Exploring the economic landscape – past and present

London Business School’s Professor Richard Portes recently met with Bloomberg Surveillance hosts Paul Sweeney and Tom Keene, covering a wide range of topics and issues, spanning many decades.

In welcoming Professor Portes to the Bloomberg Radio studio in New York, Tom Keene warmly acknowledged Professor Portes’ significant experience and impact over the past six decades, which has seen him honoured with a Rhodes Scholarship, bestowed with the honour of becoming an Official Fellow of Balliol College, Oxford (now an Honorary Fellow), teach at Princeton and at Birkbeck College, and become the inaugural holder of the Tommaso Padoa-Schioppa Chair at the European University Institute. Professor Portes has also been a Distinguished Global Visiting Professor at the Haas Business School, UC Berkeley, and Joel Stern Visiting Professor of International Finance at Columbia Business School.

Professor Portes spoke about his time at Oxford in the early 1960s where he received guidance on his thesis from none other than one of the most important and influential economists of the last century, Sir John Hicks.

Asked whether the weighty academic conventions of economics and economic teaching of the mid-20th century “stand the test of time” and hold value in one’s assessments of the Fed and the Bank of England today, Professor Portes said that there needed to be some changes in the understanding and evaluation of economics and of economists.

“There has been a lot of debate about forecasting for example,” said Professor Portes. “Despite the popular perception, most of us are not forecasters, and yet a considerable amount of the focus in the media is on what did we get wrong and how do we fix it?

“There is of course some importance attached to forecasting. Ben Bernanke conducted a review of the Bank of England’s forecasting performance quite recently, and the focus on those findings proved somewhat excessive.

“People tend to carry the can for these issues, and the chief economist at the BoE is today on the hawkish side partly because he is so scarred by getting the forecast wrong.”

“The main problem,” observed Keene, “is that we’re all fighting the last war [economic crises of the past], and some of us are two or three wars behind.”

Professor Portes agreed with this assessment of the retroactive obsession of some commentators and remarked that there was not enough account of the “really important changes [that have taken place in the major economies]”.

“Immigration has been a big factor in terms of the soft landing of the US economy, which is in relatively good shape, and in the performance of the British labour market. And yet the narrative is that immigration is bad, and yet from an economist’s perspective that is not so.”

Asked about his assessment of the British economy, Professor Portes acknowledged that the economy had dodged a bullet with a short “technical recession” at the end of last year. However, he said that the British economy was not in good shape and the political arena was also not doing well.

“We will certainly have a new Labour government shortly. The Conservative Party government has gone up down and sideways in its economic policies and it’s hard for the markets to deal with that, but overall the economy itself is not performing well.”

Turning to Europe, Portes was asked if the concentration on Eastern European nations by Western powers over the past twenty years, particularly by the United States, had been an “overreach”, alluding to the era of the Bush Administration and the late Donald Rumsfeld’s rhetorical division of the continent into 'Old' And 'New' Europe.

“I don’t want to get into the politics of that,” said Portes. “However, the addition in 2004 of ten countries has been positive economically speaking. It has been good for labour markets and good for the reallocation of production to lower cost venues. Poland is an excellent example of a growing, successful economy in Eastern Europe,”

With regard to the leader of the putative “Old Europe”, Germany; how was that economy faring, asked Paul Sweeney.

“The late François Mitterrand once said that he liked Germany so well he was extremely pleased that there were two of them, speaking of course of Germany before reunification. Certainly Germany is important to the EU and it has not been doing well in recent years. Its production model has become outdated, and it is not clear what needs to be done.”

A final question settled on the nature of teaching and of the practice of economics, and Professor Portes was asked if there was “too much math in economics" as it is practiced by the "‘young Turks’ of today”? “You had it somewhat different Professor Portes. You had to learn economic history and absorb the wider context of the subject.”

Professor Portes said that while his own Ph.D. students had to know math, “they also do a lot of applied work. They apply the math and the statistical data to real data, In fact, overall, I think that the real change has been a move away from pure theory.”