The Islamic approach to finance was once the most advanced in the world. The period of pre-eminence ended six or seven centuries ago, but the religion’s fundamental insights into the field could help form a financial system suitable for the 21st century.
When I was a boy I was fascinated by my parent’s copy of “The Family of Man”. The book, taken from a 1955 photography exhibition at the Museum of Modern Art in New York, was like a window into the big world. The beautiful images of people from many countries showed that the human condition was essentially the same everywhere: we all went through the same noble story of birth, love, struggle, religion and death. Much later I learned that the photographer Edward Steichen, who designed the show, wished to inspire exactly such sentiments. In the words of Carl Sandburg, taken from the book’s prologue, the human race was “one big family hugging close to the ball of Earth for its life and being”.
Greed contributes to all the economic and financial woes of prosperous societies. The United States and other rich countries produce much more than is needed to support all of their people in comfort, so if desires were all truly modest, there would be few problems. Greed encourages people to decide that their own share is too small. Greed influences the popular desire for GDP growth (more, faster), financial gains (higher house prices as a human right) and total economic security (guaranteed pension, come what may). Voters’ greed encourages governments to spend more and tax less.
The future rarely turns out as expected. Imagine, for example, two sets of economic predictions for the half-century that began in 1962. The first, the Blind Guide, is written with only the knowledge available then. The second, the Retrospective Guide, is based on what actually happened.
The Christmas season is a particularly good time to think about the fundamental weaknesses of conventional economic theory. Frenzied shopping for gifts cannot easily be reconciled with the standard model’s dour “economic man”, a creature who “who inevitably does that by which he may obtain the greatest amount of necessaries, conveniences, and luxuries, with the smallest quantity of labour and physical self-denial”, in the classic definition of John Stuart Mill. The joyful Christmas season is also a good period to offer praise for a line of economic thinking which draws on a much more flattering view of human nature.
Barack Obama did not win the election because more Americans thought he would be a better president than Mitt Romney. More Americans voted for the incumbent than for the challenger, but it is Obama’s superior campaign organisation, and not his personal appeal, that deserves most of the credit. In particular, his product managers were better than Romney’s at using the technique of “data mining”.
Barack Obama will not solve America’s most profound economic problems. That is not a partisan political statement about the newly re-elected president. Had Mitt Romney won last week’s contest, he also would not have been able to reduce unemployment, improve the trade balance, rebuild U.S. manufacturing excellence and strengthen the middle class. The fixing of the American economy is just not a one-man or one-woman job.
It may be a little early, but I want to make a conditional nomination for the 2018 Nobel Prize for economics. If all goes well, the European Union, which has just won the 2012 Peace Prize, will by then have met the criteria for the economics award: a “work on economic sciences of eminent significance”. The EU writes in deeds rather than essays or equations, but the unconventional form only adds to the accomplishment. Here is a preliminary draft of the citation.
It is time for economists to admit that they are stumped. Four years after being blindsided by Lehman Brothers’ collapse, the profession is still stumbling in the dark. Policymakers and pundits still make confident pronouncements, but the conclusions are radically different. The expert disagreements give away the truth: ignorance reigns.