Sleepycatz

Earlier this month Nobel Prize winning economist Paul Krugman wrote something which I think resonates throughout recent history and succinctly describes our current situation. In his July 1st column he wrote:

When I was young and naïve, I believed that important people took positions based on careful consideration of the options. Now I know better. Much of what Serious People believe rests on prejudices, not analysis. And these prejudices are subject to fads and fashions.

Krugman sees the austerity responses to our economic problems — high unemployment, below average GDP growth, etc — as irrational, ill-informed, and, perhaps, disingenuous. Of course, he’s completely correct. Today’s hyper-concerns over our Federal deficit bear no-relation to today’s economic realities. Instead they arise irrationally from the free-market ideology which has been de rigueur for the past 25 years. According to this ideology there are only two economic pitfalls to ever be concerned about: government interference (re. regulation or taxation) and inflation.

Within the free-market bubble, regulation always stifles business interests; thus, reducing market growth. In the real world, of course, regulation serves to protect consumers and citizens, and in fact can lead to market competition, as Robert Waldmann observed about telecom regulation in the 90’s which reduced consumer prices, spurred technology, and created employment across multiple sectors.

Like regulation, free-marketers always see inflation as something to be avoided at all costs. We see evidence of this in the constant fretting over inflation in the federal reserve reports and in the extreme flogging of the issue by the Beck-apocalypse crowd, who horde gold in anticipation of the day they can gun down their neighbors, who are pushing around shopping carts full of dollar bills. Again, in the real world, controlled inflation can be a useful economic tool: it often increases real world wages and reduces personal and small business debt. These reasons, of course, are why the free-marketers fear inflation so much. Over the past 35 years wages for most Americans have essentially stagnated:

The starting point, for educated Americans of the nineteenth century, was the belief that human affairs were ruled by immutable law. The central law of political economy was the the general good would be best served by the pursuit of individual self-interest. If, under competition, there were difficulties or suffering in society, these were necessary spurs to the effort. Rewards went to those who worked hard and deserved them, while poverty was almost always a punishment for vice and laziness. It would be both foolish and immoral for the state or for any private organization to intervene in economic affairs.

These laws of political economy were, said the textbooks, the laws of God. They were also, for those who accepted the new lessons of Darwinian evolution, the laws of biology. The struggle for existence was the means by which the human race had reached its present high development. Interference would simply help the weak and unfit, injure the strong, and weaken the race. Often spokesmen of laissez faire combined the two sources of authority: free competition was the means by which evolution took place under Divine superintendence. (Sellers, May, et. al., A Synopsis of American History)

We’ve all seen this ugly attitude rear it head in recent debates over unemployment extensions. Politicians have implied and even stated that those suffering from long term joblessness are too lazy, or spoiled, to get a job or are simply immoral drug users feeding at the public trough. Of course, our modern economy and job creation are tied far more to global demand and a desire to establish profit through supply “efficiencies” than to simple bootstrap individuality. Yet, this myth continues to permeate economic policy.

The “bootstrap” myth is not unlike the accepted belief that somehow the federal budget is similar to one’s household expense sheet. This analogy is constantly called upon by armchair free-marketing economists at every turn. Like all overly simple analogies, it bears no resemblance to reality: in my household, I cannot issue 1,5, or 10 year bonds to offset my immediate debt, nor can I create currency to spur growth. Yet for some reason, some Americans seem to think that the federal deficit is somehow effecting job creation. It’s not.

With government interest rates are at all time lows, taxation a 50 year low, joblessness still remains high. It is time to discard all of these free-market myths and address the real economic problems we are faced with. While it may be too risky to raise interest rates, at the moment, the government must step in an help create demand. It must stop trying to respond counter-productively to problems which are imaginary — like high inflation or over-regulation — and respond to ache that regular Americans are feeling and reacting to: high unemployment and under-employment. Paul Krugman has written that another government stimulus is needed to help prime the economy. Again, he’s completely correct. Yet for long term growth we should also look towards regulation which creates competition and reduces monopolies and too-big to fail institutions. For hundreds of mid-sized banks or small radio stations will employee more people and create more innovation then a couple of ultra large financial behemoths or media conglomerates ever could.

Economy, Krugman, Unemployment