“With How Little Wisdom The World Is Governed”

Fourteen months ago I wrote the following, in a piece titled, “While We Were Away, Republicans Were Trying to Kill The Economy:

Since the fall of 2008, there has emerged two diametrically opposed approaches to solving our (and the world’s) economic predicament:

(1) Stimulate the economy through government (deficit) spending until consumer demand picks up sufficiently to sustain a strong recovery

(2) Drastically cut government spending because deficits are a drag on the economy

Democrats, of course, have tried to pursue (against strong Republican opposition) the former and Republicans, including now the party’s candidate for president, have aggressively pursued the latter.

Thankfully, early in 2009, the Democrats prevailed with a mild (relatively mild, it turned out) stimulus program that has led to Ben Bernanke talking up today (cautiously, modestly) the Fed’s latest growth forecast for 2012 (now up to a range of 2.4 to 2.9%) and projected unemployment down to 7.8-8% at the end of the year. Not fabulous, but better than the 700,000+ jobs we were losing when Obama took office. And the current 25 straight months of private-sector job growth ain’t nuttin’.

The Democrats success with the stimulus (oh, how that galls conservatives when they hear those words, but they must watch as the American recovery continues) can be compared to what has happened in Europe, which pursued a Republicanesque austerity philosophy.

From Henry Blodget of the Business Insider:

The “austerity” idea, you’ll remember, was that the continents’ huge debt and deficit problem had ushered in a “crisis of confidence” and that, once business-people saw that governments were serious about debt reduction, they’d get confident and start spending again.

That hasn’t worked.

Instead, spending cuts have led to cuts in GDP which has led to greater deficits and the need for more spending cuts. And so on.

Paul Krugman chimes in about the “big fat failure” of the European austerity policy:

It’s important to understand that what we’re seeing isn’t a failure of orthodox economics. Standard economics in this case — that is, economics based on what the profession has learned these past three generations, and for that matter on most textbooks — was the Keynesian position. The austerity thing was just invented out of thin air and a few dubious historical examples to serve the prejudices of the elite.

And now the results are in: Keynesians have been completely right, Austerians utterly wrong — at vast human cost.

But no one I know of thinks that these “results” will convince Republicans here in America to suddenly rush to the confessional and admit there are flaws in their cut-spending-balance-the-budget-deregulate prescription for short-term salvation. Not gonna happen, as Krugman points out:

Nobody ever admits that they were wrong, and Austerian ideas clearly have an emotional and political appeal that is resilient to any and all evidence.

Do you not know, my son, with how little wisdom the world is governed?

[See here for the origin of that wonderful admonition.]

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6 Comments

  1. Indeed, the quote is profound. Learned economists disagree on the applications of the dismal science, so one could make the case that when we put fiscal issues to a general vote of the masses we are in effect abandoning all pretense that the experts know what they’re doing.

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    • Sedate Me

       /  May 6, 2012

      Dismal science -eh?

      As the chief economist for a large international bank once told me, “I’m essentially the modern equivalent of a chicken entail reader”.

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      • That’s funny. With candor like that he must have had some kind of tenure. 😆

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        • Sedate Me

           /  May 6, 2012

          Yeah and it was at an official function too! I think he even said it on national radio too. The guy read chicken entrails for that bank for another 5 years, maybe longer. He must know somebody to be that freewheeling.

          But he’s right. Other than some “cause & effect” knowledge, economists are really just fortune tellers.

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          • And they are telling the fortunes of folks who also are also guessing about which fortune teller to listen to! What a bundle of confusion we human beings are.

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  2. ansonburlingame

     /  April 25, 2012

    I don’t know which “quote is profound” but the Krugman one ignores historical precedent, in modern times.

    Go to http://www.tradingeconomics.com/united-states/gdp-growth

    It is a plot of % growth in GDP. I put in the years 1976 – 2012 just to see the graph.

    Want to know the HIGHEST and most sustained growth in the U.S. GDP during those years? You got it, during the last six years of Reagan. It hit about 10% and steadied out at over 5% for the duration of his presidency.

    So if you want to argue about growth in GDP, then go look at that curve.

    O BUT, you say, trickle down did not work, etc. That is a different argument. But Duane only argues over how to encourage and sustain growth in GDP herein, so I respond accordingly.

    Oh, the curve also shows, in terms of GDP growth, what “Carter did to us” as well. Looks about like what “Bush did to us” in the last year of his presidency, but NOT the first 6 or 7 years. As well “Reagan fixed it” in two years, or so.and GDP growth then “took off”.

    Anson

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