 Good afternoon and welcome to Professor Linda Yu, who is a fellow in economics at St Edmont Hall, Oxford University and an adjunct professor of economics at the London Business School. She's also a visiting professor at the London School of Economics and the chair of that university's Economic Diplomacy Commission. During her career, Linda has advised the UK Board of Trade, the World Bank, the European Commission and the World Economic Forum, among others. Her latest book, The Great Economist, How Their Ideas Can Help Us Today, was considered one of the best business books of the year by both The London Times and Newsweek Magazine. Her presentation today is based on that book. Before Linda gives us a presentation, just to remind you that the Q&A function on Zoom at the bottom of your screen is the way to give comments or ask questions. Be good if you could also type in your name and affiliation with the question. Very helpful for the chair, in terms of reading out his who's asking questions. The whole event today is on the record. That's both the presentation and the Q&A. So with that, welcome again, Linda. Very many thanks for joining us today and we look forward to your presentation over to you. Thank you very much, Dan. How lovely to be giving this webinar with you. Of course, the my only regret is I can't be in Ireland. I always enjoy every visit that I have. But I look forward to a future one. So I'm absolutely delighted to speak based on my book, Trying on the Ideas of the Great Economist. In a theme which I'm going to go through is about learning from history to try and rebuild the economic consensus. So I think the plan is I will go through some of the lessons from history and learning from the great economists as we think about the economic consensus today, some of the backlash, some of the fractures and indeed the challenges posed by COVID which I really hope we can pick up in the Q&A in about 20, 25 minutes time. So the going to kick off with The Great Economist. So what I've looked at in this book is how their lives, their ideas and most importantly how we can learn from them. And hope not to repeat the mistakes of history and to recognize that perhaps Mark Twain was right. History doesn't repeat itself, but it often rhymes. So our challenges won't be exactly the same but I think they're worthwhile lessons that we can pick up during these very challenging current times. So I'm going to start off with the ideas that have changed the world to see how the economic consensus has been rebuilt in the past when it's broken down before. And I'm going to take you back as I do in the book about over two centuries and we're going to go back to the mid 19th century or just under two centuries. The book itself actually covers 250 years of economic history. So the end of protectionism in the middle of the 19th century and this is when the Corn Laws are repealed in 1846 marked a shift away from a more inward looking mercantilist mindset, which mercantilism is this belief that country should run trade surpluses. Now some of you are probably thinking that sounds really familiar today. Ideas come in waves. But the repeal of the Corn Laws in 1846 meant that England started to turn outward and commercial relationships, globalization in the sense that's more familiar with us today, won the day over mercantilism and protectionism because the Corn Laws were a very high tariff on imported grains that benefited English landowners. But that change didn't just come about because of, it came about because great economists and others had put forward the sense that the old consensus wasn't working. So David Ricardo, the father of international trade was one of those whose ideas around comparative advantage, which is this model of how countries should specialize in exchange changed the mind of the then prime minister, Robert Peel, who then pushed for the repeal of the Corn Law. So that meant there was a new consensus around the benefits of globalization that we would recognize today. But as with a lot of consensus, the consensus breaks down. So I'm going to lead you through the role that different great economists have played throughout the 20th century, as that consensus broke down and then how it was rebuilt again. So just to give you a couple of milestones, I'm eventually going to end up with the emergence of the welfare state, which changed the capitalism of the Industrial Revolution. And that was how the battle of ideas over communism and socialism was won after World War II. And then I'll lead through to the fall of communism in the late 1980s, which seemed to, by the 1990s, give us a consensus, an economic consensus of the best economic system. But of course, today, that consensus is again broken down and we are again at a point, especially with COVID, adding to the impetus to rethink the kinds of economic systems and policies that will suit us in the 21st century. So that consensus from the 1990s started to fracture indeed by the end of that decade with a backlash against globalization, seen, for instance, in the protests against the World Trade Organization in Seattle at the end of that decade, leading us into a 21st century world economy in which the backlash against globalization, high levels of income inequality, so high in the United States that it's actually known as the second-guilded age, as well as the inability to protect the environment adequately has all contributed to the sense that the economic system isn't working and it needs to be rebuilt and rethought. And it's that building of the consensus that I wanna try and cover today. So I'm not going to spend much time on this slide, just to say this just helps situate the great economist that I write about in the book and whose ideas I'm going to draw from on a spectrum between those who believe the state should run the economy, car marks, to those who were very much adherence to the free market. And I have there Friedrich Hayek as a key example as well as Milton Friedman, but it's a very rough taxonomy, but it just gives you a sense roughly of where the classical economists starting with, you can see there David Ricardo and of course Adam Smith to the neoclassical economists, people like Alfred Marshall, who I will talk about. And then the other end, you've got John Maynard Kane to introduce the role for the state in the economy. So we always have to start with Adam Smith. So the very first consensus that I described was on the back of work by great economists like him that his seminal work, The Wealth of Nations published in 1776, laid the foundation for thinking about a market-based economy. And that consensus around this system lasted, as I say, and started to go under go challenge as I'll describe really in the latter part of the 19th century with the push to introduce a more welfare component. But Adam Smith is the father of economics, his book, like all great economists, his book, he took 10 years to write his book, but it was timed to influence the American War of Independence. So a lot of these grades were not just writing pieces of work. They intended to influence policy and that's what he did with The Wealth of Nations and many of the others did as well. But the economic system that he wrote about lasted through the 18th century and a good part of the 19th century until we began to see some of the fractures. And the fractures that we really began to see really came about in the latter part of the 19th century in the late Victorian period. So great economists like Alfred Marshall who's known as the father of neoclassical economics taking the ideas of the classical economists and formalizing them. So he, Alfred Marshall was one of the greats at a time when after it seemed, the repeal of the Cornwalls brought people into a new consensus around the importance of globalization. The downside of globalization was the media almost immediately seen in the panic of 1873. That was an American railroad speculative bubble that burst and it spread a financial crisis across the Atlantic and affected the rest of the world. It led to the Great Depression at the 19th century also known as the Long Depression which is when unemployment appeared in the dictionary for the first time. That was the rise of the trade union movement and that was also the rise of Marxism. So Alfred Marshall as a late Victorian started to rethink some of the ideas around the economic consensus. There was a feeling that there should be help for the deserving poor. That was the phrase used at the time and helping them through welfare did not disincentivize work. And that began to lay the foundations of introducing the welfare state which was very much needed because of the global system that I described as shock. And it was also appeared a very high income inequality and there is the gilded age in the United States that meant there was even a greater impetus to try and change the economic system. And it was through work such as by people like Alfred Marshall and the writings of others and many a society who are advocating for this change that you began to see a shift from Adam Smith's economic system into one that had a greater welfare component. And it was helped by the writing of great economists like John Maynard Keynes. His seminal work came in the 1930s and the general theory about ending the Great Depression. What it did was establish a role for the state in the economy. So the big revelation with Keynes and it's captured in his famous saying is in the long run, we're all dead. So he was arguing against the economic orthodoxy that the economy writes itself in the long run. So there's no need to intervene to help the unemployed or to give welfare. And Keynes's point was of course in the long run it's all a bit too late. So that kind of led to this rethinking of the economic consensus. So I mentioned the early part of the 20th century was this period of rebuilding the consensus and was rebuilding at a time when there was a battle of ideas and it's captured in the title of the next great economist that I've put on the screen Joseph Schumpeter, his 1942 book Capitalism, Socialism and Democracy. Because in the early part of the 20th century there were those who believed that introducing welfare wasn't enough that you just had to reject the economic system. So at that time about 40% of the world's population and then maybe another 20% or so of the people lived in either communist or partly socialist countries regimes. So that led to a need for a debate between the great economists about how the economic system can be reformed and arguing that capitalism was synonymous with democracy, which is what Joseph Schumpeter argued against the socialist system. That became part of the post-war debate to rebuild a consensus, bring people together to agree to reform the system rather than say follow the regimes of the Soviet Union at the time or indeed which was of course the first country that adopted Marxism. And what's interesting is Joseph Schumpeter who is Austrian, who was from the Austrian School of Economics, his main body of work what he's known for is creative destruction. And this is the theory that lots of firms compete and the winners survive and the losers, well, they disappear. And this churn is what's the essential engine of capitalism. But again, like all the greats he didn't just look at the technical work what he did was he embraced the big debates and ideas of the day to try and shape the new economic consensus. And he wasn't alone. Friedrich Hayek, another Austrian he taught at the Lenin School of Economics. He also wrote on this issue and Hayek is known for being a proponent of the free market. He was the ideology behind the Reagan and Thatcher revolutions of the 1980s. His book, The Road to Serfdom was published in the post war period, which likened the alternative systems, the communist systems to a road to serfdom because in his argument if the state controls what you do, where you work what you consume, then that can't be anything but taking away one's freedom. So his ideas were hugely influential including behind the iron curtain. And he just lived to see the collapse of the Soviet Union and it seemed a consensus that appeared at that time which was a reformed capitalist system with a welfare state was and globalization and redistribution to reduce inequality seemed to be the new consensus over as I say the solution of the Soviet Union the introduction of market oriented reforms in China. So it seemed as if we were moving to this new consensus by the beginning of the 1990s. But of course, as I described at the start that consensus didn't seem to last very long because by the end of the 20th century going into the 21st century we seem to be experiencing again a lot of that discontent and which brings us roughly to today where we have quite a lot of need to again rebuild that consensus as to what kind of economic system can protect our environment, reduce inequality be commercially open to global trade but address the distributional impact. And reconsidering what the role of the state might be which has been also triggered by COVID-19 and I think that's the point of history we're at in which the need for ideas and the battle of those ideas is hugely important. Before I go through some of these issues that we'll have to look at in order to rebuild the consensus I just want to point out something which I'm sure is apparent to everyone which is economists don't agree generally. So there's a great saying by the former US president, Harrius Truman who said, just give me a one-handed economist because every time he asked for an answer he would hear on the one hand, on the other hand. But it is actually this robust debate battle of ideas that's needed. And one of the rivalries that I'm going to highlight between two of the great economists that I've discussed will give a sense as to how you can I think have a robust exchange of ideas to really craft the policies that would work and to build a consensus around those policies and it requires airing and debating different approaches. So one of the most famous rivalries in among great economists is between John Maynard Keynes and Friedrich Hayek. So Keynes was a Cambridge economist part of the Cambridge School. Hayek was part of the Austrian School that he was later brought to the LSE. So the debate was actually Cambridge versus LSE, Keynes versus Hayek. And the two of them agreed on very little there are two brilliant rap battles like Hamilton where two rappers pretend to be Keynes and Hayek and they actually wrap out their different explanations of the Great Depression. And then they did the same for the Great Recession of a decade ago. That first video has I think over seven million views. So it's kind of like Hamilton before the economist. But despite the great rivalry, Keynes and Hayek were also personal friends. And when Keynes passed away, Friedrich Hayek wrote to Keynes's widow, the Russian ballerina Lydia and said that Keynes was the greatest man he had ever known. So this battle of ideas is not at homonym. It is purely that, that of ideas. So as we enter into our current period of looking at how we should rebuild our consensus, these are just some of the issues I'm going to highlight for you to think about. And these are the chapters from the book. And I draw on the thinking of the great economists and how those models and evidence has changed since they were the first model in order to help us think about building a new consensus around some of these big challenges. The first one is should government rebalance the economy. And this would be towards manufacturing. Second one is due trade deficits matter, drawing on the ideas of David Ricardo. Can China become rich? It is a politically communist state. Is inequality inevitable? And this is an issue obviously, which is hugely on people's minds. And again, I'm drawing on the ideas of Alfred Marshall there. Are we at risk of repeating the 1930s to invest or not to invest? And this picks up on another idea of Keynes. And the IMF recently has said it's rarely been a better time to have public investment in digital and green initiatives and infrastructure. So that's despite the highlighted dev levels. So that's another issue I cover in the book. There's another page with a lot of economic challenges at what drives innovation. It was Robert Solow, the great economist who said, we can see the computer age all around us except in the productivity data. So what drives innovation in the digital age? And will it raise our productivity? Which is one of the related questions. Can we learn from financial crises as we go through another period of crisis? Why are wages so low? One of the most important questions I think for standards of living. Are central banks doing too much as we enter another period of potentially negative interest rates? That's after all some ideas of military freedom. Why are so few countries prosperous? And this is a very longstanding question. How is it in the 21st century the only quarter of the world's countries are high income? Do we face a slow growth future? Because of slow productivity growth? And is globalization in trouble? There's another backlash against globalization because of the distributional impact on society amongst others. So on this, the ideas that I draw upon are from Paul Samuelson and he proposed, the best way to help the losers from globalization is essentially to judge all redistributive and pre-distributive policies using an ethical lens. So an ethical lens, this is a version of John Rawls's A Theory of Justice, The Veil of Ignorance where if you don't know if you'll benefit from a policy when you support it or don't support it, then that allows you to take an ethical lens to judge whether you might, it's a good policy if you don't know if you're a loser or a winner from globalization. And pre-distributive policies is the current debate about how we can make globalization work better. And this is around giving people the skills that human capital, perhaps even the infrastructure in order to gain more equal returns in the labor market on top of redistributive policies, which is to help them with income support after they've been affected by globalization or automation. So economists have known this for quite a long time since the time of David Ricardo. So Paul Samuelson was asked, who was an advisor to US presidents, why if we've known this for all this time policy doesn't address distributional impact on globalization? His answer was, I can't think of a president who has been overburdened by knowledge of economics. So I'm just going to conclude with two more quotes about solving our economic problems. This is from Robert Solow, who says, don't omit qualifications, never claim more than you can justify. And I think that's an important lesson to bear in mind, as well as the next one, which is from Joan Robinson, another great economist that I write about. And her advice is really why, even if economics is into a cup of tea, the best reason to know economics, she said, the purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists. So in the book, I write about the evidence behind all of these questions and essentially ignites a battle of ideas around what can be done and what should be done in hopes of rebuilding an economic consensus. But as you'll have seen from the timeline that I set out from the start, it can take a long time just to identify the issues. And certainly it takes time and a lot of input to rebuild the economic consensus into as to what kind of system works best to protect the environment, to protect people by reducing inequality and to address the backlash against globalization. All of these issues are intertwined and we're only going to be able to rebuild an economic consensus if we have this debate. And I hope my gallop through the lessons of economic history and some of the ideas a great economist might help us as we go through this currently in the 21st century. So thank you very much.