The Seattle Economics Council's lunchtime event at Town Hall last Thursday could not have been a more perfect picture of the current state of economics. The speakers were Steve Keen and Gerard Fitzpatrick. Keen is from Australia; Fitzpatrick is from Ireland. Keen is an economics professor who is famous for, one, predicting the crash of 2008, and, two, attacking Paul Krugman's solutions for getting out of the present Great Recession. Fitzpatrick is a bond fund manager for Russell Investments, a $150 billion company that moved to Seattle from Tacoma in 2009 and is currently the most recognizable occupant of the gorgeous splash of glass and steel that Washington Mutual built and owned until it filed for bankruptcy in 2008 and bled thousands of jobs out of our city's financial district (the tower is now called the Chase Center).
Fitzgerald and Keen discussed the Federal Reserve's monetary policy (giving lots of money to banks in the hopes they will give it to the rest of us—it's called quantitative easing). What made this event such a perfect picture? You could see the difference between an actual economist and a finance manager. They are not the same animal. They speak completely different languages. They have different perspectives and goals. And yet, for the past 30 or so years, the American public has been tricked into believing they are the same thing.
This is what happened: Fitzpatrick explained why he has been able to make money for his clients during the recession and what his main concerns are for the future of making money for his clients. Fitzpatrick was eloquent, intelligent, and made great points about things to look out for in the money market, worry about in the bond market, and be happy about in the stock market.
Now, if you are the kind of human who is lucky enough to have extra dough lying around and want it to do something rather than just sitting there all day doing nothing, you need to talk to Fitzpatrick. But if you're in a situation where "money is too tight to mention," his expertise will be as useful to you as the pages of a book are to a dog. The person you need to listen to instead is Keen. Why? Because he is an economist.
The substance of Keen's profession is to provide everyone (investors, public officials, the public itself) with as complete an account as possible of the state of the economy. Fitzpatrick will show you what the Federal Reserve's policy will mean for your investments; Keen will show you, among other things, how it will impact the employment rate. But here is the thing: In the mainstream, thinkers like Keen are often not considered to be economists and people like Fitzpatrick are, which is why an investment banker like John Paulson ended up doing something one would expect an economist to do—run the US Treasury.
But how did we get asset management and economics confused? The answer to that question is answered in Keen's brilliant book Debunking Economics. First published in 2001 (long before the Great Recession), and extensively revised in 2011, DE attacks the source of the confusion, the reason why all economic discourse is now just about making money rather than public welfare. This discourse, called neoclassical economics, is the subject of DE. The book looks at its main theories, models, and assumptions, and dismantles them. The end of the book is like waking up from a dream and realizing that it was all a dream—but weirdly enough, you are still in this dream (neoclassical thinking is currently in a state of denial about what happened in 2008, an event all of its impenetrable mathematics failed to predict). But the problem with DE is a problem that comes with the territory: Neoclassical economics is damn boring.
Keen even warns us how boring it is and recommends drinking lots of very strong coffee. "The foundations of conventional economics are not only difficult to grasp," he warns, "but also profoundly boring. Economics should be exciting, stimulating intellectual challenge, but conventional economics goes almost out of its way to be mundane."
How did investment banking become economics? By employing one of the most effective tools of oppression known to humans and all other animals that happen to be intelligent (crows, border collies, capuchins): boredom. No one with a lively disposition could get through the stuff: the charts, the models, the religious obsession with equilibrium, the dreadfully dense formulas of the rational individual who has nothing to do all day but figure out how to maximize every fucking penny. Because it is so boring, people believed it had to be true. But Keen exposes the major flaws buried at the bottom of this purposely boring thinking. I say purposely because if it were at all interesting, we would read and see that neoclassical concepts have nothing to do with economics and everything to do with class warfare.
And this is indeed Keen's conclusion in the section "Why the Productivity of Capital Doesn't Determine Profits," which dissects one of the most boring neoclassical concepts, the factors of production: "The distribution of income is something which is determined not by market mechanism but by relative political power." It took me two strong cups of coffee to get through that chapter.