How to save capitalism from itself

A45dac18-e179-11e6-802a-dc53f5401bb9-1Paul Collier at the Times Literary Supplement:

In The Future of Socialism Antony Crosland redirected the Left from Marxism to social democracy. Written in 1956, it anticipated what became the dominant European philosophy. Social democracy successfully addressed the major problems of the time; but new problems have since arisen for which it lacks a credible narrative, or a credible solution. Social democracy now lies in ruins, its ragbag of policies rejected by electorates. Its heyday was the trente glorieuses, 1945–75, but, as Marc Levinson recounts in An Extraordinary Time, the splendid outcomes during these years cannot be attributed primarily to good economic policy choices. Rather, fortuitous technological changes and one-off structural opportunities coincided to lift Western living standards. In the very different circumstances of today, returning to the Keynesianism and redistributive taxation of 1960s social democracy is unlikely to restore Eden. Levinson’s book, which takes the sorry story of economic mismanagement through to 1990, is a valuable antidote to all passionately held economic ideologies. Levinson shows that the Keynesian “fine tuning” of demand was abandoned for good reason; but its replacement by tax cuts for the wealthy and monetary targeting fared no better. For those so inclined, I recommend combining this study with Paul Romer’s brilliant paper “The Trouble with Macroeconomics” (freely available online), which demolishes the past twenty-five years of macroeconomic theory. Reading these two together it becomes clear that no shiny economic theory is going to restore mass prosperity.

more here.