Tag Archives: economic crisis

The Longue Durée (The Long Time Span)

The former Chairman of the Federal Reserve, Alan Greenspan has had a long and distinguished career in public service, providing economic guidance to both Republican and Democratic Administrations alike.

Nevertheless, this explanation makes me question Greenspan’s–as well as his cohorts’–naiveté. 

And surely, his shock at the economic situation as well as his explanation as to why he failed to anticipate the problems with the market resonated with many other key decision makers: the economy had continued to perform well for forty years. Nevertheless, this explanation makes me question Greenspan’s–as well as his cohorts’– naivete.

Unfortunately, Greenspan’s lack of foresight reveals a major lack of hindsight. Forty years is but a blink of the eye in the course of time. Had Greenspan and others looked at the performance of the economy from the perspective of the longue durée— an approach advocated by the great French historian Fernand Braudel in his book On History (University of Chicago Press, 1980)– he certainly could have fathomed the market crash, even if he were unable to predict it.

One need only consider the insights of Eric Beinhocker, in his recent book, The Origin of Wealth: Evolution, Complexity, and the Radical Remaking of Economics. (Harvard Business School Press, 2006) Beinhocker’s evolutionary approach is consistent with Braudel’s notion of the longue durée insofar as he emphasizes the on-going cumulative processes that converge in the course of history to yield discernible patterns over time. Pointing to the collapse of the English economy in 1315, Beinhocker notes, for example:

Depressions, recessions, and inflation are not exclusively modern phenomena: they are patterns that have recurred since the beginning of recorded history. There are other patterns in economics that are equally old, including the long-run growth in wealth per person. . . and the distribution of wealth. . . For these patterns to be so old, they must be the result of causes that are deep in the workings of economics, cases that are independent of the technologies, government policies or business practices of a particular age. (p. 161)

As the market crash makes clear: the time for interdisciplinarity is here!

Today’s understanding of the present market crisis should not, therefore, be attributed solely to the failure of politicians to regulate the market so as to promote not just profits but also the public interest. Academia is also partially at fault. As Geoffry Hodgson has argued, in How Economics Forgot History: The Problem of Specification in Social Science (Routledge 2002), understanding the economy as it has evolved over the longue durée requires not just a dialogue among disciplines but also new theoretical approaches that build on a long view of history and, thereby, provides a more realistic, while at the same time more complex, level of analysis. As the market crash makes clear: the time for interdisciplinarity is here!

Economics 10#**=%#!

During my undergraduate days at Syracuse University, I was fortunate enough to have Dr. Jim Price as my economics professor. A fresh graduate from MIT, and a Keynesian, Dr. Price did not view economics as a dismal science. To the contrary, he saw economics as a mental construct that not only approximated reality, but also–and for that reason–could be used to improve upon it.

he saw economics as a mental construct that not only approximated reality, but also–and for that very reason–could be used to improve upon it.

Bloody Dismal Science (Courtesy of Sjamsu)

Bloody Dismal Science (Courtesy of Sjamsu)

This idea came as something of a surprise to us, his students. For, although we had grown up in the relatively prosperous post war period, our parents had continually admonished us for overspending, recalling how the roaring twenties had given way–without notice–to the dreadful and enduring days of the Depression. When we asked Dr. Price about depressions, and their likely probability, he told us that we need not worry. Depressions were a thing of the past, he said: Now we have the Phillips Curve!.

asked about depressions, and their likely probability, he told us that we need not worry. Now we have the Phillips Curve!

Over the next few years, my enthusiasm for economics waned, not, however, for lack of interest but rather for lack of math skills. As a result–and much to my regret at the time–I chose to study international relations. To be sure, the subject matter was equally interesting and demanding; but, as compared to economics, the discipline’s problem solving ability and methodological approach seemed to me, at least at the time, to be a little fuzzy.

it was not long after, however, that I began to appreciate the decision I had made. For, in the context of the recession of the seventies, and the subsequent oil shocks, the prescriptions that I had learned in Economics 101 no longer seemed to fit. Although the United States still made economic adjustments according to the mathematically proven Phillips Curve, the results were becoming increasingly problematic. The outcome was not greater stability, as economists had led us to expect. Instead the economy suffered persistent stagflation–that is to say, higher prices and fewer jobs. As the late Jane Jacobs characterized this state of affairs (Cities and the Wealth of Nations, 1984), the United States was suffering from underdevelopment. The answer, according to Jacobs, was to shift our focus away from equilibrium outcomes, and to center our thinking on the problem of wealth creation and growth. Jacobs insisted that understanding cities, and how they generate wealth, was the place to start. A non-economist, who employed the wealth of all the social sciences to make sense of the failing US economy–well, that was enough of an inspiration for me.

Faced with the prospects of an up-coming, serious depression, my students ask me what I think. Unlike Dr. Price, I don’t have recourse to an answer such as the Philips Curve. But perhaps this is fortunate. For although I cannot offer formulaic solutions–which may turn out to be wrong–I can provide something that was unavailable in my day–alternative ways of thinking about the economy. Thus, I can point my students to–among other things–Jochai Benkler’s discussions of cooperative growth strategies, which are designed not only to coordinate production but also to generate positive externalities (The Wealth of Networks: How Social Production Transforms Markets and Freedoms) Likewise, I might direct them to Beinhocker’s The Origin of Wealth (2006) for a discussion of the complexity and non-linearity associated with economic interactions. Alternatively, I might suggest that they take a look at Samuel Bowles, Microeconomics: Behavior, Institutions, and Evolution, (2004) for a far more nuanced perspective on economic behavior.

Thus, as I see it, the situation is far from dismal. In fact, we have a learning/ teaching opportunity here. Experience has shown us that prescribed economic solutions, no matter how elegant, are typically situation specific. They are vulnerable to changes in the larger environment. Thus, in teaching about the economy, we must provide our students, not so much with answers, but rather with a menu of perspectives from which they can draw, when faced with fast-moving, unpredictable change.

How Utterly Absurd!

Trying to interpret the political and economic events of the last few weeks, I am reminded of my German classes, in which I struggled to decode German texts that were written in the style of the theatre of the absurd.

Trying to interpret the political and economic events of the last few weeks, I am reminded of my German classes, in which I struggled to decode German texts that were written in the style of the theatre of the absurd. Although many of the first playwriters to work in this genre stemmed from France, and drew upon the existentialist philosophy of Albert Camus, the full range of such authors eventually extended across Europe and the United States. They included playwriters such as Eugene Ionesco, Jean Genet, Edward Albee, and Frederic Durrenmatt, among others.

Waiting for Godot (courtesy of Roger Cummiskey's photostream)

Waiting for Godot (courtesy of Roger Cummiskey

What constituted them as a group was their shared belief that the world–as it appeared in the wake of the Second World War–was meaningless. Mirroring this perspective, they used the tools of irony and absurdity to make their case theatrically.

While studying German, the absurdist play that impressed me most–and the one that readily comes to mind today–was Romulus the Great, written by the Swiss playwright Frederick Durrenmatt. Described as a non-historic, historical comedy, Romulus der Grosse takes place in the last year of the Roman Empire, when Rome was being overrun by the Ostrogoths–germanic barbarians from the north (476 A.D.). The chief protagonist, the Emperor Romulus, is portrayed as being disinterested and passive in the face of on-coming disaster, preferring to cater to the needs of his chickens rather than the needs of his citizens. Thus, when the leader of the invading troops offered to spare Rome in exchange for the hand of Romulus’ daughter, the Emperor turned down the proposal with alacrity. As his family and colleagues call upon Romulus to take action against the barbarians, he refuses, instead staving the Ostrogoths off with plucked gold leaves from his crown. His wife, daughter, and key members of his entourage flee on a ship, only to die at sea in a raging storm. Romulus, the only survivor, remains in Rome, steadfast in his passivity. How absurd!

Romulus Der Grosse (courtesy of Toni Birrer)

Romulus Der Grosse (courtesy of Toni Birrer)

Reading this play, I was grateful when my German Professor–whose name, unfortunately, I cannot recall–provided some meaning to this meaninglessness. As he pointed out, all of Durrenmatt’s plays and short stories are based on an anti-hero–that is a person who, while appearing to be a cad, or mad, has some redeeming graces. As interpreted by Durrenmatt, Romulus is just such a person; presenting himself as unpatriotic, unsympathetic, diffident and disinterested throughout most of the play, Romulus is no fool. Believing the Roman Empire to be decadent, corrupt, and out of touch with its changing environment, he looks to his invading neighbors (who wear pants as opposed to robes) to bring modernity to Rome.

Reckoning with recent current events, which are so out of the ordinary, I wonder: Could President Bush be an anti-hero, much like Romulus? If so, what might be his redeeming graces?

Could President Bush be an anit-hero, much like Romulus? If so, what might be his redeeming graces? 

I can assure you, I am no fan of President Bush, often questioning throughout his administration whether he really had his wits about him. But, then again, I do not think he is mentally deficient. What might make him an anti-hero? Well, as the Washington Post reports in its story Bush’s Shifting Ideology: 2nd Term Markedly Different From 1st. (Saturday, September 20, 2008, p. A 1), President Bush–much like Durrenmatt’s Romulus–appears to have recognized the need for change when faced with disastrous and radically different circumstances. Accordingly–absurd as it might seem–contrary to everything that Conservative Republicans hold dear, Bush has proposed an economic rescue plan that entails the government takeover of some of the Nation’s largest and most influential financial firms, at a cost that surpasses the budget of the Pentagon. Moreover, just as Romulus’ cohorts were befuddled by his behavior, and urged him to take a stand on behalf of the empire, many Republicans today are perplexed by the lame duck president’s suddenly taking a stance so at odds with their entrenched ideology. As former House Speaker Newt Gingrich (R-Ga) characterized the situation:

We have now launched big-government Republicanism. If we saw France do this, Italy do this, we would have thought it was crazy. We would have had pious speaches about the folly of bureaucrats running businesses. (Washington Post, September 20, 2008, p. A10)

Of course, the case of Romulus and Bush are by no means parallel in every detail. Romulus strives to bring about change by destroying the empire; whereas Bush is trying to save the country by challenging the Republican ideology. For me, what makes Bush a potential anti-hero is that, much as in ancient Rome, despite all the incentives to fall back on simplifying ideological cliches, which appeal to the voting public, President Bush–of all people–has finally acknowledged that the world is just not that simple.

Students often ask me how the literature that we read in class relates to the real world that they inhabit. Sometimes it is difficult to explain–so I say, just wait and you will see. For it is only now, some forty years later, that I can appreciate how much my German Professor, and his interpretation of Durrenmatt, has meant to me.