23 Things They Don't Tell You About Capitalism

During the last couple of decades, we were repeatedly told by all those highly qualified experts – from Nobel Prize-winning economists through world-class financial regulators to frighteningly bright young investment bankers with economics degrees from the world’s top universities – that all was well with the world economy. We were told that economists had finally found the magic formula that allowed our economies to grow rapidly with low inflation. People talked of the ‘Goldilocks’ economy, in which things are just right – not too hot, not too cold. Alan Greenspan, the former chairman of the Federal Reserve Board, who presided over the world’s biggest and (financially and ideologically) most influential economy for two decades, was hailed as a ‘maestro’, as the title of the book on him by the journalist Bob Woodward of Watergate fame had it. His successor, Ben Bernanke, talked of a ‘great moderation’, which came with the taming of inflation and disappearance of violent economic cycles (see Thing 6).

So it was a real puzzle to most people, including the Queen, that things could go so spectacularly wrong in a world where clever economists were supposed to have sorted out all the major problems. How could all those clever guys with degrees from some of the best universities, with hyper-mathematical equations coming out of their ears, have been so wrong?

Learning of the sovereign’s concern, the British Academy convened a meeting of some of the top economists from academia, the financial sector and the government on 17 June 2009. The result of this meeting was conveyed to the Queen in a letter, dated 22 July 2009, written by Professor Tim Besley, a prominent economics professor at the LSE, and Professor Peter Hennessy, a renowned historian of British government at Queen Mary, University of London.[2]

In the letter, Professors Besley and Hennessy said that individual economists were competent and ‘doing their job properly on its own merit, but that they lost sight of the wood for the trees’ in the run-up to the crisis. There was, according to them, ‘a failure of the collective imagination of many bright people, both in this country and internationally, to understand the risks to the system as a whole’.

A failure of the collective imagination? Hadn’t most economists, including most (although not all) of those who were at the British Academy meeting, told the rest of us that free markets work best because we are rationaland individualisticand thus know what we want for ourselves (and no one else, possibly except for our immediate families) and how to get it most efficiently? (See Things 5 and 16.) I don’t remember seeing much discussion in economics about imagination, especially of the collective kind, and I’ve been in the economics profession for the last two decades. I am not even sure whether a concept like imagination, collective or otherwise, has a place in the dominant rationalist discourse in economics. The great and the good of the economics world of Britain, then, were basically admitting that they don’t know what has gone wrong.

But this understates it. Economists are not some innocent technicians who did a decent job within the narrow confines of their expertise until they were collectively wrong-footed by a once-in-a-century disaster that no one could have predicted.