When Danny Riley forwarded me this essay by PIMCO (PHK:NYSE) CEO Mohamed El-Erian, it was an interesting coincidence. I had been reading LinkedIn’s “The Book That Changed Me” series by business leaders and looking for El-Erian’s. I highly recommend the series; you’ll likely find a book you love and one you want to read. El-Erian’s choice should be on that list.
In that chapter, El-Erian, who is a plutocrat, and whose job is to make other plutocrats even richer, talks about the risks and rewards of the income inequality we have today in the U.S. and worldwide. He offers the analogy of an increasingly fancy house in a poor and deteriorating neighborhood.
1929 was the last time the U.S. saw such income inequality, and today’s is worse (or awesomer if you’re the clueless Dennis Gartman). The new factor in economics at that time was uncertainty, on a scale the industrial economy had not seen.
[pullquote]Do you have a book that changed you? If so, leave it in the comments below and let’s start a discussion.[/pullquote]We have a similar creative destruction at work today: we’re going from working for a company to being an entrepreneur, from manufacturing to knowledge and sharing, from the dominance of the West to decentralized power. And from a bubble to a near crash and now, in a way that makes both perfect and no sense, another apparent bubble. We’ve been in a bubbly mood so far this millennium.
Into 1930s economics came John Maynard Keynes, whose work continues to be admired and denigrated and largely misunderstood. Shackles’ book, as El-Erian explains, is not so much about defending Keynes’ theories as about advocating for the kind of openness to change and new solutions that Keynes exemplified.
If nothing else, “The Years of High Theory” reminds us of the importance of openness to new ideas and approaches. And, by openness, I explicitly do not mean internalizing what others think through the filter of our existing conventional wisdom, comfort-heavy frameworks, and historical biases.
El-Erian’s essay reminds me of something Mikhail Gorbachev said to explain his dismantling of the Soviet status quo. We forget what a revolution Gorbachev managed with glasnost and perestroika, not to mention the virtually total nuclear disarmament he and Ronald Reagan came so close to in Reykjavik. Gorbachev said openly and plainly what many had been thinking for years: “We can’t go on living like this anymore.”
We may be on the verge of saying the same thing about our current version of capitalism, in which markets are neither free nor fair nor open, even if they are profitable for some of us. In any case, when it comes to using 20th century economics, whether Keynes or Friedman or Ayn Rand or the Austrian School, to address the new uncertainty of the 21st century, we are like T.S. Eliot’s 3 Magi at the end of their journey, “no longer at ease here, in the old dispensation.”
El-Erian, whose father grew up in rural Egypt and who studied economics at Keynes’ own Cambridge University, concludes his essay,
Today, such intellectual openness would do much more than resolve economic differences that have now descended into ugly name-calling among prominent economists. It would also help counter political polarization that is steadily eating away at the fabric of our society.