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Richard A Werner

November 1, 2011

Richard Werner is a pioneer of a sane approach to Economics. His approach is as important as his results todate, significant though they are.

His biog accompanying a recent conference reads:

“Professor Richard Werner is founder and director of the Centre for Banking, Finance and Sustainable Development at the University of Southampton, where he holds the Chair in International Banking. Richard has worked as researcher at the Bank of Japan, chief economist at an investment bank, senior consultant to the Asian Development Bank and as an international fund manager. Having popularised the expression ‘Quantitative Easing’ in 1994 and 1995, he is known as a seasoned central bank watcher and expert on banking crises. In his 2005 book New Paradigm in Macroeconomics he warned about the asset bubble and subsequent banking crisis in the UK. His 2003 book on the Japanese economy, Princes of the Yen, became a general bestseller in Japan. In 2003, Richard was named ‘Global Leader for Tomorrow’ by the World Economic Forum in Davos. He is also visiting Professor of Economics at Goethe University, Frankfurt.”

A review of his book New Paradigm in Macroeconomics, found on Amazon, reads:

A superb treatise on money and banking and its relationship to the wider economy. It combines rigorous scholarship, accessible arguments and sane ways out of the financial turmoil and slavery we find ourselves in. Werner reworks macroeconomic theory through the lens of credit, finding that the supposed ‘puzzles’ of macroeconomics, such as why the velocity of circulation of money appears to bear no stable relationship to real economic activity, dissolve. The key point is that banks create money (credit, debt) out of nothing, they do not act as intermediaries channelling savings to investment. One can then distinguish between credit created for productive purposes and credit created for speculation on rising asset prices in the financial sector. Having done this you find that productive credit creation predicts the path of economic activity remarkably well.
The abandonment of credit controls with the advent of neoliberal ideology has meant that productive activity has been increasingly starved of funds to the benefit of the financial sector, also causing the latter to spiral out of control. We also learn why conventional fiscal policy cannot counter recessions. Unless new credit is created to finance it, all that happens is that investment funds are diverted from non-bank financial institutions. Werner points out that instead (and here he joins a long line of distinguished commentators) money can be created by the government, independently of the banking sector, interest-free. It can be literally spent into existence in the public interest.
These arguments are bolstered with convincing empirical analysis from Japan, where the author has worked in financial institutions. He therefore has an inside view on the money markets and can speak with an authority born of working knowledge, rather than, as is unfortunately the case with most academics, the armchair. The empirical story charts the housing bubble in Japan, the inevitable bust and then failed attempts to stimulate activity. Sounds familiar? There is political insight too, as we learn that the working practice of central banks differs from the ideology they publicly espouse. The current orthodoxy is exposed as effectively a facade behind which rentiers extort the rest of the population. Unusually for such a radical work, the statistical analysis will pass the exacting standards of even the pickiest academic economist. It’s technical in parts but justifiably so, and repays the effort many times over. The technicalities refer to real world entities and processes, unlike those of conventional theory, which means that if you dig hard enough you will find your way through.
My one criticism of the book, and this may stem from the period in which most of the painstaking research was conducted, is that there is no link made between the financial crisis and the ecological crisis. It is therefore implicitly pro-growth, and does not speak to current concerns about either climate change or impending energy scarcity. However, Werner’s suggestions for a more sane financial system would integrate well with a bona-fide ‘green new deal.’ Government money could finance programs of energy efficiency and renewables infrastructure, without interest rates imposing short-term time horizon inconsistent with sustainability.
Overall the book is easily of a sufficient quality and insight to cause it to be systematically ignored by the mainstream of the economics profession. I do hope this does not happen, and I’ll be using it in my teaching for sure.”
Until recently Werner has been dubbed a ‘heterodox’ economist, i.e. a heretic not to be taken seriously in the West at least. However there are signs of this changing. He managed to attract both Lord (Adair) Turner, head of the UK Financial Services authority, and Charles Goodhart, Professor of Banking at LSE to a conference in Winchester on 29 Sept 2011. What is more Turner agreed with much of his thesis [Turner Sept 2011].
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