The hole in the political landscape

by John Quiggin on April 26, 2009

One way to think about the political impact of the GFC is to look at the range of political positions it’s rendered untenable. This range is large, encompassing, in the US context, everyone from Bill Clinton to Newt Gingrich. More generally, it covers anyone who embraced the claim that a US-style economic system, as of, say, 1995-2005, was the best that had ever been seen anywhere, and could only be improved by making government smaller and/or more business-like.

Minus the US-specific triumphalism, this range includes the positions held by most major political leaders in the developed world at the time the crisis erupted, notably including both George Bush and Barack Obama. It covers anyone who saw the growth of the financial sector and the explosion of global financial transactions as beneficial and who regarded with equanimity phenomena like the growth of inequality and the decline of trade unions which both resulted from and reinforced these trends. Virtually everyone holding this view downplayed or disregarded the looming crisis until it exploded in late 2008.

A critical assumption underlying these views was that the system was stable enough to maintain equilibrium without substantial government intervention and without collapsing into crisis. As far as I can tell, no one seriously argues this in relation to the current financial crisis. There are those who argue that the kind of massive intervention we’ve seen shouldn’t be undertaken and/or will only make things worse. But, AFAIK, no one seriously suggests that, without intervention the system could right itself fairly fast and return to the situation prevailing in, say, 2006.

What are the implications of the collapse of such a large section of the political landscape, both for those who formerly occupied it, and for the rest of us?

Whatever their original position, politicians who actually have to manage national economies have scrambled to find some tenable ground to the left of the chasm that has opened under them, whether this means nationalising financial institutions (Bush was actually the first to do this, I think), taking over financial markets (Ruddbank for example), large-scale Keynesian stimulus packages (Rudd, Obama) or raising taxes on the rich as a first step to paying off the bills that are now piling up (Obama, Brown, hopefully Rudd in the near future).

Unsurprisingly, the immediate reaction (most evident in the Geithner plan) has been to aim for the minimal possible shift, in the hope that as much as possible of the status quo ante can be restored when the crisis is over. But it should be obvious by now that large and irreversible changes are already underway. Rudd has probably gone further than most in recognising this, at least in rhetorical terms.

The only tenable position for anyone who wants to maintain any part of the existing economic and social order is Keynesian social democracy, modernised to deal with the developments of the last few decades, and disciplined enough to avoid the disasters that brought down the Bretton Woods system in the late 1960s and early 1970s.

For those out of power, there are rather more options. The most common is simple wishful thinking, scoring cheap political points by opposing bailouts and stimulus packages while offering no reason to believe that the system can be sustained in their absence. This is the line taken by the Liberals in Australia and the Republicans in the US. It was evident in a lot, though not all, of the talk surrounding the teabag rallies in the US recently.By contrast, and as I predicted, the National-ACT government in NZ is offering stimulus packages and abandoning promised tax cuts.

The remaining option is the view that a catastrophic collapse of the existing system is both inevitable and desirable, and that, out of its ashes will emerge something new and better. For different values of “something” this is the view of Marxists, Austrians and Randite libertarians, some Greens and at least some of the populists who turned up at the teabag rallies. Obviously, the crisis implies a much higher probability for the “inevitable” part of the story than most people would have given it a year ago. On the other hand, there’s very little agreement on the desirable alternative that might emerge.

Adding-up constraints imply that the political mass that occupied the now-exploded part of the political landscape must be redistributed over the remaining territory. It will be interesting to see how this process evolves.

{ 37 comments }

1

Lupita 04.26.09 at 1:53 am

there’s very little agreement on the desirable alternative that might emerge

There is great agreement around the world – clearly voiced by many heads of state, international groupings, and national movements – that a non-imperial, multipolar world is highly desirable. Once the US’ financial hegemony collapses, most everyone outside the US desires its military hegemony to follow suit.

What are the implications of the collapse of such a large section of the political landscape, both for those who formerly occupied it, and for the rest of us?

I would assume to accept that the US and its allies in the G7 embarked in a bout of empire building with disastrous consequences. So far, even Jon Stewart scoffs at the idea that heads of state who allude directly to American imperialism are anything other than crazed demagogues.

2

Sandwichman 04.26.09 at 2:57 am

The one option you don’t mention is “prosperity without growth”, which happens to be the name of a major report from the Sustainable Development Commission, the UK government’s official ‘watchdog’ on sustainability. It even includes a 12-step plan.

“It may seem inopportune to be questioning growth while we are faced with daily news of the effects of recession, but allegiance to growth is the most dominant feature of an economic and political system that has led us to the brink of disaster. Not to stand back now and question what has happened would be to compound failure with failure: failure of vision with failure of responsibility. Figuring out how to deliver prosperity without growth is more essential now than ever.”

The report proposes a plan for government to develop a new macro-economics for sustainability, which does not rely for its stability on growth and expanding material throughput.
.
Recommendations include:
* Creating the conditions for people to flourish
– Includes tackling systemic inequality and removing incentives for unproductive status competition; sharing available work and improving work-life balance, and reversing the culture of consumerism
* Building a sustainable macro-economy which is no longer structurally reliant on increasing consumption
– An economy which can succeed without growth must be based on financial and fiscal prudence and improved macro-economic accounting, and prioritise investment in public assets and infrastructures over private affluence
* Putting an awareness of ecological limits at the heart of economic decision-making
– Treasury thinking must be governed by clearly defined resource and emissions caps; policy should promote technology transfer to developing countries and international ecosystem protection

3

The Raven 04.26.09 at 4:44 am

“Once the US’ financial hegemony collapses, most everyone outside the US desires its military hegemony to follow suit.”

And it is to be replaced by what, exactly? Unless a global federalism emerges there will be several empire wannabes. Me, I’m all for federalism.

4

Ciarán 04.26.09 at 10:52 am

The most likely alternative for the UK, at least as I’d guess it, will be even more of the same dressed up in disciplinary clothes. All from yesterday I know, but listen to @08:33 on yesterday’s Today Programme, where various people say that we’ve spent all the money on the banks and will now have to hollow out the state. This, combined with the Tory strategy towards the next election taking its inspiration from “the 1979 election manifesto of Margaret Thatcher, which gave a sense of the general approach of a Tory administration but little hint of the painful monetarism and privatisations that followed” (bollocks revisionism I know, but a hint of where we’re headed) and what with “private companies that supply what has been a growing £80bn market for public services [welcoming] the cuts in public spending yesterday as “a real opportunity”,” the GFC is looking increasingly like another opportunity for even more transfers to our capitalist rentier heroes.

Oh to be in a more optimistic mood…

5

JoB 04.26.09 at 11:27 am

Ciarán – at least we can tell the kids later that we witnessed an era in which the contra-reformation preceded the reformation ;-(

You’re, unfortunately, spot on.

6

Idiot/Savant 04.26.09 at 12:14 pm

By contrast, and as I predicted, the National-ACT government in NZ is offering stimulus packages and abandoning promised tax cuts.

Or maybe not… having talked up a stimulus shortly after the election, they’re now talking about trying to cut their way out of recession instead.

7

Alex 04.26.09 at 12:26 pm

No – at least in the UK, the Tories are apparently going to be elected on a platform of a) nicey nicey spin and b) cuts cuts cuts, and really nothing else. How that will work without North Sea oil or a constant inflow of capital to buy MBS, who knows.

8

Henri Vieuxtemps 04.26.09 at 12:37 pm

As long as there no real danger of mass-revolt, I don’t see any reason for anything to change; and crisis is a perfect opportunity to dismantle more of the safety net.

Even when there’s a real danger of mass-revolt, my first impulse would be first to tighten the screws, then to shoot some of the troublemakers (just to see how serious they are), and only then maybe to think about compromising by introducing something “new and better.”

9

ajay 04.26.09 at 12:48 pm

This entire post rests on the assertion that, pre-crisis, there was a large chunk of the body politic which believed that “a US-style economic system, as of, say, 1995-2005, was the best that had ever been seen anywhere, and could only be improved by making government smaller and/or more business-like” and that “the system was stable enough to maintain equilibrium without substantial government intervention and without collapsing into crisis”, and that this chunk now finds its views undermined.
Neither Bill Clinton nor the leader of any significant nation ever argued that the financial system was stable enough to maintain equilibrium without government intervention. To my knowledge, for example, Bill Clinton never argued for the abolition of the Federal Reserve, nor Gordon Brown for the abolition of the Bank of England.

This post is an interesting argument, but it’s one that is made against a strawman position.

10

Martin G. 04.26.09 at 1:31 pm

JoB @ 5 might be the only seemingly proper use of the ;-( -smiley I’ve ever seen.

11

snuh 04.26.09 at 1:35 pm

ajay, the key word would be “substantial”, as in “the system was stable enough to maintain equilibrium without substantial government intervention and without collapsing into crisis.” no one is arguing for or against the proposition “the financial system was stable enough to maintain equilibrium without government intervention” (we all see what you did there) except you, which is amusing given you’ve raised strawmen.

12

Omega Centauri 04.26.09 at 3:48 pm

Other than snadwichman @2, don’t we have a second 800 billion pound gorrila complicating matters. That second gorilla, is resource depletion, and the likelihood that the post GFC world will be dominated by resource scarcity, and the reactions to it. Some even argue, that a good part of the motivation for the blowing the various bubbles, whose collaspse we are now experiencing, was to mask the fact that the traditional growth model was failing. Any rational response has got to include significant efforts to move towards sustainablity, and the development of techniques to maximize the longterm utility of our remaining resources.

Of course there is no quarantee that rationality will dominate the response. I suspect that considerable energies will be expended hunting for scapecoats. It is quite possible that one -or several countries may end up with severely reactionary governments. That can certainly be seen from the last great financial collapse (1929-1930s), from which several seriously illiberal nations emeged.

13

Tim Worstall 04.26.09 at 5:04 pm

“and the likelihood that the post GFC world will be dominated by resource scarcity, and the reactions to it.”

Certainly the future will be dominated by resource scarcity. As was the past. As indeed all economic systems are. For that is what economics is all about, the allocation of scarce resources, no?

“The only tenable position for anyone who wants to maintain any part of the existing economic and social order is Keynesian social democracy, modernised to deal with the developments of the last few decades, and disciplined enough to avoid the disasters that brought down the Bretton Woods system in the late 1960s and early 1970s.”

There’s an awful lot resting upon the “modernised” and “disciplined” there. We could use very much the same wording for any number of past events:

“The only tenable position for anyone who wants to maintain any part of the existing economic and social order is the Great Reform Act, modernised to deal with the developments of the last few decades, and disciplined enough to avoid the disasters that brought down the limited franchise system in the late 1810s and early 1820s.”

“The only tenable position for anyone who wants to maintain any part of the existing economic and social order is classical liberalism, modernised to deal with the developments of the last few decades, and disciplined enough to avoid the disasters that brought down the Bretton Woods system in the late 1960s and early 1970s.”

There’s a huge weight resting on just those two words.

14

Cryptic ned 04.26.09 at 5:15 pm

Interestingly, the range of political positions that have been rendered untenable include the entire range of acceptable political positions in the United States, thus leaving the government with no justification for doing anything on the basis of principles. And yet they have to do something, so they have to do the same things they’ve been doing in the past, except with no good reason for it.

15

JoB 04.26.09 at 5:33 pm

Henri, I fear you’re right. I fear you don’t need a conspiracy theory to imagine how the intelligence agencies are preparing to use any uproar as a slingshot for “the emergency state”. Anything but risking the power to be grabbed by ‘unstable elements’, after all ‘it is no time to experiment’ and ‘all revolutions end in war’. Brush off the old memes! The time has come to release them once again ;-(

(the smiley is for Martin’s kind words)

16

Planeshift 04.26.09 at 5:43 pm

“For that is what economics is all about, the allocation of scarce resources, no?”

Well recently most of the more well known economists seem to have been pretending resources such as oil are either infinite or that we don’t need to worry about it running out because somebody will invent a replacement.

17

Walt 04.26.09 at 5:52 pm

Hearing someone say “For that is what economics is all about, the allocation of scarce resources, no?” as if this was an unquestionable claim brings to mind a certain overused quote of Keynes about being the slave of some defunct economist.

18

PGD 04.26.09 at 9:56 pm

This post seems a little naive about the extent to which politics is driven by intellectual or even ideological consistency. What makes positions untenable politically isn’t events but votes. The emergence of a new voting majority united behind an alternative. We are a long way from that.

19

James C 04.26.09 at 9:59 pm

Would be interesting to hear what specifically JQ means by “the disasters that brought down the Bretton Woods system in the late 1960s and early 1970s”.

20

Nix 04.26.09 at 10:38 pm

JQ: I think the Northern Rock nationalization-in-all-but-name preceded any of Bush’s nationalizations.

21

bob mcmanus 04.27.09 at 12:38 am

Would be interesting to hear what specifically JQ means by “the disasters that brought down the Bretton Woods system in the late 1960s and early 1970s”.

High wages, social spending, decreased inequality, flat & unprofitable equities, bad bond markets…all those horrors and disasters.

22

John Quiggin 04.27.09 at 3:31 am

Actually, I was thinking more about accelerating inflation and rising unemployment. Those things and the resulting adoption of neoliberal policy responses brought about produced a (nearly) forty-year reversal in the favorable trends of the Bretton Woods era mentioned by Bob. The forty years are over, I hope, but I think it would be a good idea to look at the mistakes that led us to this pass, so we don’t repeat them.

As a general point, Bob, I don’t appreciate snark in the context of serious policy discussions. If you have a point to make, please do so clearly and constructively. If you want to play “lefter than thou”, there are plenty of venues where you can do so.

23

bob mcmanus 04.27.09 at 4:28 am

22:I apologize JQ.

19:MACROECONOMIC POLICY IN THE 1960s THE CAUSES AND CONSEQUENCES OF A MISTAKEN REVOLUTION …Christina Romer, Berkeley 2007, currently chairman of CEA.

There is also the earlier”A Rehabilitation of Monetary Policy in the 1950’s” by C & D Romer to be found at Romer’s Berkeley Home Page

I would consider these to be pertinent, at least for a possible American policy.

There has been an argument about causes of & solutions to the 60s & 70s macroeconomy going on for at least 30 years (dozens” hundreds of papers?) among various flavors of economists who claim Keynes as an influence;I have attached my non-economist self to what is apparently a losing faction. I have become testy.

Heterodoxy, bot about the 60s-70s, but I hope on topic

http://www.levy.org/vevents.aspx?event=23

18th Annual Hyman P. Minsky Conference on the State of the U.S. and World Economies …April 16-17 both audio and pdfs. Levy Institute, I have only begun to explore the material. Blinder, Kregel, Mosler, L Randall Wray, Janet Yellen, and Joseph Stiglitz, among others

24

Tracy W 04.27.09 at 8:49 am

The only tenable position for anyone who wants to maintain any part of the existing economic and social order is Keynesian social democracy

How about the financial sector shrinks for a generation because most investors learnt their lesson, a lot of ex-bankers earn a lot less money, massive government debt renders governments incapable of applying further Keyneisan stimulus and life trots along as normal? Until at least that is a new generation of investors who don’t remember 2007 and 2008 take power again.

And it seems incredibly strong to claim that “any part of the existing economic and social order” is dependent on adopting Keynesian social democracy. What, the police are going to disappear, judges will all be fired, and prisons are going to be shut down unless we adopt Keynsian social democracy? Governments are going to stop funding public education systems? Defence spending will disappear?

One may think that any or all of those aspects of social life should be reformed or destroyed, but since they’ve all survived the Great Depression, WWII, the collapse of Bretton Woods, the 1970s stagflation and the rise of neoliberalism, then I find it hard to believe that the criminal system, public education, and defence are going to be changed drastically if Keynesian social democracy isn’t adopted.

Incidentally, how do you define “social democracy”?

Walt: Hearing someone say “For that is what economics is all about, the allocation of scarce resources, no?” as if this was an unquestionable claim brings to mind a certain overused quote of Keynes about being the slave of some defunct economist.

If economics is not about the allocation of scarce resources, then what is it about?
Serious question here. Questioning this is like questioning whether physics is about “the science of matter and energy and the interactions between the two.”
Now, one could argue that a particular economic theory is designed to allocate resources towards the already-rich-and-powerful, or one could argue that a particular economic theory is dead wrong, and some theories have clearly been disproved, but that’s different to saying that economics isn’t about the allocation of scarce resources. What would be the point of economics in a world with no scarcity? As far as I can imagine it, in such a world at best economics would be a mental exercise, like Sudoku.

25

ajay 04.27.09 at 8:54 am

11: my typing mistake – I would argue that central banks are “substantial government interventions in the system” – how can they not be? – and no serious politician called for them to be abolished.
If snuh ( or JQ) really wants to argue that central bank activities are not “substantial government interventions in the system” they should go right ahead. If not, I would repeat that the original post is arguing against some sort of laissez-faire gold-standardish straw man, rather than against any significant part of the actually existing political spectrum.

It’s undoubtedly true that the crisis has brought in new forms of intervention – equity stakes for example – and a higher overall level of intervention; but intervention before the crisis was still substantial.

26

James C 04.27.09 at 10:28 am

“some sort of laissez-faire gold-standardish straw man”

Hey even gold standard laissez-faire represented substantial state intervention – the imposition of a fixed gold-based exchange rate. Of course once you established this rule and let it fall into the background you can quickly forget about it for practical purposes and advocate that the market be allowed play itself out – contrived spontaneity. The imposition of private property rights (the sine qua non of any functioning market) is the highest form of this art but I think monetary policy executed by independent central banks (seen as technocratically applying the Taylor Rule or some other formula) can qualify.

27

john c. halasz 04.27.09 at 1:58 pm

@ 24 “If economics is not about the allocation of scarce resources, then what is it about?”

The production and distribution of more-or-less material surpluses.

“What would be the point of economics in a world with no scarcity?”

Whose scarcity? Is the perception of “scarcity” constant and unaffected by relative affluence?

28

Mitchell Rowe 04.27.09 at 2:14 pm

“As a general point, Bob, I don’t appreciate snark in the context of serious policy discussions. If you have a point to make, please do so clearly and constructively. If you want to play “lefter than thou”, there are plenty of venues where you can do so.”
John you’ve blogged/read this site before right? I would say a good third of the comments posted here are at least part snark. It is part of what makes me visited Crooked Timber everyday. Take away the snark and you take away the fun. You can learn from humour just as fast, if not faster, than more restrained material.

29

bob mcmanus 04.27.09 at 3:30 pm

Nah, Quiggin deserves much less snark than most, because I do believe, from for instance his series on refutations that he is working harder on a paradigm shift than many New Keynesian economists. He is not yet Post Keynesian or Paleo-Keynesian, but I think he is trying to move in that direction. Or find a new direction? If I may be so bold etc, these are only my impressions.

But…

Delong on Marx …very long, April 20, linked only for this paragraph. I am not sure if this isn’t revisiting stuff from the earlier Marx thread.

“Marx thought that business cycles and financial crises were evidence of the long-term unsustainability of the system. We modern neoliberal economists view it not as a fatal lymphoma but rather like malaria: Keynesianism–or monetarism, if you prefer–gives us the tools to transform the business cycle from a life- threatening economic yellow fever of the society into the occasional night sweats and fevers: that with economic policy quinine we can manage if not banish the disease…BdL”

But I am very discouraged by the resistance and recalcitrance in US among many of the most currently influential economists. DeLong, Bernanke, Summers, Romer (and Obama) I believe do want to return to the paradigms & conditions of the mid-90s, with very minor tweaks & fixes. I sometimes hear the longterm solution proposed as being as simple as a revival of Glass-Steagall. They may be able to manage a recovery that lasts a while, until a worse crash.

There is a middle ground between Marx’s “long term unsustainability” and DeLong’s occasional bouts of malaria” perhaps a systemic instability. And “social democracy” doesn’t really do me much good because both the US & Sweden (for example) are social democracies with very similar economic systems, and the difference is mostly one of degree. But I think the necessary transition from a public sector periodically moving from 35% to 50% of the economy and back to one permanently at 50% will demand a radical change in theory, one this generation of orthodoxies may not be able to manage.

On the other hand, there’s very little agreement on the desirable alternative that might emerge.

Cue the Austrians, I suppose.

30

Sebastian 04.27.09 at 6:17 pm

“the system was stable enough to maintain equilibrium without substantial government intervention and without collapsing into crisis.”

I understand that this is a normal human goal, but is there really evidence that any human system is stable enough to maintain a positive equilibrium with or without substantial government intervention and without at least sometimes collapsing into crisis?

I’m not sure how it would look, but maybe it would be better to build systems that are generally stable, but also really good at letting things change when there is a crisis?

31

tehdude 04.27.09 at 7:50 pm

So credit expansion and fiscal stimulus are NOT Keynesian now? If I am not mistaken the whole of the last decade was filled with Keynesian moves of every kind. From artificially low interest rates, to massive increases in government spending, to massive increases in commitment to future public spending.

So is your pathetic solution to run away from this blatant failure to pretent that Keynesian economics is something that it has not been since its very creation? Pathetic.

32

JoB 04.27.09 at 7:54 pm

It might look like a system in which no person, no class of persons or no institution has the critical mass to bend the system in a specific direction amenable to the interests of a person, class of persons or institution.

Just a thought (and avery Marxist one at that). It baffles me more and more that there is almost no reference whatever to the persistent increases in scale over past decades – worse: the typical response to current woes is to increase scale & concentrate power.

Small wonder that evolutionarily we’re doomed to progress in leaps & bounds.

33

Walt 04.28.09 at 3:54 am

Tracy W: It’s a definition of such generality that it’s useless. What isn’t the study of the allocation of scarce resources? Engineers don’t have infinite energy to work with. Computer programmers don’t have infinitely many clock cycles. Are engineering and computer science branches of economics? Physicists and chemists have to worry about conservation of energy and the increase of entropy. Does that make physics and chemistry branches of economics? Politics involves the allocation of scarce resources. Is politics a branch of economics? What isn’t a branch of economics under that definition?

Even if there is an argument for the definition, it’s certainly not the product of common sense that it’s often presented as. It is a particular formulation by a particular dead economist: Lionel Robbins. The fact that it’s trotted out like it’s an obvious truth is what brings to mind the Keynes quote. (And if the limitation of scarce resources vanished tomorrow, we wouldn’t need economics, but we wouldn’t need politics or engineering either.)

34

John Quiggin 04.28.09 at 4:10 am

Looking for example at the Akerlof-Shiller book that has just come out, my guess is that some crucial methodological presumptions of the New Keynesians are in the process of being dumped. The most important (specifically targeted by Akerlof and Shiller) is that the goal of the project should be to explain non-classical macroeconomic outcomes with the minimum possible divergence from classical rationality assumptions.

It seems likely that a combination of behavioral economics, asymmetric information theories and (gasp) learning from othe social sciences will lead us to a view that people and institutions are a fair way from being rational in the way in which classical economics supposes and that the best way to explain macroeconomic (and lots of microeconomic) outcomes is to admit this.

35

John Quiggin 04.28.09 at 4:15 am

tehdude, you are mistaken. The Keynesian approach is to use fiscal policy to stabilise the economy which entails surpluses in booms to offset deficits in slumps, and a long-run commitment to budget balance. That’s why nearly all prominent Keynesians railed against the Bush deficits (Krugman was notoriously the shrillest of the shrill on this point) at while anti-Keynesian Republican loyalists cheered them on.

And, rhetorically, it’s a little bit pathetic to use “pathetic” twice in one para, except self-referentially :-).

36

Martin Bento 04.28.09 at 10:39 am

Re: Bob at 23 and the linked Romer paper.

It is depressing that Romer represents the “Left” in the Obama administration, considering that she argues for fundamentally conservative positions, and argues weakly. For example, she says “the 1960’s (specifically, the Johnson administration) introduced the country to the phenomenon of persistent peacetime deficits”. It somehow eluded her that Vietnam was not peacetime, Congress’ failure to declare war being a legalism of no economic significance. She compares this period unfavorably to the 50’s. So how does she deal with Korea? Um, well, she explicitly excludes it from consideration as an “unusual circumstance”. But the Vietnam period is central to her argument.

She then claims that the electoral results of the 70’s support the policies she favors. The clearest electoral referendum on the monetary and fiscal looseness she condemns would have to be Burns opening the floodgates to re-elect Nixon. In fact, Romer dings Burns specifically. Newsflash: electorally, it worked. Chalk up one for looseness. I assume she means the defeat of Carter, but the vote against Carter, to the extent it was not about Iran, was a reaction against the Volcker policies and their deliberate recession, which are precisely what Romer praises. Romer is free to argue that the voters were wrong, but wrong to argue that they voted for her position.

Her conclusion is to praise copiously the monetary policies of the last 30 years, but to decry the generally high levels of deficits. Because of the first position, she generally praises the post-1980 economy. But, of course, that is also when the deficit spending she so opposes really got going, well beyond the 60”s and 70’a, though with an exception during the later Clinton period. And what damage does she attribute to the deficits? Well, not much yet, but it’s only been 30 years. The problems of deficits may take a century to show up – she says this – but we know they will because “most economists agree” on this point. Three decades should be enough time to at least be able to point to the trends that lead to ruin. There is a serious failure of epistemological skepticism in feeling she can simply assert and not even have to argue for the long run consequences. And now that ruin is upon us, it seems to have much more to do with the basic nature of the world Volcker created than with government deficits, though the foolish and unproductive nature of the deficits of the Bush years were not helpful.

Romer is praising as “splendid” the period from 1980 to 2007 (when she wrote the paper). It is not clear that the median standard of living improved during this period, other than improvements in technology, especially when costs (longer working hours, more instability, higher personal debt) are factored in along with benefits (larger homes, bigger TVs). Indeed, she praises this period for its stability, when people’s personal lives were not very stable, largely because of the sacrifice of high employment for the sake of low inflation that she glorifies. By contrast, the median standard of living did increase from 1960 to 1980 as a consequence of political and economic choices: medicare, vastly expanded public colleges and financial aid for college, expanded welfare, etc. She attacks this period for its instability but it seemed to do pretty well from 1960 to 1973. Inflation was somewhat higher than previously, but unemployment was lower. It seems Romer buys the idea that higher inflation must eventually lead to higher unemployment too, but is that really what we saw in the 1970’s? By Romer’s own account, the recession of 74 was largely a result of Fed tightening : a policy she criticizes only for not going far enough. And the same thing in 1978. But if she advocates these policies, and thinks they should have gone even farther, she doesn’t get to condemn the instability they caused: that was part of the intended effect.

37

Largo 04.29.09 at 4:24 pm

Walt,

How about economics being the (theoretical) study of phenomona whose qualifying aspect is economic, where the nuclear meaning of that aspect is the “allocation of scarce resources.” Computer programmers do have to make what are, in an analogical sense, economic decisions (e.g. space efficiency vs time efficiency). Everything in life has an economic aspect to it. But not everything is qualified by that aspect.

Cf. Herman Dooyeweerd, _New Critique of Theoretical Thought_

Cf. Roy A. Clouser, A Sketch of Dooyeweerd’s Philosophy of Science [pdf]
http://tinyurl.com/cy9k3e

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