Heske van Doornen, Author at

Petronella went from Zimbabwe to Oxford. And no, she’s not a princess.

Every so often, we highlight one of the members of the YSI community to share their story and aspirations. Today we cover Petronella Munhenzva, coordinator of the Africa Working Group. This year, Petronella is launching not just a book but also a foundation to support students in Gokwe (Zimbabwe) where she grew up. We talked to her about her hopes, dreams, and where she got the courage to dream.

What led you to decide to write From Gokwe to Oxford?

During my first couple of weeks at Oxford, an American girl came up to me and asked me where I was from. So I told her I’m from Zimbabwe and immediately she went “oh, from Harare I guess?” When I told her no, she thought that was very impressive. The whole interaction was a bit odd to me, but I didn’t think too much of it.

But then those conversations kept on repeating. It turned out I was the only black graduate student at my college, and every time I got questions about my background, everyone was taken aback. They thought I must be a princess. Or a diplomat’s daughter who went to private school in the US.

So I realized I had a choice to make. One option was to go along with the expectations that people had and walk around like an African princess. And I wouldn’t be the first! I know people who tweak their accent and might even lie about what their parents do. But it wouldn’t be the truth, and it would deny the fact that there is real talent and potential in places like Gokwe. It would perpetuate the divide between those who have resources and those who don’t.

So I decided to embrace my story and explain that YES, someone who went to school in a forgotten part of Zimbabwe can go straight to Oxford. Because guess what? People there are smart and talented, too! Both the people at Oxford and the people in Gokwe should realize that.

Tell us about the foundation.

I realized the book would be a starting point; a way to rekindle hopes and dreams. But real resources are needed, too. Gokwe is one of the least developed areas in Zimbabwe. Leaking roofs. Potholes in the road. No money for school. I was there again in December and talked with some of my friends that I met growing up and went to school with. And we just reflected on this sense that most people can never get out of there. So the first thing to do is to believe that things can get better; that’s what the book is for. The second thing is to make them better; that’s where the foundation comes in.

My long term vision is to pay for as many kids’ school fees as possible. And it doesn’t take much! I went to six different schools in Gokwe and guess how much the most expensive one was? 15 US dollars per term. Same with uniforms. They’re made of fabric that’s about 80 cents a meter, so with three dollars you have a uniform. So I want to make sure children stay in school, they have the basic materials they need, and give them access to projects that can develop their talents.

These are simple things. But they make the biggest difference in the world. Once, when I was working as a substitute teacher at my old school, we took a few students for a football tournament. And in our area, all the roads would be gravel with potholes everywhere – just terrible infrastructure. But when we got to a tarred road, one of my students suddenly started screaming. He was just SO excited to play football at a better facility for once. It looked like it was the best day of his life. But that was it. After one fun day everyone goes back home and the cycle continues.

And this keeps their dreams very limited. If you ask a Gokwe student what they want to be when they grow up, many of them just laugh. They don’t even know what you’re talking about! All they know is that when they grow up, they’re going to farm. Like their parents, with their cattle, have their crops. And there’s nothing wrong with being a farmer! But it should be a choice – not the only option.

But when you were little, there was no Petronella to help you! Who was your source of encouragement and support?

My parents – they are the best people in the world. We never really had much growing up but my dad Ronald was a high school teacher at a Gokwe school, and he was always talking about how important education is. He would make sure that you studied. He understood the value of education and working hard. He made sure you got your homework done. And he was extremely supportive of my dreams.

I remember one time when I was in primary school, my teacher told him I’d been doing well at English. So he picked up on that and started telling me I could become an English major! But he didn’t just say that. He started calling me “his English major.” And then when I got older, I wanted to become a lawyer. And he responded by calling me advocate. I was his “Advocate P!”. Then at another instance I decided I would apply for an exchange program with Sweden and after telling him about it, guess what he called me? Sister Sweden! And when I said I’d apply to Oxford? His Oxford Grad. Every time, he crystalized my dreams for me, and made them real before I’d even started. It’s a superpower.

October 2021 will bring not only the publication of From Gokwe to Oxford but also the launch of the Petronella Munhenzva Foundation. Learn more and become a supporter here or contribute via the GoFundMe campaign.

How to study economics and actually enjoy it.

Millions of students pursue degrees and careers in economics every year, and most start from a sense of deep curiosity. But nearly all face doubts at one point or another. Often it comes in the form of slow creeping fatigue and a gradual narrowing of interests. Other times it’s a crisis, pulling the whole field into question. Even INET’s President Rob Johnson nearly dropped out of Princeton. What’s going on?

By Gonçalo Fonseca & Heske van Doornen | It’s not the students’ fault. It is the field that is in a pickle. Economics has undergone a lot of transformation in recent decades, becoming increasingly narrow in scope, and divorcing itself from much of the ‘real world’. So if you are an econ student in a slump, questioning whether you picked the right field, this is for you.

These 8 principles show you how to approach economics without compromising your curiosity. They can help you do good work, allow you to enjoy what you are doing, and set you up to make a meaningful difference.

1. Know what to expect

Most economics programs are constructed linearly. The intro courses present a small set of basic models and the intermediate course adds more detail. Most people expect that their senior year—or at least grad school—will introduce something new. So they are disappointed when they see the same models again, just with more calculus. What to do? Do not wait for them to serve you something else. Take matters into your own hands.

2. Keep your questions front and center

Think about the questions that brought you to the field. Did you want to understand why the markets go up and down? How did inequality get so high? How businesses innovate? What AI will do to our jobs? Let those questions be your driving force. If you find that the analytical tools you are taught cannot address them, don’t blame your questions. Go looking for more tools.

3. Think for yourself, always.

Textbooks often present themselves as objective. But economics is not settled. It may be a science, but it is a human science, with inevitable faults. So it must be approached with a wider lens, and recognized as open-ended, with room for debate.

4. Stay connected to the real world

The models you learn are presented as universal. Relevant in any context and at any time. But stock market crashes and labor laws are not made in a void. They are made in a social and historical context. Economics is a topic, not a technique. So start with the questions, and let the answers come from anywhere. Sometimes, you will need your textbook model. Other times, you will need something else.

5. Don’t feel guilty about going broad

It is often said that scholars are willing to sacrifice five miles of breadth for one inch of depth, as an entire academic career can be built on that inch. But that trade-off is flawed. Real issues are intertwined, big and complicated. Exploring new areas improves your work. Five miles of breadth can lead you to excavators that will let you dig with MORE depth!

6. Take responsibility for your own learning

Chances are your textbook is dull and unconvincing. So you will have to get your nourishment somewhere else. Some teachers do a great job at this, but if yours is not one of them, it is on you. Explore courses and lectures by teachers other than your own. Go down a History of Economic Thought rabbit hole. Go beyond the model minutia and get the overview.

7. Know that economics needs you

We have a climate crisis to solve, financial markets to regulate, increasing inequality to deal with, and a host of complex issues around global markets and trade. The future of work is uncertain and gender disparities continue to loom. There is no shortage of pressing questions that need answering. So if economics feels cold, dull, and limiting, and you are tempted to turn your back on it, DON’T. Don’t leave economics to economists. The world needs people like you—the critical, the observant, the restless, to make economics BETTER.

8. Remember that you’re not alone

Students all over the world are faced with this conundrum. That sounds sad but it is not. Because all these people are linking up, supporting each other, and letting their questions lead the way. They are shaping the future of the field. The Young Scholars Initiative has 21 different working groups, each focusing on different topics. You are invited to join us and to be the change you’d like to see.

We are in this together.

About the Authors:
Gonçalo L. Fonseca is a research fellow at the Institute for New Economic Thinking and author of the History of Economic Thought Website. Heske van Doornen is Manager of the Young Scholars Initiative and co-founder of this blog. Twitter: @HeskevanDoornen

Can’t talk right now, I’m transferring energy.

You work all the time. But what is work, really? And how has that changed? In Work: A Deep History, from the Stone Age to the Age of Robots, anthropologist James Suzman digs into these questions. But whether he realizes it or not, he leaves an even bigger one to us.

The future of work is a hot topic. Automation, climate, and inequality make us wonder what’s coming down the pipe, and how to prepare. We might have to change how work works by decoupling labor from pay… difficult questions. But one thing is clear: if we are to change our conception of work, it will help to understand the one we have.

So what’s work, really?

Suzman starts at the beginning—3.5 Billion years ago. Because at its essence, he argues, work is not whatever you get paid for. It is a transfer of energy.

Thanks to the law of entropy, he explains, everything in the universe tends to chaos. Life forms impose some kind of order, but creating and maintaining that order takes energy. It requires work to grow leaves or make honey or build a house. So yes, even bacteria and trees do work, despite the fact that they don’t have thoughts about it.

So, Suzman posits that the act of work has been around for a long time, but the idea of work is newer. He explains that our mastery over fire was a likely catalyst. In reducing the energy required to survive, fire gave us leisure. And that might have helped us conceive of its counterpart: work.

How has it changed?

With that energy-definition in place, Suzman talks us through work’s cultural evolution. We start with hunter gatherers: there’s a Kalahari desert tribe who still hunt large animals by chasing them down on foot, just like back in the day. They run until the animal is so dehydrated that it lays down and awaits their spear.

He points out that although such hunts are exhausting, the tribe is lounging most of the time. They conceive of the world as abundant, and have no concept of private property. You only worry about your immediate needs, which are almost always met.

With the arrival of agriculture, that’s what we lost. Because Suzman suspects that the first food surpluses also introduced the concept of scarcity. Once you have a pile of crops, that pile—unlike nature—starts and ends somewhere. And it can be said to belong to somebody.

So farming ushered in modern economics. We started thinking everything was scarce, and inequalities increased. At the same time, farmers had to wait for their crop to mature and thus needed to live on credit for much of the year. So by keeping a record of their debt we created—you guessed it—money.

After that it’s domesticated animals, machines, cities, and the industrial revolution, causing living standards to rise. Working hours rose, then fell, then rose again. Suzman takes us past Luddites, the Great Depression, JK Galbraith, and the War on Talent, all the way until the present where we continue to work a lot while AI seems to breathe down our neck.

As he sends us off, Suzman admits that we can’t go back to hunter-gathering, but hopes that we take inspiration from the tribes and broaden our understanding of work. He reminds us that scarcity and limitless needs are not inevitable truths, nor are they necessary assumptions. These are fantastic points and his detailed evolution of work is very insightful. But it’s missing a piece.

Now for the biggest question

Imagine that you decide to clean up your room, and you call Suzman in to help. He comes over and finds all kinds of junk drawers you didn’t even realize you had, and he spreads the contents all over your living room floor. Then he leaves.

He helped with a crucial step. To reorganize something, you need to know what you’ve got, and identify all the items. But to put them in a better place, you need to know what they’re for. Why did you buy the things you own? And what’s your purpose in rearranging?

To put it bluntly, Work falls short on the question of why. It’s a big book about what we’ve been doing, without much to say about what we do it for.

To be fair, there are occasions where motives are discussed. One is when he points to a rare bird that builds very elaborate nests only to break them apart and all start over again. Similarly, some people run ultramarathons. Darwin’s survival of the fittest can’t explain it, Suzman says, so it’s probably a way to get rid of energy surpluses.

I can’t explain the bird either. But ask any ultramarathon-runner, and I bet they’ll tell you they did it because it was a meaningful experience—not because they were sitting on the couch bouncing up and down and only 31 miles would do the trick.

The second occasion is consumer culture. Suzman cites Galbraith who points to the way advertisers exploit our relative needs, making us want to work more to buy more. This undoubtedly plays a role. And to state the obvious, many of those less affluent will do any work that can help them survive.

But is that it?

Consider your own case

Why do you do the job you have? Is it the easiest way to survive? Is it a means to get rid of surplus energy? I doubt it. The right kind of work GIVES you energy. How does it do that? Because it’s meaningful. Why is it meaningful? Because you are able to contribute something. You are able to make a change. You are fulfilling a purpose you set for yourself. So these are the questions to ask: What’s the work out there that we think needs doing? What should work be for?

Perhaps Suzman didn’t get to these questions because there wasn’t much room for them in the past. In that case, fair enough. It may be that today’s circumstances of relative affluence and increasing levels of automation give them real relevance only now. But if we want a concept of work that we can carry forward, we can’t let ‘em drop.

And Suzman will be happy to know that there are plenty of young economists ready to do away with the assumptions of scarcity and limitless needs. But doing away with things is not enough. We need to introduce some new stuff too. And if you’re asking me, that new stuff is meaning.

Now if you’ll excuse me, I’ve got some work to do •

About the Author: Heske van Doornen is Manager of the Young Scholars Initiative and co-founder of this blog. Twitter: @HeskevanDoornen

Buy the Book
Work: A Deep History, from the Stone Age to the Age of Robots Book
By James Suzman | Penguin Press (2021)

Want to review a book you read? YSI will reimburse you for the price of the book, and will consider your piece for publication on Economic Questions. Reach out to contact@economicquestions.org to get started.

Imagination is a serious matter—economists can’t do without it anymore.

It seems only realistic to say that we’re doomed. We can no longer picture things turning out okay, and that’s the very problem. In From What Is to What If, Rob Hopkins argues that until we can imagine a bright future, it is very hard to build one.

What does this mean for us as economists?

Hopkins explains how imagination got lost, how we could get it back, and why doing so is crucial. He encourages ordinary citizens to stop waiting on think tanks and governments to lead the transition to a sustainable future. We should open ourselves to play, to the arts, and to storytelling as pathways to regain a sense of possibility. We’ll be surprised, he says, how much easier things are to execute once they’ve been imagined vividly.

If you’re a very pragmatic, data-driven person, reading Hopkins may feel like you’re being pulled onto a dance floor against your will. But there’s a lot to learn from him, especially for us economists, since our imaginations face unusually strong opposition.

The situation

Hopkins finds that with less and less time for play, children lose their imagination quicker and quicker. “They knew what a fronted adverbial noun was,” a secondary school teacher tells him, “but when I set them a task to write a story, they broke down and cried.” And if schooling makes the first blow to a child’s imagination, smartphones make the next. By taking away our opportunity to be bored, our minds have no time to ponder. Adulthood doesn’t make things easier. At that stage, we’re meant to be productive. Arts, play, and improvisation are considered frivolous, silly, and completely unhelpful to the growth-maximizing system we’ve built.

For me, it’s a message that hits home. Living in fast-paced New York City, I often fell into the trap of doing increasing levels of busywork. I’d be patting myself on the back for how much I’m getting done, while slowly eroding my ability to contribute new insights and fresh perspectives. Allowing for quiet time and idleness seemed almost sinful. Until I finally noticed how many ideas I was getting in the bathtub. We’re all afraid of robots catching up to us, but if we’re not careful, we might reduce ourselves to their level first.

Hopkins’ solution

The good news is that our imagination, once lost, can be found again. Hopkins cites numerous examples of communities that have gathered to reignite their imagination and visualize how a sustainable future could look. Just one afternoon with cardboard and chalk and conversation already proved transformative. It also brought back a sense of possibility. And once people had imagined their street corner to contain an herb garden, they never looked at it the same way. Oftentimes, they found themselves making it a reality; surprised at the things that had seemed impossible but weren’t.

Of course, the power of local communities remains limited by the overarching powers and structures of the state. Hopkins acknowledges that readily. Therefore, he points out that extractive systems—such as towns that are centered around an Amazon fulfillment center—crush the imagination. Better to keep revenue streams local, allowing people to enjoy the fruits of their own labor, and to shape local economies according to local needs. UBI also gets a mention, for being able to maintain a standard of living. After all, it’s hard to be imaginative if you’re just trying to survive.

Imagination for Economists

So, what does imagination for economists mean for us as new economic thinkers? Hopkins might not even realize. However, if there’s any place where imagination gets crushed, it’s in the economics textbook. Students who are keen to improve the economy for the better are told that it’s not an economist’s job to “save the world”. Instead, it’s economists’ job to develop objective scientific tools that can be used by whoever else wants to save the world. As if we’re doing physics. Which we’re not.

This way, mainstream economics presents a real problem for anyone trying to put this advice to work.

Whatever imagination will be reignited, economists will stand ready to crush as unrealistic, and naive. So, those with vivid imaginations might want to set the ‘objective’ tools aside and follow Hopkins’ lead for some time. However, most economists will declare that if you’re not using their favorite method, it’s not economics, and therefore not worth taking very seriously.

However, as the next generation of economists, we can help each other. We can also nourish our imaginations, and encourage our peers to do the same. We can talk about how it could feel to trust your bank, and what would be required for that to be the case. Moreover, we can picture how we’d like to grow old, and think backward for what that might necessitate. We can draw images of the public infrastructure we’d want, and see what it would require to build. Furthermore, we can reassure each other that by doing all that, we’re doing economics.

So, let’s use not just our data, our mathematics, and our analysis. Let’s also use our imagination. Because once we collectively imagine the economy we want, half our work will be done.

About the Author | Heske van Doornen is Manager of the Young Scholars Initiative and co-founder of this blog. Twitter: @HeskevanDoornen

Buy the Book | From What Is to What If: Unleashing the power of imagination to create the future we want by Rob Hopkins, Chelsea Green Publishing (2020)

Thoughts for the future 

Rob Johnson, President of the Institute for New Economic Thinking, is not your average economist. He’s got heart and soul, or if you’ll have it, the blues! With his deep connection to the arts and humanities, Rob leads the new economic thinking not just with a sharp mind, but also with sensibility.

This article is part of an ongoing series in which Rob shares his life experiences, and biggest lessons learned. If you’re an aspiring expert in economics or a related field, this is for you. It might mitigate the depth and duration of your mid-life crisis. Earlier articles in this series can be found here.

13 – Thoughts for the future 

I’m a parent of four children. But for my generation, the handoff to younger people doesn’t look very appealing right now. We’ve got work to do, while we’re here together. It’s your generation that can save my children, my nieces and nephews, kids everywhere. The Young Scholars Initiative is the bridge in the middle. It’s you who can make it so that my third-grader comes into a better world. 

You know, there are stages in the evolution of career building where there is a focus on conformity and getting on the team, observing what people do. But now more and more people in your generation feel like they don’t want to get on that ship. They can tell that ship is sinking! We’ve got to build our own ship. 

For my generation, it is now crucial to contribute to your generation. We have to break down the resistance to the evolving of economics. What’s happening in the world is already breaking it down a lot. But we need to do more. How do we stimulate new education products? How do we build that 13000 person army of young scholars who give each other strength and do not feel the need to conform?

We have to do it, because nobody can afford to conform to that which produces misery. It’s not dignified. But it’s also not dignified for my generation to lay back and watch you struggle. We have got to fortify you, as you embrace the challenge. We have to be teammates across generations. So, together, we can rebuild the ship and navigate towards more wholesome waters.

The pandemic is showing what’s at stake. It has violently unmasked the contradictions between the ideologies that were used to justify the deficient outcomes. If you were to be of religious orientation, you might say God delivered this pandemic to wake us all up. That’s to say, we are in a time of reckoning. And again, the most dangerous thing is to despair. Despondency is not a way forward. That only creates a void for demagoguery to fill. 

I want to help inspire you. To help you fortify your inspiration. To strengthen you, so that you can withstand the siren songs of temptation brought on by fear. That’s not always easy. The option is always there to just go alone, get published, get a chair, make money as a consultant. All those things might make your family feel safer for a month or a couple of weeks or a year. But they take you off course from providing the public good. 

I want to help you gain the courage to not give in to that, so you can become a real expert. Healthy, high integrity experience is part of restoring hope and faith in governance, and in society. It’s a big part of the way forward. And the danger now is more severe and more acute than when we started. Your generation is going to carry this on your back. We have to help you. That’s what we’re meant to do. 

We have to help you all fill the void.

Earlier articles in this series can be found here.

Subscribe to receive the next article directly to your inbox! And in the meantime, take a look at Rob’s podcast Economics and Beyond, available wherever you get your podcasts.

How INET Evolved

12 – How INET Evolved

So INET started off with a focus on finance. Of course that’s what Soros and I understood best, and it needed fixing. But that was not all. Inequality, political economy, the environment, race, it all came to the surface. If we were to be effective, we had to enlarge our scope. So we started drawing on a wider range of experts.

Tom Ferguson was extremely well equipped to be at the vanguard of political economy. With his direction, we learned about how representation in a democracy is destroyed by the ability to buy and sell policy, which is necessary for the survival of incumbent politicians. 

People like Andrew Sheng were of great influence in building allegiances with Asia. I had done a lot of work in the region in earlier years, and found that the Indian or Chinese philosophical systems are in marked contrast to the Cartesian enlightenment. They are much more in tune with the notion of radical uncertainty. So I found great enthusiasm, in China in particular, partly because I’d worked a lot there, but partly because philosophically, people like Andrew Sheng, Yu Yongding and others were really quite amenable to the notion of radical uncertainty. I had spent a lot of time in the area, and I could feel allegiance. In 2012, we did our plenary in Hong Kong with the Fung Global Institute, now called the Asian Global Institute, and recently, we have begun work with Luohan Academy.

Then, of course, people like George Akerlof were able to address the flawed notion preferences. In Identity Economics, which he wrote with Rachel Kranton, he says that instead of having an identity that’s like ice frozen in your preferences, you have this dynamic identity that is shaped over time. Also the late Rene Girard; he had a notion called Mimetic Desire, where you formulate your preferences by learning from the people you admire. It relates to belonging. Not me feeding something into the market from my utility function. Instead, what I want is actually manipulable by marketing. Like the people in David Brooks’ Bobos in Paradise, buying certain things to signal their belonging to a particular group and or set of values that they wanted to be associated with.

Then we had my friend john powell join our board; he is very knowledgeable about race and inequality. There’s nothing, when you really study the data, that can justify the degree of inequality that exists in the United States. Black people, even with master’s degrees from Ivy League institutions have no leverage or momentum relative to their white male counterparts. We had a very profound conference on race inequality in Detroit, Michigan in November of 2016, which is not only my base, but also a good place to observe the fault lines of race and economy unfolding. If you look at the geography of economic distress, it maps out. You can then look at surveys of economic distress, and see that they fit like a glove with the rise and fall of racial animosity. 

Another way in which we broadened our scope was with the launch of the Commission on Global Economic Transformation. Lead by Mike Spence and Joe Stiglitz, this group would explore what economics isn’t getting right, and what the world needs to take command of.  What we ended up with was what I’ll call four disrupters and an induced disruptor:

First, globalization created an erosion of the power and the control of the nation state. There’s this dilemma. You can have global governance where everything’s under one roof. But how sensitive are you to any people in any region from on high? Similarly, you can have local governments. Then you’re very sensitive, but you have no control over the things that are disrupting people’s life. It strengthens factors of production that can move around, like technology and finance, and weakens the relative power of people.
Second is related to climate and the dynamics of distress, how it exacerbates inequality, how you would handle a full scale transformation, how people who are in power have to be responsive to the fossil fuel industry, even if it’s suicidal.
Third is the initial one: financialization. Deregulation was sold as something that created more potential for growth and more efficient allocation of funding. But what happened is a pumping up of collateralized assets. As Adair Turner says, it had very little to do with the growth of productivity. So why are we protecting all of these things that actually don’t contribute to progress at all?
Fourth is the relationship of technology; automation, machine learning to the future of work and the structure of society. 
Fifth is what we call the induced disruptor: migration. It came from the commission’s study of Africa, because what we could see is that over the next 40 years, we have a situation where the working age population of Africa will probably double. But climate change will destroys arable lands for subsistence farming, and the development models of the past are not available anymore. You’ve got global supply chains and automation. The relative price of manufacturers is way down. What are these people going to do? We know how scared the world is of migration.

So now we have a more multifaceted approach with which to slowly break down all these flawed building blocks of economics. Take a recent one: economic justice. What does that mean? Economics says your wage should equal your marginal productivity. If you get paid more, you’re being subsidized. If you get paid less, you’re being exploited. If your marginal productivity and what you’re getting paid are aligned, you have economic justice. But what if your marginal productivity is such that you can’t support yourself or a family in a decent life? Then people blame you. You didn’t stay in school, you didn’t persevere, you were stupid. But the fact of the matter is that the productivity of a person depends upon social institutions like health systems, nutrition systems, and education systems. We cannot blame it on the victims.

My mind continues to be flooded with these contradictions. The ideology of economics vs the radical uncertainty, the instability, where preferences come from, the notion of collective versus individual responsibility, the questions of race, migration, technological change, the political economy, money in politics, who is represented in the design of our society. 

There’s still a long way to go.

Reading list:

Nicholas Lehmann – The Promised Land

Brendan O’Flaherty – The Economics of Race in the United States

Peter Temin – The Vanishing Middle Class

George Akerlof and Rachel Kranton – Identity Economics

Earlier articles in this series can be found here.

Subscribe to receive the next article directly to your inbox! And in the meantime, take a look at Rob’s podcast Economics and Beyond, available wherever you get your podcasts.

The Early INET Days

11 – The Early INET Days

After we realized what was at stake, and traveled around to gain an understanding, we came together in Bedford, NY. Soros held an event there with 30 leading economists, seven of which were Nobel laureates. We set out to determine what INET’s approach should be, and landed on four things: 

To build relationships with elite universities; places like Oxford and Princeton and Harvard. We figured they might see us as rebels, threatening the profession. But we would make connections, offer support, and work together.
To commission research ourselves, and add to the critical discourse. 
To convene and build community. Our plenaries were central to that. 
The fourth was what is now the Young Scholars Initiative. To educate and support the people who will 20 years from now be at the vanguard of the profession. To give them the spinal strength needed to step away from conformity.

We didn’t yet think of what later became the fifth piece: the critique of the peer review journals as a constraining device. Jim Heckman and others would later build quantitative evidence of the cronyism and the constriction of the issue space.

So, we got started. For our first INET conference, we invited a skillful Italian minister, Tomasso Padoa-Schioppa, to give a speech. He said, “when I look at what’s going on, I think of three types of sustainability. Financial sustainability, social sustainability and resource sustainability. Resource sustainability is on the horizon. Financial Sustainability is right on top of us now, and if it’s mishandled, people won’t just lose faith in the governance of finance. They’ll lose faith in the governance of resource sustainability, and social sustainability, too. So the stakes are very high.” As everyone clapped, Tommaso sat down next to me, leaned over, and said “all of this is going to flow into social sustainability.” That insight foreshadowed a lot.

As we got going, support arose quickly. Scholars of the highest level started to attack various facets of economics. I came to work very closely with Joe Stiglitz on his book The Price of Inequality, and with the scholars at Oxford led by David Hendry. They, too, found the rational expectations to be statistically unstable, and said that the past is not prologue; we live in a world of radical uncertainty. Roman Frydman, George Soros. They all believe that it madness to think that you can confidently project finance into the future. We were building alliances.

But in the meantime, things kept unraveling. At first, I thought it was mostly the faith in the governance of our financial system that was collapsing. But it was as the Obama administration took hold, it showed that it was broader than that. It became clear that things will not be fair here. The Obama team could not pass everything they wanted to pass, and we had an exacerbation of inequality. 

As Atif Mian says, if they had restructured mortgages, people would not have been under water, and they would have had a much higher marginal propensity to consume. You wouldn’t have needed as big a bailout. With required capital injection into the banks, you would have driven their equity down, and would have replaced their management. The people, the perpetrators of the crisis would have paid the price. Instead, the people with underwater mortgages were struggling. Our fiscal capacity was used to pump up aggregate demand where mortgage restructuring would have done the same thing. But the incidents of who bore the burden would have been different. 

So you had this wider sense that the government worked for the rich; for the banks and the corporations, not the people. Obama tried to restore confidence but we lost a lot. You started out with Obama, a Democratic House, a Democratic Senate in 2010. But that changed. When Martha Coakley lost to Scott Brown in Massachusetts, pollster Celinda Lake, who’s a friend of mine, called me and said, Robert, I’d worked with her on a couple of Senate campaigns and this has nothing to do with Massachusetts. This is the anger that Goldman Sachs and JP Morgan paid enormous bonuses two weeks ago. By that fall, the House turned Republican. Subsequently, the Senate turned Republican. 

It was reinforced by the Fed’s quantitative easing, and OMT in Europe: those practices pump up the asset prices. But who owns all the assets? A fraction of the people. Inequality rose, and along with it, despondency. As Angus Deaton and Anne Case shows, diseases of despair start to rise: opioid addiction, alcoholism, suicide. Shannon Monnat and others who studied geography saw that those diseases exploded exactly where society was being disrupted by globalization, automation, austere state, and local budgets or financial predation.

These are examples from the US. But similar things happened in the UK. It was areas outside of London, with austere state local budgets, that resulted in Brexit votes. You have the AFD in Germany, Marine Le Pen in France. 

Then Donald Trump was elected. Who was superb in reinforcing the notion of perceived corruption of expertise. And to some degree it’s fair; expertise has indeed been corrupted.*

So this unraveling moved INET from the themes of finance to inequality, political economy, and more. If we were to address the challenges, we realized we’d have to broaden our scope…

Reading list:

Atif Mian and Amir Sufi – House of Debt 

Adair Turner – Between Debt and the Devil

David Brooks – Bobos in Paradise

Joseph Stiglitz – The Price of Inequality

* I used to have this notion I used to call the four corruptions of economics:

1. The corruption of commission: doing marketing for the powerful. Doing something not to find truth, but to get paid, get power, or get promoted. 
2. The corruption of omission: when you avoid studying things that confront power.
3. The ritual of hiding in the monastery: emphasizing your acumen with mathematics and statistics to demonstrate your brilliance. 
4. The promulgation of false certainty when people are anxious. If somebody convincingly says “this is where we’re going”, they can reduce people’s anxiety until what they are saying is proven to be a lie. Lots of economists do this by pretending they can see the future; it’s a sophisticated form of demagoguery. The audience is complicit because they yearn to be reassured. But it’s false; it’s not what an expert or scholar is meant to do.

Earlier articles in this series can be found here.

Subscribe to receive the next article directly to your inbox! And in the meantime, take a look at Rob’s podcast Economics and Beyond, available wherever you get your podcasts.

The 2008 Crisis

10 – The 2008 Crisis

In 2007, I was no longer working in finance but I could see something was wrong in the mortgage market; I kind of smelled a rat. 

So, I got my own money out of harm’s way, and I started having conversations. I sat on the board of a couple of foundations, so I went to meet with the foundation’s leader, Bob Borosage, who arranged for me to meet with Nancy Pelosi. She was hesitant. “This is an election year, she said; we might not be able to deal with this.” I pointed out that we may have to. I warned her that it could all blow up before the election. And it did.

It was similar to what happened in 1987. Then, too, rocket scientists had been crunching numbers on Wall St, with the management going home each night, happy to know what two standard deviations look like. Financiers were convinced that they didn’t need to be regulated and could control things themselves. But they had divorced from reality. The same mechanical derivatives that Soros had been skeptical of in the late 80s had reared their head again, except worse. It was a collective feeding frenzy on an even larger scale.

So, now I was back in the scene. Not to make money, but to help scrutinize things. A lot of my former colleagues from when I worked in the US Senate were getting stormed by lobbyists. It was a crisis. We went to work–all hands on deck. But things did not move in the right direction. The TARP legislation that was supposed to avert the crisis was very unsatisfying. As Joe Stiglitz said, “it was paying the polluters.” It was going to put the necessary money out, but they were not taking over firms, the equity wasn’t wiped out, and the managements weren’t going to be fired. 

The financial sector got 800 billion dollars, and the mortgage holders who were under water got nothing. Usually the financiers are the ones who tell you to be prudent; that you can’t afford things. But now that they screwed up, they snapped their fingers and said “give me eight hundred billion dollars because we’ve gotta get out of this mess, or else you’re all going down with us.” And the government went ahead. They didn’t invest in infrastructure, in health care, or in schooling. But they were ready to buy the toxic mortgage bonds off the balance sheets of these perpetrators. 

As this was unfolding, I went to dinner with George Soros and Rob Dugger. Soros, having spent his formative years in Hungary, told us about the parallels he observed. Because in 1930, Austria and Germany had a financial crisis, too, and that really accelerated the rise of the Nazis. There, too, the financial leaders had  been considered the stewards of society. So when they blew it, there was a vacuum made everyone more anxious and to fill that void the Nazis stepped in. Soros was afraid that the handling of the 2008 crash could create a similar loss of credibility for finance, economics, and government. All of which might be deserved. But such turmoil could give rise to an authoritarian reaction. 

So the three of us discussed how we could make a difference. How could we stop people from defending bag ideas? How could we fill the void with good ideas?

To start, Soros sent me on tour. I went all over the world to meet leading economists. London, Sydney, Australia, Tokyo, Hong Kong. I just flew around and talked to everybody. Leading government officials, leading investors, many of whom I knew. I was looking to answer what came to be called “the queen’s question”: how did you all miss this? It became clear that it had been the unconstrained financial sector. The financiers had been able to make money on the upside, while the risks on the downside were mitigated by their capture of the the regulatory apparatus.

The issue was not just in the US. Europe was in trouble too. They had been doing repurchase agreements (”repos”) with the ECB. So you’ve got German bonds? Well, Greek, Spanish, Portuguese, Greek, and Italian bonds all yield about 400 basis points more. You could repo them at the same rate, and gain the difference. What that did was it facilitated a tremendous amount of capital flow to the southern European countries. Then the Lehman crisis hit, and everybody wanted to shrink their balance sheet. It was what economist Guillermo Calvo called “a sudden stop” for Southern Europe.

At the same time, China had been developing fast. This had consequences for Europe, too. Servaas Storm showed that places like Scandinavia, Germany, and Netherlands, benefited from this. They could sell capital goods to build the infrastructure of China. But the labor-intensive industries in southern Europe got a negative shock. The result was that in much of Europe, the 2008 crisis was greater than the Great Depression of the 30s. Many people do not realize this.

So the tension was building. There was a schism between what people were supposed to put their trust in, and what they saw happening. Right away it spawned the Tea Party and Occupy Wall Street in the United States.

Trust was faltering, and we needed to fill the void that Soros saw emerging. That’s what gave rise to INET.

Earlier articles in this series can be found here.

Subscribe to receive the next article directly to your inbox! And in the meantime, take a look at Rob’s podcast Economics and Beyond, available wherever you get your podcasts.