We have recently had an innovation in the House of Lords, and a good one. The Lady Speaker invited a group of peers with experience or knowledge of economic policy, to discuss the present economic crisis. There were four speakers, one of whom was Nigel Lawson, an ex-Chancellor of the Exchequer from the Thatcher years. There was also a group of peers and a group of journalists who joined in the discussion. The House of Lords, like any other House of Parliament, normally discusses economic policy in a debate with all the partisan influences that a political debate unavoidably creates.
Adversarial debate is not an ideal way to discuss issues. Debates in the House of Lords are in fact moderate and polite – there is little of the point scoring of the House of Commons. Nevertheless, speakers in the House itself want to make striking points and want to win. The Speaker’s invitation created a different atmosphere. Unless one happened to know, one could not necessarily guess the party position of individual speakers – were they Labour, Conservative, Liberal Democrat or Independent. Some of them had been trained as economists, but most of them had learned economic history and theory in the course of careers in politics, business, banking or the Civil Service.
I was struck by the differences between a discussion of this kind in 2008 and what it might have been in, say, the 1960s. In those days, University economists usually of the left, played an important part in the discussion. The Cambridge economists were the pupils of Maynard Keynes, some of them committed to a neo-Keynesianism which went a good deal further than the master himself. In the 1970s there was the counter-attack of the Chicago School of monetarists. Keynes himself was a professional academic economist, concerned to develop general economic theories, a man in the tradition of Cambridge economists such as Malthus or Marshall.
In our 2008 discussion there was relatively little discussion of economy theory, but much more discussion of economic history. Indeed Nigel Lawson took the view that it was economic history, with its repeated patterns, which was valuable in framing economic policy, and that theoretical economics had little to offer the practical Finance Minister.
That certainly seems to have been the case in 2007 and 2008. It would not be true to say that academic economists have played no part in the discussion or framing of policy; in Britain, some eminent academics sit in the House of Lords and analyse in academic terms. Yet there is no doubt that the main discussion has been conducted by a mix of non-academics, including practical politicians and practical bankers.
Nigel Lawson argued that politicians would do better to rely on economic historians. There has indeed been much historical discussion. Both in Britain and the United States there have been many comparisons made with earlier economic crises. When people talk of economic crises they inevitably refer to the Wall Street crash of 1929 and its aftermath in the Great Depression. That is the classic crash, just as the 1720 London collapse of the South Sea Bubble was the classic crash of the eighteenth century. Incidentally, for those who would like to align the business cycle with the cycle of sun spots, 1720 to 1929 is 209 years. If the solar cycle is taken as 10.45 years, then the gap from the South Sea Bubble to the Wall Street crash is precisely 20 solar cycles. The 1929 crash seems to confirm the calculations made by the Victorian economist William Stanley Jevons in the late 1870s. His observations could have been used to forecast the Wall Street crash fifty years before it happened.
I am rather sceptical of these precise cycles, but the similarity of different crises, the big and the little, is undoubted. They give us the best indicator of what to expect next. Banking crises are followed by recessions. That is the history of the past and it is only too likely to repeat itself now.
for The Daily Reckoning Australia