Truths, damned truths and economics

Milton Friedman has just passed away, aged 94. When John Maynard Keynes died in 1946, aged only 63 years, Friedman was already 34, and hardly known this side of the Atlantic.

During my economics study years, from the mid-1950s to mid-1960s, it was fashionable to be labelled a Keynsian or anti-Keynsian. Just like a communist or anti-communist. In today's parlance, equivalent to being called a gay or a homophobic. A truly ridiculous state of affairs. Once I asked Prof. Frank Paish, my supervisor at LSE, why he was dubbed anti-Keynsian just because he advised the then Tory Chancellor of the Exchequer during high inflationary years. He just chuckled and merely added "How can one be a Keynsian today? But, certainly, not anti-Keynsian either."

Keynes was no socialist. Late in his life he was maligned by the political left for accepting some truths in neo-classical influences with which he had striven so hard to break. And succeeded. Yet he was so dubbed by the rabid right. Perhaps that was precisely his greatness, which I eventually came to admire after I had had sufficient grounding in his many theories, not least his monetarist philosophy encapsulated in his Treatise On Money which preceded his immortal General Theory published in the mid-1930s and written in the wake and as a consequence of the worst depression era in recorded world economic history.

Chiefly thanks to Keynes's teachings on how governments should effectively manage the aggregate demand side of a nation's economy with special emphasis on deliberate but judicious budget deficits in the face of the inevitable cyclical nature of business confidence, the world will never again experience anything like the misery of 1929-32. Keynes's contribution at Bretton Woods in 1944, the IMF and the World Bank, was universally acclaimed as monumental. Nicknamed Master Fund and Miss Bank respectively, Keynes preferred them reversed.

President Roosevelt himself acknowledged his country's indebtedness to Keynes's ideas for the success of his New Deal that managed to revive the American economy beyond expectations and transformed it into the world's foremost one ever since. Keynes's own native country, Britain, had to await a Labour government in 1945 to seriously embrace his principles on macro-economic management, even though the Conservatives had previously fully accepted the logic of his anti-inflationist tract, How to Pay For The War, in their 1941 budget.

I recall very clearly listening to a recording of his voice on BBC in the late 1930s urging the people of Britain to throw away and burn all their clothes so as to enable investment in modern textile machinery to resuscitate Lancashire industry and provide employment for the idle. He was truly in tune with the times and answered to Britain's needs of the moment and foreseeable future. And yet his genius ensured that his General Theory was not just an anti-depression one. Seventy years on and it is still relevant in its fundamentals.

No wonder I become irritated reading such drivel as that uttered by monetarist William Poole, president of the St Louis Federal Reserve Bank, nonchalantly commenting after Friedman's death: "Before Milton, economists were not taken seriously by public policy-makers". Bunkum.

In a Maltese perspective, perhaps Mr Poole is right. How could two academic economists from the same University stable differ so widely on tourism's contribution to the GDP (7.5 per cent and 12 per cent) when both worked on the same published statistics? How can our public policy-makers take the profession seriously? Bad enough that they themselves continually damn it by their convenient conclusions from half-baked momentary statistics. Why can't our seat of learning, the University, speak with one voice when it concerns the interpretation of statistics? Obviously, not when predicting the likely consequences of a specific course of action (e.g. recent increase in interest rates). That, understandably, contains quite a dose of subjectivity. But surely not in a post-mortem on recent past performances! Why doesn't the NSO itself come out with its own version? That would be interesting.