Major events, when business as usual is disrupted, are perhaps the best test for ideas and the people who hold them. Do they have anything useful to offer, either by way of making sense of what happened or in terms of repairing the damage and imagining new possibilities?
We all know that mainstream economists failed miserably after the crash of 2007-08, when they offered little if anything to enhance our understanding of the causes of the crash (it wasn’t even a possibility in their models) or to chart a new path moving forward (the best they could come up with is the old debate between fiscal and monetary policy, while millions were forced into the unemployment lines and inequality resumed its grotesque upward trajectory). They spoke and wrote a great deal but the best they could offer was to keep calm and carry on. Everything, they claimed, would eventually be sorted out—without any major change in their theories or policy proposals.
More than seven years later and, as we know, nothing at all (except, perhaps, for the increasingly bloated finance sector) has been sorted out.
What about now, after Brexit? Once again, we find that mainstream economists have nothing to offer, either in terms of insight or a path moving forward.
Consider the example of the so-called Resiliency Authors, literally a who’s who of U.S. and European mainstream economists.* It’s no surprise they consider the United Kingdom’s choice to leave the European Union a mistake. Their dream, like that of most mainstream economists, was to lower trade barriers and expand the space of free markets. (They even have the temerity to assert all is well in the eurozone, as “economic health will eventually be restored, unemployment will decrease, and the periphery countries will regain competitiveness”). But the Brexit decision, they recognize, was made and now the only issue is “damage control.”
So, what do they offer? Basically, in their view, all the pieces (what they refer to as the financial “architecture”)—bank supervision and regulation, recapitalization funds, and so on—are already in place. All that is needed is “to make sure that the rules in place can be enforced.” As for the rest, their major concern is with high public debt—and, as with the problem of bank defaults, all they can imagine is “a combination of good rules and market discipline.”
That’s it. They exhibit no understanding that, after the debacles of Greece, Spain, and Portugal, not to mention the wrenching adjustments in Iceland, Ireland, and Italy (and, of course, the list could go on), and now with Brexit, the expanding space of private markets and corporate-led growth (which has now become, at best, corporate-led stagnation) is being called into question. No sense that a European Union without a vibrant Social Charter has no meaning, at least for the vast majority of ordinary Europeans. No idea that, their preferred combination of “good rules and market discipline” imposes all the costs of adjustment on European workers.
Once again, it seems, after business as usual has been disrupted—after the crash of 2007-08 and after Brexit—the best mainstream economists can come up with is. . .more business as usual.
*The list of signatories includes the following: Richard Baldwin, Charlie Bean, Thorsten Beck, Agnès Bénassy-Quéré, Olivier Blanchard, Peter Bofinger, Paul De Grauwe, Wouter den Haan, Barry Eichengreen, Lars Feld, Marcel Fratzscher, Francesco Giavazzi, Pierre-Olivier Gourinchas, Daniel Gros, Patrick Honohan, Sebnem Kalemli-Ozcan, Tommaso Monacelli, Elias Papaioannou, Paolo Pesenti, Christopher Pissarides, Guido Tabellini, Beatrice Weder di Mauro, Guntram Wolf, and Charles Wyplosz.