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

A Libertarian Martin Luther King Jr. Day post

In which we travel into interesting waters . . . (for a fairly long trip, so be prepared) Dr. King's 1968 book, Where do we go from here:  chaos or community? , is profound in that it criticizes anti-poverty programs for their piecemeal approach, as John Schlosberg of the Center for a Stateless Society  [C4SS] observes: King noted that the antipoverty programs of the time “proceeded from a premise that poverty is a consequence of multiple evils,” with separate programs each dedicated to individual issues such as education and housing. Though in his view “none of these remedies in itself is unsound,” they “all have a fatal disadvantage” of being “piecemeal,” with their implementation having “fluctuated at the whims of legislative bodies” or been “entangled in bureaucratic stalling.”   The result is that “fragmentary and spasmodic reforms have failed to reach down to the profoundest needs of the poor.” Such single-issue approaches also have “another common failing — ...

Libertarian National Committee Deathwatch Part 1

As the LNC continues to lurch towards collapse, with the latest news of mass layoffs at HQ, I've decided to begin tracking those things leading the national party to irrelevance, even as state and local parties gain power. As news, rumors and rhetoric break out, I shall chronicle them in this ongoing series at Delaware Libertarian. Organizations approaching failure have a number of characteristics. One of the most striking is renunciation of their purpose and effort to reinvent themselves as a "me-too" provider of services in the marketplace. In this, the LNC has been on a collision course with destiny for a while now. Recently, for example, it hired Republican Party web site developer TerraEclipse to redesign the LNC web site . Terra created a web site very similar to those of the clients it brags most about -- far-right Republican conservatives like Tom McClintock and BJ Lawson. A quick look at the web site they built for the LNC is instructive. The tagline on the ...

The disturbing decline of the Delaware blogosphere: a very unfortunate Around the Horn (even if it's not Friday)

I've noticed a change in my own blog-checking habits over the past several weeks, and I don't know if it's just me or the reality of the last month of a divisive political campaign. I automatically used to check out Delawareliberal first and several times a day, because it was where I could find edgy, thought-provoking, and (dare I say it) funny banter going on. These days visit several other spots first, and my visits to DL are both shorter and less engaged. Why? Because the combination of invading neo-con commenters with the stridency of some of the major contributors has led to such pleasant exchanges as a post dedicated to labeling another blogger racist by donviti, whose own sense of provocative humor is generally so far out there that he makes John Belushi doing Samurai bartender on the SNL look positively pro-Asian. Or I can find Delawaredem and jason periodically spewing the idea that anybody who is not a liberal or progressive Democrat is somehow a non-American,...