Tue, May 09, 2006 page9

• After John Kenneth Galbraith, who will be on the money?

  • By Heather Stewart / THE OBSERVER
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  The death of John Kenneth Galbraith, at 97, was a reminder that economics has not always been a dry and dismal science practiced by unworldly experts: Sometimes, the number-crunchers escape the lecture theater and burst into public life.

  Many of today's economists spend more time on technical analysis, and less on polemic, than Galbraith, who in his 1958 classic, The Affluent Society, helped to diagnose some of the ills of a nation in the novel position of widespread prosperity. But away from esoteric theorizing, there are still plenty who see it as a central part of their role to contribute to popular debate, take part in politics and bring their insights to a general audience.

  Foremost among these swashbuckling analysts are Joseph Stiglitz and Paul Krugman, both widely read and frequent contributors to public debate; and, from a very different perspective, Gary Becker of Chicago and Jagdish Bhagwati, an Indian economist at Columbia University, who is a fierce defender of globalization.

  Unlike Galbraith, whose technical skills were not much admired by his contemporaries, Stiglitz is a bona fide technician. He won a Nobel prize for his work on asymmetric information in markets (the secondhand car dealer knows which cars on the forecourt are worthless; you don't). However, as is more common in the US than in the UK, he has also played an active and vocal political role. He was a Treasury adviser to US president Bill Clinton from 1993 to 1997, and later analyzed that period of unprecedented boom -- and subsequent bust -- in the Roaring Nineties.

  He moved to the World Bank, where he was chief economist, and has since concerned himself in particular with issues of trade and poverty. In his popular 2002 book, Globalization and its Discontents, he argued that the process of rapid trade liberalization around the world has been mismanaged, with the poor suffering the consequences.

  His latest publication, Fair Trade For All, picks up the theme, looking at the potential benefits of the stalled Doha round of trade talks for the poor.

  Stiglitz's international outlook is characteristic of many of today's public intellectuals. While economists in the 1980s, and to a lesser extent the 1990s, were still fighting the battles of left versus right, Keynesianism versus monetarism, peace has largely broken out about the fundamentals of domestic economic management.

  Some of the fiercest disputes are now about who is winning and losing from global economic developments.

  Bhagwati, a firm believer in the benefits of globalization, directly takes on many of Stiglitz's arguments and those of noisier anti-globalization protesters.

  "We now confront the ready assumption that if capitalism has prospered and economic globalization has increased while some social ill has worsened, then the first two phenomena must have caused the third!" Bhagwati said in his recent book, In Defense of Globalization.

  "These critics need to be asked, with a nod to Tina Turner's famous song, What's Love Got to Do with It?: What's globalization got to do with it?" he said.

  He goes on to attack the idea that free trade will harm labor standards, the environment or women's rights.

  Krugman, an economics professor at Princeton long tipped for a Nobel prize, is best known for his regular column in the New York Times, which he uses to give an economist's perspective on current events, sometimes in a highly political way.

  His latest book, The Great Unravelling, is a collection of columns and essays which together form a blistering attack on what he regards as US President George W. Bush's squandering of the economic legacy of the Clinton years.

  He has been a relentless thorn in the side of the Bush administration, questioning the president's plans for social security and healthcare reform and criticizing his generous package of tax cuts. He also tried his best to puncture public adoration of Alan Greenspan, the Federal Reserve chairman who retired this year. He was the darling of Wall Street, but Krugman held him responsible for talking up the stock markets in the 1990s.

  Becker, another Nobel prize winner, from the famously right-wing, and famously rigorous economics faculty at Chicago University, uses economic analysis to delve into a range of everyday problems, from the value of marriage to whether it's a good idea to pay organ donors (apparently, it is).

  From a bracing free-market perspective, Becker uncovers the incentives behind social behavior and for many years used a monthly column in Business Week to contribute to public debate.

  His recent pronouncements, many on his blog, include a defense of income inequality in US society, an argument for the legalization of drugs (because taxing them heavily would more effectively control their use than costly enforcement programs) and a critique of Congressional hand-wringing about high oil prices.

  Apart from the impact on motorists' pockets, which is relatively small, Becker explains, most of the effects "are beneficial to a world concerned about an over-dependence on Middle East oil producers' -- they encourage fuel efficiency and increase the incentives to search for other energy sources.

  In Britain, public economists are perhaps less prominent, apart from those who practice their craft on the Bank of England's Monetary Policy Committee, setting interest rates. But there are plenty who concern themselves with political questions.

  For example, Lord Layard, of the London School of Economics, has picked up a thread left by Galbraith, one of whose insights, in The Affluent Society, that chasing economic growth alone does not necessarily make people's lives better.

  His analysis, as well as resulting in a book, Happiness: Lessons from a New Science, has brought him to definite conclusions about policy. He believes that mental illness is now Britain's biggest social problem and has written a series of articles -- and made presentations to Number 10 Downing Street -- calling for more spending on therapy to help the unhappy millions.

  Back in the US, the first of a brand new generation have already burst on to the scene.

  Steven Levitt, author of the runaway bestseller Freakonomics, may not concern himself with sweeping geopolitical theories a la Galbraith, but the young academic has already been involved in a furious controversy about the connection between abortion and crime.

  He argues that about half the reduction in crime in the 1990s was due to higher abortion rates, after the Supreme Court liberalized abortion rights in the 1973 judgment known as Roe versus Wade; in other words, many of the potential criminals simply weren't born.

  His findings have been angrily contested by rival economists, but Levitt's talent for combining technical analysis with quirky, counterintuitive theories has already won him a high profile and a keen following in the US.

  From their different standpoints, Stiglitz, Bhagwati, Krugman and Becker all have Galbraith's talent for wading into controversy with a well-turned phrase or a popular page-turner. Also like Galbraith, they are not always listened to, especially when their theorizing does not suit the prevailing mood. But an economist on the warpath can still make life pretty awkward for a politician who has failed to think things through.

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