Over the weekend I listened to the three-part Lionel Robbins Memorial Lectures 2010, this year given by Lord Adair Turner.
Lord Turner gives a fantastic and balanced critique of the practice of economics and its use in public policy and regulation of the financial sector. Most refreshingly, he does not end his critique with a demand to regulate and restrict, but rather lays out a range of considerations in setting policy and which arguments he considers should be given most weight. Compared to the caricature of modern markets given by Raj Patel (that I also listened to in the last week), it was a nuanced, thoughtful presentation.
A few of the features that have stuck in my mind:
Lord Turner used Roger Bootles distinction between creative and distributive activities in the economy, with creative referring to activities that create welfare and distributive simply transferring welfare (divorce lawyers being the classic case of distributive activity). The question arises of how much financial activity is on the distributive side of the ledger.
Turner questioned the benefit from increasingly “perfect” markets. For example, does the improved price discovery from algorithmic trading (that may trade in fractions of a second) increase welfare much beyond that delivered by share markets now, with trades occurring each minute? He considered that there must be diminishing marginal returns to such activities.
Zero growth is not possible in a free society without increasing voluntary employment. If people are free to increase the efficiency and manner in which they conduct activities, there will inevitably be surplus resources.
A strong thread through the presentation was the questions of relative versus absolute wealth. As positional goods are only available to those with relatively higher incomes, relative position affects welfare. Considerations such as this mean that inequality cannot be dismissed as a policy consideration.