Skidelsky Warwick Lecture 1
Lecture 1, 9 January 2014 -Pre-crash orthodoxies
Draft:
I.INTRODUCTION
Students at Manchester University and elsewhere have been demanding to be taught ‘post-crash economics’.
I want to start this set of six lectures with an account of pre-crash orthodoxies -the theories which underpinned economic policy till 2008; the orthodoxies students are still taught. In my next lecture I tell how the unforeseen crisis caused politicians and policy-makers to jettison these orthodoxies in saving the world from another great depression. In my third and fourth lectures I examine the monetary and fiscal confusion which has reigned in the last five years –the experiments with ‘unorthodox monetary policy’ and the austerity drive in fiscal policy –as policy makers sought a path to recovery. In my fifth lecture I look at the causes of the crisis from the standpoint of the world monetary system. Finally, I ask the question: what should post-crash economics be like? What guidance should economics offer the policy-maker to prevent further calamities of the kind we have just experienced? What should students of economics be taught?
In this lecture I will consider only those bits of pre-crash orthodoxy relevant to policy making, with main emphasis being on UK developments. Theories of expectation formation played an overwhelming part in shaping the theory of macroeconomic policy; with changes in the way economists modelled expectations marking the different phases of theory. I will treat these in roughly chronological order, starting with the Keynesian theory.
II.UNCERTAIN EXPECTATIONS
Keynesian macro theory dominated policy from roughly 1945-1975.
The minimum doctrine -not in Keynes, but in accepted versions of Keynesian theory -to justify policy intervention to stabilise economies is:
SLIDE 1
-----
1. Uncertain expectations, particularly important for investment, leaving investment to depend on 'conventions' and 'animal spirits'.
2. Relative interest-inelasticity of investment.
3. a)
Draft:
I.INTRODUCTION
Students at Manchester University and elsewhere have been demanding to be taught ‘post-crash economics’.
I want to start this set of six lectures with an account of pre-crash orthodoxies -the theories which underpinned economic policy till 2008; the orthodoxies students are still taught. In my next lecture I tell how the unforeseen crisis caused politicians and policy-makers to jettison these orthodoxies in saving the world from another great depression. In my third and fourth lectures I examine the monetary and fiscal confusion which has reigned in the last five years –the experiments with ‘unorthodox monetary policy’ and the austerity drive in fiscal policy –as policy makers sought a path to recovery. In my fifth lecture I look at the causes of the crisis from the standpoint of the world monetary system. Finally, I ask the question: what should post-crash economics be like? What guidance should economics offer the policy-maker to prevent further calamities of the kind we have just experienced? What should students of economics be taught?
In this lecture I will consider only those bits of pre-crash orthodoxy relevant to policy making, with main emphasis being on UK developments. Theories of expectation formation played an overwhelming part in shaping the theory of macroeconomic policy; with changes in the way economists modelled expectations marking the different phases of theory. I will treat these in roughly chronological order, starting with the Keynesian theory.
II.UNCERTAIN EXPECTATIONS
Keynesian macro theory dominated policy from roughly 1945-1975.
The minimum doctrine -not in Keynes, but in accepted versions of Keynesian theory -to justify policy intervention to stabilise economies is:
SLIDE 1
-----
1. Uncertain expectations, particularly important for investment, leaving investment to depend on 'conventions' and 'animal spirits'.
2. Relative interest-inelasticity of investment.
3. a)