Over a decade has passed since the hey-day of Western assistance to the post-socialist transition countries. We can now look back and clearly see the role that the ideology of conventional economics played in the transition. Again and again, pragmatic alternatives were ignored in favor of an institutional blitzkreg or shock therapy to quickly “install” textbook/cartoon models of legal and economic institutions with extensive negative consequences. This history is critically reviewed but, more importantly, we also outline the intellectual basis for pragmatic approaches to social learning.

Of the many contradictions we witness between fact and fiction, few would rank more significant today than the contradiction between the small town image commonly used to represent the essence of free enterprise and the real context of early capitalism—the Atlantic trade among the peoples of Europe, Africa, and the Americas. Here is the fiction:

It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own self-interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.
Such a context is not so difficult to imagine. Small shop owners provide different goods to each other, and the best way of doing this is for each to be guided by one’s self-interest, since in this intimate setting, it is certainly in one’s self-interest to provide a good product at a good price. How nice that we so easily do what is best for us and it turns out best for our neighbors.

All human beings are equal. This is the politically correct position around the world today. The position holds that individual value must correspond to individual characteristics, and not to ethnicity, gender, sexuality, disability, religion, and so on. And since discrimination is wrong based on those kinds of background features, it is understood that all kinds of human beings have the same potential ability in all aspects of life.
Of course, in reality, there are many different perspectives and approaches to this position. What is worse, the vast majority of the human population does not seem to hold that position to be true. Different degrees of racism and prejudice dominate societies all around the world. The consequences are clear and present for every disadvantaged human being. The discriminated people usually posses less political power, lower social status and acceptability, and endure lower economic standards. Ethnic polarizations are a common element in most societies. They vary from segregated public spheres, to discrimination for jobs, to ethnic cleansing. Perceived ethnic differences also often spark wars.

"Declaring victory at half-time" is a syndrome which afflicts the entire debate (and debates within the debate: see Appendix) over our current economic situation: optimists are of the opinion that the crisis is all over now, while pessimists think it's only just begun. On this front, as always, I regard history as the best indicator of who may be right, and I can't commend highly enough the site News from 1930, which from January 1 2009 began publishing summaries of the Wall Street Journal from January 1 1930. The last few entries include these pearls of wisdom from February 1931:

This paper presents an analysis of the international financial crisis of 2007-2009 and demonstrates that behavioural (non-rational) expectations were all pervasive during the housing and the financial cycle. It concludes that this behavioural explanation is distinct from accounts of market fundamentalism, which tend to emphasize only forces such as financial regulation, financialization and monetary policy. Moreover, it concludes that the impact of conventional and pseudo-diagnostic evaluations that were inherent in rational models of risk-management during the crisis is reminiscent of Keynes’s notion of conventional expectations. This implies that the crisis was marked also by a “Keynes moment” that stands as a distinct process within the so-called “Minsky moment”.

This paper presents an analysis of the international financial crisis of 2007-2009 and demonstrates that behavioural (non-rational) expectations were all pervasive during the housing and the financial cycle. It concludes that this behavioural explanation is distinct from accounts of market fundamentalism, which tend to emphasize only forces such as financial regulation, financialization and monetary policy. Moreover, it concludes that the impact of conventional and pseudo-diagnostic evaluations that were inherent in rational models of risk-management during the crisis is reminiscent of Keynes’s notion of conventional expectations. This implies that the crisis was marked also by a “Keynes moment” that stands as a distinct process within the so-called “Minsky moment”.

The twentieth century man of affairs and pivotal corporation law scholar Adolf Berle is said to have aspired to be the Marx of the capitalist classes. What we need now is more like the Walter Benjamin of the capitalist classes. Benjamin was a painfully insightful critic, and a great interpreter of, among other things, Berthold Brecht, who wrote Threepenny Opera, a scathing attack on capitalism that was a huge commercial success. All of which is meant to suggest that current events present financial policy intellectuals not least with problems in interpretation, issues of how to engage or interrogate – literally how to begin thinking about – the largest financial crisis in several generations.

It is commonplace knowledge that the profession known as economics is in a state of disarray. There are fractures opening up between schools of thought, and lines being drawn between various camps, that make some of the tussles of the past look benign. There is a war going on. Standing, as I do, on the outside of academia, but once having held the title of “Chief Economist”, I look on with a mix of horror, concern, and fear. I wonder what the outcome will be, and I wonder whether economists have forgotten along the way that they are not just working in the field, but are custodians of it as well.
I think economics is a public good in the sense that society as a whole relies upon the expertise and advice of professional economists. They own it just as much as we do. The last few months are testimony to the vital part the profession plays in society’s day to day living. We owe it to society to get it right. Or we should simply shut up and go away. We should not be throwing bricks at each other in the full view of the very people whose livelihoods might be deeply affected by the advice we give.