The Great Economists: How Their Ideas Can Help Us Today | Book Club

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  • 14 mins 38 secs
The news is full of the economic and social woes facing the UK, from income inequality to globalisation and the decline of manufacturing. But can thinkers as diverse as Karl Marx and Adam Smith provide the answers? Linda Yueh came into the studio to discuss her latest book, including a look at the pioneering work of Joan Robinson on how to measure unemployment and the influence of Irving Fisher, whose poor investment track record has overshadowed his contribution to economics.

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If you think the world's in something of a mess, what with Brexit trade wars, the aftershocks from the two thousand eight financial crisis and social inequality, then what can you do to make the world a better place? Well, I'm joined now by Linda you. She's written the great economist on how their ideas can help us today, then to thank you for joining us. First of all, why did you write the book now and who's it for? I've written the book because I wanted to see if we could better understand some of the big economic challenges which clearly came to light after the banking crash. I think it's really made people look again and say, What kind of economy do we want to live in? Should I settle for high levels, income inequality in my society? What about growth in a digital age? So I wanted to answer some of these big questions, but I did so by drawing on the insides of the greatest thinkers, the greatest economists in history. So I could take their wisdom because actually, quite a lot of the issues that we face today are then what has come before. But share. A lot of similarities is like that. Mark Twain saying History doesn't repeat itself, but it rhymes, eso taking their I think ideas concepts, see how they coped with issues. What went wrong about be a nice way of informing a current discussion. So the book is meant for anyone who is interested in finding out answers to some of our biggest economic challenges. You got twelve chapters. Each one I mean, simplistically put has got a big idea and an economist walk. Did you search out the ideas and then find economists to fit them? Or did you pick your top twelve economists and then take their ideas? It's the former. So there were these big questions I wanted to answer, like why our wages so low? Do trade deficits matter What is the future globalization? Because I think these are some of the big issues around that we really just need to get a grip on because it matters for all of our lives, our employment really prosperity. So by looking at the big questions, then went back and said, Who are the seminal thinkers that really coped with this issue? At a previous period on DH What might they say about the issue today? So, for instance, in the chapter on wire wage is so low I look at when, actually, for the first time on Wadlow, wages were discussing, this was in the nineteen thirty. So after the last stemming financial crisis. So this is, of course, the nineteen twenty nine great crash nineteen thirty's Great Depression. That was when economists were saying, You know, wages are really slow. Why is this the case and the economists were the seminal work around. It is Drone Robinson Cambridge Economy. So then I looked at her work, and they shows how those models were changed over time because, obviously, she was coping with a slightly different issue than what you would have later on the twentieth century and how those ideas got revised and bringing us to today. And then I present some of the solutions that would be in line with what Joan Robinson's work first suggested and how subsequent economists and refined it. What's going on, reading that chapter, written and obviously, she wrote in the nineteen thirties. But it's very contemporary, and she talks not just about what who's unemployed, but people who are essentially underemployed, doing jobs it on really, in their skill set that I don't say that beneath them, but part time they're trained for something better. And she's got this idea of putting that all together to give you a true picture of unemployment. How important is that today? And what? What's this? What solution would she have her? She was sitting in. That's hugely important. So she her work is the reason why the United States publishes a measure called you six. Unemployment so actually looks not just that those who are officially unemployed but those who are part time work but one full time work so different forms of what's called disguised unemployment, which is actually one of her terms and actually here in Europe. And there's also we moved by statisticians to do that. So in other words, there's one of the big issues around. The wages is a lack of job security. So ice there, Remember going Tio, a lecture by President Bill Clinton, and he said, I've created all these jobs in the economy. Onda woman in the audience raised her hand and said, Mr President, I have three of those jobs, but I can't make ends meet. And that's why wages are low so you don't have permanent employment. You don't have job security. If you have a permanent job, you might expect to get wage increases if you only have part time work or work that isn't really suited to your skills. Obviously, temporary workers make less. They don't get guaranteed promotions. Officer. They may not even have a job tomorrow. So it's really Joan Robinson's work around what she called monotony. That still So this is monopoly power in labor market, so it's called monotony. That concept is today one of the concepts that's being hotly debated by economists and policy makers about what can we do? Do taking her ideas around competition when employers have too much market power? Why don't employees have more bargaining power and applying it to the wage stagnation challenge that we face now? So Britain really median wages? So that's the average worker in the income distribution when you take away the effects of inflation, has had stagnant wages for a decade. It's twenty years in Germany and in Japan, and it's forty years in America, So the average the median worker hasn't had a real pay increase in America since the nineteen seventies. And it's really her ideas that are being debated now about what you can do about one thing the government's looking outside here in the UK is, Can we get more manufacturing? Other things other than this greats of financial ization? We've seen that a Northern powerhouse, for example, being a bit of an idea. You touched on that in the book This whole question of easy, sensible toe sit there centrally and try and re plan an economy on you. Bring Adam Smith in on that. Yeah, so this is the first chapter of the book on it follows the same format. I've got a big issue, which is, should governments rebalance the economy? And then I look for the economist whose thinking really shapes this issue. And it turns out to be the father of economics, Adam Smith. So I go through his bio of it and then on DH. Then I take his ideas, show how that's influence policy over the years on DH, then address the current issue, which is, should the British government be talking about basically moving back towards manufacturer? Making things again? Andi remember Adam Smith is the father of the invisible hand, which is this idea that want kids left you there. Its own devices would allocate what gets produced, who produces a prices quantity and all of that. And so out of Smith would be very reluctant to have government intervene in the way the markets work. But we know that his work has been revised over the years because capitalism needs institutions. So I think he looking at what he wrote in the wealth of nations in what other ways have revised later on, I would very much focus on is the system. The economic system competitive isn't fair. In other words, do the regulations promote competition? So you have a economy that has inefficient mix? So that, I think would be the criteria with which to judge is have services to large in Britain? Um, our manufacturing sectors being properly supported. I think those are the kind of issues to look at, whether when you look at Thea answer to that question. And, of course, interestingly, Adam Smith. He was writing during the centuries the wealth of nations and publishes seventeen seventy six. He saw the beginning of the Industrial Revolution so he was very enamored of manufacturing. So the fact that Britain isn't as big a manufacturing economy anymore, I think he might view that as hang on. That's the source of prosperity, and also he didn't think much of services. He described the sector as being consisting of opera singers and buffoons. But I think I think you would have changed his mind if you realize the services could be commoditized and traded, because obviously technology means their services today are very different than the services that he had seen. So you could by a download or a CD of a Mozart concert. It's something that can be traded that has value because member in his day you would go to a concert and then you would leave, and that's why he didn't value it. So I think Adam Smith would look at what the government is doing and saying, Are you promoting an efficient operation of the market? That would probably be Mohr important than what, exactly which sectors you're moving toward? The book is in some ways it charts the movement of the sort of the center of economic thought from Europe across the United States. Yes, Do you see that center of economic staying in the U. S? Or do you see it moving to somewhere else like China? Over time, I think we will see a lot more economic models coming from different parts of the world. But certainly thie home. The H Q of economics was inverted with Adam Smith and then some of his successors. Think about Alfred Marshall, who I also write about who led the neoclassical economists who kind of revised Adam Smith thinking to introduce the welfare state. So the neo classical economists were the ones to say, Well, actually the kind of capitalism that Smith word about the eighteenth century that's not suitable for the twentieth century. We need to make sure people are taking care of. So that neoclassical mint in Britain, I think, really change deciding which we live. But then America had its own neoclassical movement, led by Irving Fisher, who I write about. He's the first great economists in America. He introduced mathematics into economics. And that, of course, is the dominant set of models that economists use. And that's when the H Q of economics move from Britain to America. But you'll normally not see him included in books like this, because in nineteen twenty nine he predicted that the stock market was on a permanently high plateau right before the nineteen twenty nine great crash. It destroyed his his reputation. It also destroyed him financially. He never recovered from that. So I think his contributions, though economics, are probably overlooked as a result, a number of economists in there you bring in around this issue of China, and essentially can it get rich before it gets cold? How bigger issue is that for the columns? And I know that's your background as economist has been focusing on. Well, it's partly what I want done. Yes, I think, the Karl Marx. He never saw China. He passed away, actually, before the big communist revolutions took off in China, on actually and even in the former Soviet Union. So, Karl Marx is thinking was so influential that at one point in the early part of the twentieth century, about sixty percent of the world lived in either a Communist or socialist regimes. So that really suggests that this idea of having egalitarian you know principles is very was very persuasive. But as with all of these economic discussions. That just meant that other economists, like Friedrich Hayek and Joseph Schumpeter, wrote about how capitalism is actually synonymous with freedom because is only in a capitalist society, not a Communist one in which you were determined where you worked, what you produced on where you lived, all the things that under communism would be centrally planned, where the state would tell you where you lived, where you worked. What you produced on DH really gave you a job for life and really housing for life. And that still characterizes China to a limited extent, because China was communists between forty nine to seventy nine, but then it grew well by injecting market forces. So what's being fascinating is seeing how the political system remains nominally, you know, very committed to communist principles. But at the same time they recognize market characteristics. So the challenge for China is. Can you take a country with one point three one point four billion people on lift them all into the ranks of rich countries? That's very, very challenging. Only thirteen countries have become rich in the post war period, so most countries in the world are middle income or or lower income. And I think, for China from the coastal cities already in the high income level, but taking the average one fifth of the world's population on lifting. That is the question that I think I I touch on in that chapter, and I think it comes down tio, not just technology and innovation, which is the kind of key ingredient. But that's not the only one. There's also institution. So what you need is a market economy that sufficient that promotes competition that isn't distorted and, of course, safeguards and people's rights. And, I think, institutional reform, which I also write about in a later chapter by the great economist Douglas North. I think that's going to be a challenge for China as well as can you innovate enough to lift the entire economies productivity so that the country that size could become rich? Remember China's innovate eating at a time when digital technologies it's not clear that digital technologies have so far produced the same kind of economy wide effects as thie inventions of the previous industrial revolution. So, you know, is the smartphone the same as electrification? And that's That's another issue that exploring the book. Linda, you. Thank you so much for coming in on talking to us about your book you're having.