Skip to main content

Two kick-butt economic posts that point out all the things Paul Krugman, Mark Zandi, and Timothy Geithner aren't talking about

The first is from Scientific American publisher Jeffrey Sachs [h/t Kids Prefer Cheese]:

"Most important, we should stop panicking. One of the reasons we got into this mess was the Fed’s exaggerated fear in 2002 and 2003 that the U.S. was following Japan into a decade of stagnation caused by deflation (falling prices). To avoid a deflation the Fed created a bubble. Now the bubble has burst, and we’ve ended up with the deflation we feared! Panics end badly, even panics of policy; more moderate policies will be safer in the medium term.

There is little reason to fear a decade of stagnation, much less a depression. The U.S. economy is technologically dynamic and highly flexible. The world economy has tremendous growth potential if we don’t end up in financial and trade conflict, and if the central banks ensure adequate liquidity to avoid panicky runs on banks, businesses and sovereign borrowers. We should understand that the Great Depression itself resulted from a horrendous run on the U.S. banking system in an era without deposit insurance, and when the Fed and Congress did not understand the critical role of a lender of last resort. Moreover, the Gold Standard of the 1930s, which we long ago abandoned, acted like a kind of straightjacket on monetary policies.

In short, although the sharp downturn will unavoidably last another year or even two, we will not need zero interest rates and mega-deficits to avoid a depression or even to bring about a recovery. In fact, the long-term, sustainable recovery will be accelerated by a policy framework in which the budget credibly returns to balance over several years, the government meets its critical responsibilities in social services, infrastructure and regulation, and the Fed avoids dangerous swings in interest rates that actually contribute to the booms and busts we seek to avoid."


And then--of all places--Al Jazeera manages to discuss the long-term history of the current economic meltdown without degenerating into partisan references and blaming everything on Ronald Reagan and libertarian economic policies. An excerpt:

This massively unbalanced mechanism was not only rooted in the financial sector but the manufacturing and service industries as well.

Richard Wolff, a University of Massachusetts economist, says the crisis "grows out of the relation of wages to profits across the economy. It has profound social roots in America's households and families and political roots in government policies".

Since the 1820s, the US economy has experienced steady gains in productivity.

This led not only to steadily increasing profits for corporations but also to rising working class wages and, with it, consumption levels.

As wages and consumption rose, the "Protestant ethic" that had helped to generate capitalism's unprecedented economic power was discarded in favour of an ethic of commodity consumption.

People's identities were now increasingly defined by what they consumed rather than their religious beliefs or social actions.

The size of one's home, car and flat-screen TV, or the price of one's clothes, mobile phones and holidays became of paramount importance.

This economic ideology - based on the possibility, and desirability, of limitless growth - created an ethos of rampant materialism and individualism.

The economic dynamics that supported this ideology changed radically in the 1970s when neo-liberal globalisation introduced structural changes to existing financial systems.

Rapid development in computer, communications and transportation technologies fuelled an economic productivity which led to unprecedented growth in corporate profits.

Meanwhile, this process weakened the ability of workers to maintain wage growth at a rate comparable to productivity and profits.

In fact, around 1970 real wages for most non-management workers stopped increasing, and have stayed flat, and even declined, since then.

Wolff explains that rather than fight against the erosion of their incomes, working and middle class Americans began to work even longer hours, and then take on second and even third jobs, in order to continue to consume apace with the upper classes.


I don't personally subscribe to every jot and tittle in these two posts, but they are specifically notable for providing economic interpretations that don't depend on the overly simplistic ahistorical analysis that somehow won Paul Krugman a Nobel Prize for essentially calling anybody with different political beliefs than his a racist.

Comments

Anonymous said…
Moreover, the Gold Standard of the 1930s, which we long ago abandoned, acted like a kind of straightjacket on monetary policies.

This statement sort of confuses cause and effect. The purpose of the gold standard was to prevent the Federal Reserve from causing runaway inflation by running the printing presses nonstop (since the public could check them by converting their dollars to gold). Then for several years before the crash they did exactly that anyway; and then people checked them by converting their dollars to gold.

This conversion to gold may (possibly) have had a role in the crash, but to the extent that it did the real problem was Fed policy in the years leading up to the crash: if they had kept the left of money at a responsible level, they would have had no problem exchanging dollars for gold. Not too different from the role easy credit played in the current downturn.

Popular posts from this blog

Comment Rescue (?) and child-related gun violence in Delaware

In my post about the idiotic over-reaction to a New Jersey 10-year-old posing with his new squirrel rifle , Dana Garrett left me this response: One waits, apparently in vain, for you to post the annual rates of children who either shoot themselves or someone else with a gun. But then you Libertarians are notoriously ambivalent to and silent about data and facts and would rather talk abstract principles and fear monger (like the government will confiscate your guns). It doesn't require any degree of subtlety to see why you are data and fact adverse. The facts indicate we have a crisis with gun violence and accidents in the USA, and Libertarians offer nothing credible to address it. Lives, even the lives of children, get sacrificed to the fetishism of liberty. That's intellectual cowardice. OK, Dana, let's talk facts. According to the Children's Defense Fund , which is itself only querying the CDCP data base, fewer than 10 children/teens were killed per year in Delaw

With apologies to Hube: dopey WNJ comments of the week

(Well, Hube, at least I'm pulling out Facebook comments and not poaching on your preserve in the Letters.) You will all remember the case this week of the photo of the young man posing with the .22LR squirrel rifle that his Dad got him for his birthday with resulted in Family Services and the local police attempting to search his house.  The story itself is a travesty since neither the father nor the boy had done anything remotely illegal (and check out the picture for how careful the son is being not to have his finger inside the trigger guard when the photo was taken). But the incident is chiefly important for revealing in the Comments Section--within Delaware--the fact that many backers of "common sense gun laws" really do have the elimination of 2nd Amendment rights and eventual outright confiscation of all privately held firearms as their objective: Let's run that by again: Elliot Jacobson says, This instance is not a case of a father bonding with h

The Obligatory Libertarian Tax Day Post

The most disturbing factoid that I learned on Tax Day was that the average American must now spend a full twenty-four hours filling out tax forms. That's three work days. Or, think of it this way: if you had to put in two hours per night after dinner to finish your taxes, that's two weeks (with Sundays off). I saw a talking head economics professor on some Philly TV channel pontificating about how Americans procrastinate. He was laughing. The IRS guy they interviewed actually said, "Tick, tick, tick." You have to wonder if Governor Ruth Ann Minner and her cohorts put in twenty-four hours pondering whether or not to give Kraft Foods $708,000 of our State taxes while demanding that school districts return $8-10 million each?