U.S. Cultural Bias and New Economic Thinking

Going to New Hampshire in early April, I was hoping for surprises — new insights on the world, and especially on the global political economy.

The occasion was a conference at the Mount Washington Hotel, where, in 1947, the Bretton Woods conference was held that gave rise to the post-World War II global financial system.

Sadly, for all the splendor of the place, and despite the intellectual firepower assembled for the occasion, there were no surprises — and even less dynamism.

Inside the cavernous conference hall for two-and-a-half days, though, a phalanx of the top names in U.S. economics, along with some UK-based influencers, essentially held court.

This must be the last arena where the U.S.-UK alliance still overpowers the global debate. Due to the lag time built into professorial appointments and the effects of tenure, it will be quite some time before things change.

It was indicative of how little new thinking there was that the more interesting global economic voices, such as China’s Zhu Min or Chile’s Andres Velasco, were relegated more to the back end of the program.

At the forefront was a hagiography of the U.S. economics establishment, with a prominent dose of Harvard shining through.

Ken Rogoff and many of the others, including the Financial Times’ Martin Wolf, were convinced of one thing: While it wasn’t any longer the case of “Rule, Britannia, Rule,” U.S. economics dominates the global firmament much as the U.S. Navy still rules the seas.

There is an underlying tenor that it’s not even just a matter of resources and assets. No, the contention is held out that it’s a clear case of intellectual superiority.

Other countries just don’t have the same intellectual firepower. The training of economics there just isn’t as strong and rigorous as in the United States. And anyway, the few good people overseas either all trained in the United States and/or are essentially embracing U.S. economic thinking.

No wonder at times I felt as if I were at a Vatican-style conclave dominated by men who, while not robed in purple, embraced plenty of canonical thinking with great rigor.

There was a clear consensus that little could be learned from economies such as Germany and China. Those places are reduced to being described as economies playing with the system in an irresponsible manner.

Next to no space was given to the notion that, because the U.S. economy isn’t any longer delivering the goods, that may have something to do with the underlying economic doctrines, which include plenty of research results for hire by Harvard faculty.

In the wake of the financial crisis, some concession was made that increased attention to the study of economic history in the vein of the late Charles Kindleberger would have been helpful. But that was pretty much as far as it went. If you can’t capture the insight in the form of formula-heavy economics, it’s still not worth having.

Stunningly, the most promising dimension of overcoming the current economics cartel — call it “applied studies of comparative economics” — essentially was nowhere to be found.

Such an approach would focus on matters other than examining broad and classic macro matters in an international context, such as exchange rates and current account surpluses.

Examining real-life economic results and using them to test the validity and relevance of abstract economic theories would yield far more new economic thinking than was visible in the halls of Bretton Woods.

On the positive side, there was some criticism emerging even from U.S. voices of the dysfunctionality of the U.S. political economy. But this insight was by no means connected enough to consequences of the practice of the economics discipline as currently practiced in the United States.

That would have been the beginning of the new debate, underscoring the irrelevance of much of U.S. economic thinking which evidently operates in a vacuum, disconnected from societal and real-life realities.

Without this crucial step, much of the debate, as polished and high-level as it was, had the eerie ring of rearranging the deck chairs on the Titanic. As long as it’s far from the mind of a Harvard man to admit that the current U.S. system doesn’t work for the American people, no new economic thinking will emerge.

And as long as the mantra shared by most of the high priests of this esoteric class persists, that there is really nothing to be learned from the rest of the world, that debate will bypass the United States.

It is a dangerously self-absorbed way to sterilize vital insights from U.S. realities. But in this effort, cherishing the notion of the incomparability of the United States, U.S. politicians and many leading Ivy League academics are joined at the hip.

Admitting that there is something to be learned from the outside would imply that their past performance leaves something to be desired.

Rather than admitting even an ounce of self-doubt, it’s much easier to blame the structural problems of the United States on foreigners. Apparently, it’s foreign nations’ export surpluses that keep American decision makers from smartly investing in education and infrastructure, creating a more balanced income distribution and the like.

These academics would be well-advised to heed the basic disclaimer in statements by mutual fund companies in advertising their hot funds: Past performance is no guarantee of future results.

And for all the undisputed qualities and achievements of the United States in past decades, this “fund” hasn’t been performing for the American people in years.

Just don’t expect Harvard men to acknowledge that. They have a centuries-long tradition of believing in their own and, by extension, American exceptionalism. That one fact effectively nixes the prospect of new economic thinking emerging from the United States.

There was some reference made that this new thinking would emerge, in all likelihood, not from any of the participants, who represented a large part of the economics firmament — but from some of their young research assistants or currently still unknown assistant professors.

Let’s hope so — even though an arrogant high priest class is not necessarily likely to breed much innovative thinking, especially of the (needed) heretical kind.

But even if that were to come to pass, most likely it’s going to come from a young female Chinese economist who will study in the United States, but develop the new, globally relevant economic thinking far away from Harvard Yard, at her home base in Shanghai.