Why this high-flying Scot’s new book has made him the talk of Washington

There are two reasons why I think it a useful exercise. First, Scots have made vital contributions to this branch of knowledge ever since Adam Smith published The Wealth of Nations in 1776. The contributions have continued down to our own day, for example in the work of two recent Nobel Prize winners, the late James Merrilees and Angus Deaton.

The second reason is that, through these original thinkers, it is possible to trace a Scottish tradition in political economy (as the discipline was known during most of its life) illustrating economic theory with economic history.

The tradition is therefore concerned with the real world and the lives of the people who are part of it rather than with mathematical abstraction – though this had by the end of the 20th century largely taken over from the older tradition across the rest of the globe.

Hardly a positive development: the 21st century has seen no end of economic crises, yet mathematical economists usually found they had nothing useful to say about them. Now we turn back to retrieve what had been lost by them.

A rising star of the revisionists is Mark Blyth, a son of Dundee and a graduate of Strathclyde University. He had not expected a life of academic distinction: “I was a musician from age 14 to 28. I’ve released five or six albums, but as all with independent labels that never went anywhere. If they had, I wouldn’t be here. I’d be lying on a beach with Heidi Klum.”

I must say I had never heard of Ms Klum, but a brief trawl through Google proves Blyth to be as exacting in his choice of female friends as in his theories of international economics. On the latter topic, he is professor at Brown University, Rhode Island.

Blyth does not, like snootier colleagues, scorn non-economists. In fact, his latest book, just published, is written with his friend Eric Lonergan, a hedge fund manager. It bears the topical title of Angrynomics, in reference to prevailing states of mind in financial circles.

A couple of weeks ago it got a rave review from the journal of the International Monetary Fund. It has made the authors the talk of the town in Washington DC, men of the moment who have moved into the sexiest section of the world of high economics, all but publicly acknowledged as worthy winners of future Nobel Prizes one of these days.

The anger of which they write arises from the fact that, despite the supposedly advanced state of today’s economics, little of it seems to make much sense. At the same time, it is hard to see how the mysteries can be reconnected all over again to the real world.

There are two types of anger at work. One is the targeted indignation against shysters who manipulate successive financial crises to their personal profit, leaving cheated investors to a more unpleasant fate. The senior management of Scottish banks have been excellent examples.

A second anger arises among much wider groups and for much vaguer reasons. It tends to turn into an irrational, tribal energy whipped up for partisan ends by populist politicians, as by Boris Johnston at the General Election. While the first type of anger had long been dominant, recent public feeling has offered widening outlets for the second type of anger.

What brings it on is inequality, asset bubbles, stagnant real wages and a host of other problems we all know inside out but cannot cure.

And then the pandemic comes along! According to Blyth and Lonergan, this soon ceased to be a merely medical problem because it attacked the basic framework of today’s capitalist system as it had recently evolved in deregulation, open supply chains, utilisation of marginal labour and so on.

DRAMATICALLY, the contagion revealed how these by now commonplace resources could pose mortal dangers. Yet they had been so built into the constantly evolving system that it seemed impossible to extract them again.

The two authors concede that they are not describing total novelty. The developing capitalist system has always given rise to new problems that impose new demands on it, as we see from some defining events of the last century.

Big corporations overcame the Great Depression of the 1930s through the creation of consumer goods for the masses, while imperialist states contributed through their preparations for war.

In the 1970s, the novel combination of stagflation – rising prices but lagging production – faded before a wave of financial reform coupled with sterner discipline in the workplace. But the capitalist system’s conquest of these crises does not mean we can rely on the same result all the time. Blyth and Lonergan indeed argue that every cyclical depression is unique.

Today, we are still suffering from the global financial crisis that started in 2007. Before a final solution is in sight, coronavirus comes on top. It is not a pretty sight.

The error, according to the two economists, lies in assuming there is a set of remedies that can be applied to any given collection of issues. If we look at banking, for example, all the cures seem as bad as the disease.

Perhaps the problems are systemic rather than cyclical, in which case they will be more far-reaching and reach down from the macro-level to the micro-level.

To put it in an example of the most detailed form, we did not know in January that for the future most of the human race will need to wear face masks. Any number of personal and social consequences will follow – perhaps up to and including the economic system of neoliberalism as a victim of the crisis. No wonder many people will get angry.

The basic difficulty, according to the two authors, is for people to accept that different problems can all have different solutions.

At this moment, we point to novelties for which conventional economics offers no remedy: wage stagnation, asset bubbles, excessive bank leverage and widening inequality. Many call for austerity, but it seems to do no good at all.

The reason lies in the fact, says Mark Blyth, that austerity is a very dangerous idea: “First of all, it doesn’t work. As the past years of trying and countless other historical examples show, while it makes sense for any one state to try to cut its way to growth, it simply cannot work when all states try it simultaneously: all that happens is a shrinking economy.

“Second, it relies upon those who didn’t make the mess to clean it up, which is always bad politics. Third, it rests upon a tenuous and thin body of evidence and argumentation that acts more to prop up dead economic ideas and preserve astonishingly skewed income and wealth distributions than to restore prosperity for all.”

We remain short of answers, but at least we now have somebody asking the right questions. That’s especially good when Mark Blyth intends to vote for an independent Scotland.