the global economic crisis is often missed by these students.
This is vital in the age of social media where discussions on economics rank just after healthcare, but are often clueless. Desai brings his synoptic survey up to date, including even Piketty’s analysis. He seems to say: “Hey, before we get going on the interpretations, can we first agree on the theory”.
And this, I think, is what sets this slim book apart; its nugget-like treatment of all key economic theories while sewing them up together. A clear readership of the book, one suspects, should be the tribe of commentators in Indian media who often mix up their authors and produce horrific conclusions. Hubris, I suspect, could take care of theirs too.