Indicator: “Mainstream” economist embracing uncertainty

Okay, I’m sure there are economists out there embracing or at least acknowledging uncertainty about the future. But a read of Paul Krugman’s review of Mervyn King’s The  End of Alchemy: Money, Banking, and the Future of the Global Economy in the wonderful New York Review of Books suggests an indicator of, well, something. Maybe we can decide “of what” later.

Mervyn King, former head of the influential Bank of England, helped guide the economy the 2007 financial crisis.  The book, according to Krugman is really about economic ideas for the future rather than a chronicle of the crisis (though that is in there, too).

Krugman is impressed by King’s assertion “that the whole intellectual frame we’ve been using is more or less irreparably flawed.” And on a side note, and to point out his willingness to challenge orthodoxy, he suggests that the euro is a mistake. Krugman comments that “if he’d said it while still in office, it would have provoked a diplomatic crisis.”

But for Krugman (and me) the really big point is that King sees the need for a complete rethinking of how we do economics. Skipping a very interesting setup by Krugrman, if we go straight to the point, King supports Keynes’s argument that “the future is inherently unknowable, and that we deal with that fundamental uncertainty essentially by kidding ourselves, telling and acting on stories about the future that are grounded in little more than convention. And these stories, Keynes asserts, are subject to occasional drastic revisions, with huge economic implications.”

King supports this position in asserting that “economic decisions always take place under conditions of ‘radical uncertainty’ — ignorance about the future that can’t be quantified by probabilities, so that there is no such thing as optimizing behavior. People cope with this uncertainty by settling on “narratives” that are conventionally accepted at any given moment, but can suddenly change.” Sounds like a futurist to me!

Krugman notes that it’s not such an outlandish position, but “it’s a remarkable one for an ex–central banker to take.” And Krugman notes that he “spends a whole chapter explaining why radical uncertainty, not quantifiable risk, is the essence of economic life.”

One might be tempted to say “about time,” but let’s not go there.  I’m  always on the lookout for good examples of indicators. I’ve found indicatros to be a tricky concept to teach. It’s one that makes intellectual sense, but is not so easy to carry out. Thus we need better examples. One powerful mainstream economist taking a position is noteworthy, but that is hardly a sign of a shift in the economic paradigm. But change starts somewhere, or rather is nudged forward in small ways. I think this is a nudge, but back to the question “towards what?” I think it means something for economics and economists, but that’s not something I track or know about. I was thinking it might fit as an indicator for our post-capitalism tracking. Perhaps. I think the strongest fit is movement of mainstream thinking toward futurist thinking. All of the above? What do you think? Andy Hines