Book review: Hubris explores why economists fail to predict financial crisis
It is currently the fashion for books to sport long subtitles, and Meghnad Desai’s Hubris is no exception. After an attention-grabbing single word title, the cover page carries a four-line subtitle:
Why economists failed
To Predict the Crisis
And How to Avoid
The Next One
Desai’s latest work then felicitously proceeds to answer these questions.
Interestingly, Desai lauds the monarch who made him a peer of the realm for having famously asked the same question in precisely five words: “Why did nobody notice it?”
Queen Elizabeth II uttered these words at the London School of Economics (where Desai is emeritus professor) while addressing a galaxy of economists.
Desai’s book is addressed to a discerning global audience of non-economists. In one broad sweep, the author articulates with utmost clarity and cogency the whole history of economics right from its earliest days, when the nascent subject was called ‘political economy’, to the present. This could have been possible only from deep firsthand knowledge. With dry humour and wry understatement, in the preface, he vividly recalls an event in July 2007. “I was asked by a senior diplomat whether the global boom would last. Over the course of my many years in the field of economics I have learnt that there are two things that are certain; the longer a boom lasts, the more people buy into the idea that it will carry on forever and, secondly, the longer the boom the greater the likelihood it will end soon. But economics is not an exact science so I could not give the diplomat a precise date for when the boom would end; but the certainty that a turning point would come and it would be sooner than he thought.”
It so happened that, as early as 2008, the pre-crisis Eurozone picture of steady growth, full employment and low inflation ended owing to “a failure of collective imagination of many bright people compounded by a psychology of denial.” Interestingly, Desai credits the current RBI Governor Raghuram Rajan for having made gentle warning noises in 2005 that good times could end soon. He adds with characteristic wit: “The noises had to be gentle because of the fear that acknowledging the problem could make it a self-fulfilling prophecy.” Continuing his witty tone, Desai points out that the predicament was not called The Great Depression but merely The Great Recession. “Is that sufficient consolation?” Desai wonders. In an important sub-chapter entitled ‘Where to Next’ Desai speculates about whether we are going through the down phase of the cycle of “improvement, growing confidence, prosperity, excitement, overtrading, convulsion, pressure, stagnation and distress.” His subsequent analysis is fascinating but beyond the scope of this review, which recommends that the book be avidly read. Original theories and conjectures mooted by every great economist from John Locke and Adam Smith to Karl Marx and John Maynard Keynes, among others, are discussed in fair detail. These analyses add great value.
Having perused the book seriously, the reader is somewhat amazed to find that all through there is not a single mention of Desai, not even in passing, with the honorific that he is entitled to, namely that of ‘Lord’. Shunning the prefix having taken his seat in the House of Lords with the formal title ‘Baron Desai of St Clement Danes in the City of Westminster’ as a display of self-abnegation seems somewhat contradictory. However, it does not abase the value of this splendid book.
Sujoy Gupta is a business historian and corporate biographer.
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