Leading Article: The economic pendulum swings

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Where is Keynes? Where is Friedman? Economics once debated the very future of the nation: how it should be governed, how it could generate growth. Nowadays macro-economic debate is deadly dull, embraced in a suffocating classical consensus about free trade and low inflation. The real debates, and there are plenty of them, are about the small things: training policies, gas prices, education strategies. Today's inflation report from the Bank of England will be greeted with respectful technical analysis in the City. In the heyday of the monetarists, the debate about inflation was a debate about the very soul of the nation.

The shift from macro to micro isn't easy for politicians, the media and the general public to adjust to in Britain. These micro-economic debates are often technical, narrow and aimed at the long term. They do not deliver quick fixes or sweeping solutions to our economic ills. Macro-economics has become less controversial in part because we recognise that some problems (unemployment) are treatable only in the long term and others (inflation) may have been solved. So is it time to bid farewell to macro-economics as a force that can bring with it ambitious programmes of political reform? No, far from it.

Macro-economics remains hugely influential, albeit in a different way from the past. More importantly, it would be unwise to rule out the possibility that it will again recover its power to come up with ideas that can transform the way governments think, institutions work and ordinary people plan their lives. Powerful economic ideas insert themselves into policy-making in response to a deeply felt political need. That is the lesson of both Keynesianism and monetarism.

Keynesian economics emerged out of the experience of the Depression in the Thirties. Markets could not be relied upon to solve the unemployment problem; instead, government should step in to boost demand and kick-start recovery. Monetarism developed as a response to the problems of inflation in the Seventies. Economists who believed inflation was caused by too many pound notes floating round the country called on government to set strict targets for the money supply. Each economic ideology provided its followers with a diagnosis of our economic malaise and a radical reform agenda for government to pursue.

In contrast, today's macro-economic orthodoxy is boring in the extreme. It is reminiscent of the classical idea that prevailed across the parties in the 19th century. Free trade is an unalloyed good. Inflation must be controlled. Governments must be fiscally prudent. Markets and competition are, broadly speaking, the best ways to allocate resources and promote efficiency.

But that doesn't mean there is no ideological debate about the economic role for government. Labour and the Conservatives disagree about the best way to bring about growth - Labour advocates training and investment incentives, the Conservatives further deregulation. Which is right may matter hugely for the economy and the people directly affected by such policies. The structure of markets for gas, water and electricity may be an arcane subject for debate, but it touches people directly. These are the modern economic debates: about how institutions and cultures can be reformed to make them more efficient and productive.

Yet the shift from macro-economic to micro-economic controversy is unlikely to be permanent. Just as Keynesian and monetarist economics grew in response to practical problems, when a new persistent difficulty arises, we can expect a new economics to develop, too. At the moment, its clear what such an economics might be. The problem is the widespread sense of insecurity felt by many middle-class workers in the face of global competition and downsizing. The reaction is likely to come in moves to re-regulate the economy, move away from free trade and give workers more protection, perhaps at the expense of shareholders. The pendulum is starting to swing away from capital towards labour. Economics will swing with it.

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