Good Economics
Something is wrong with the world – it is not working. But when I mention this obvious fact to people, all I get is blank looks, and I am forced to recognize something even more shocking – that the people in that world are not working either! And they are incapable of realizing this.
A big part of the problem is economic. People do recognize this, if dimly. But their solution is the same – to act stupid. Or to put it even more bluntly – to be ignorant, stupid, and helpless. And even worse than that – to set about destroying their world – something they know how to do instinctively.
Perhaps eventually historians will be able to understand this destructive sequence – but I am skeptical, they still have not yet settled on the reasons for the Fall of the Roman Empire. But both societies, however, have one thing in common – they were BIG. And determined to get even bigger.
We should be in better shape because we have Science and Technology to help us. But we are rejecting the findings of one of those sciences – Economics. Or it would be more accurate to say that we are incapable of distinguishing bad economics from the good.
Good economics is a science – it check its theories against the behavior of the real world. And it can make reasonable forecasts – as any science can. It can point to its track record – something bad economics does not even try. It simply has The Truth, and applies it mercilessly, regardless of the consequences.
It’s worth quoting Krugman’s article:
As I’ve written many times in various contexts since the crisis began, being in a liquidity trap reverses many of the usual rules of economic policy. Virtue becomes vice: attempts to save more actually make us poorer, in both the short and the long run. Prudence becomes folly: a stern determination to balance budgets and avoid any risk of inflation is the road to disaster. Mercantilism works: countries that subsidize exports and restrict imports actually do gain at their trading partners’ expense. For the moment — or more likely for the next several years — we’re living in a world in which none of what you learned in Econ 101 applies.
I think there is more too it than this. Industrial society, based on manufacturing, is no longer. And the Computer society cannot employ many people. Human society has reached its ultimate crisis and a collapse is inevitable. What will happen is anyone’s guess – but it will not be pretty.
The Wikipedia article is also excellent – and I like its graph particularly. It’s a good example of using a model to explain the world.
But people cannot understand what is going on – or want to understand it. If the world falls down around their heads – good riddance!
great points!
I can never say this enough times:manufacturing is the key to a happy society….ofcourse ethical manufacturing and not like the one in China.
Hal sez: Good economics is a science – it check its theories against the behavior of the real world. And it can make reasonable forecasts – as any science can. It can point to its track record – something bad economics does not even try. It simply has The Truth, and applies it mercilessly, regardless of the consequences.
Just my opinion, but I don’t find your paragraph above even remotely true except for the part about mercilessly applied Truth. As your Krugman quote reinforces, we’re off the map, where norms and models no longer work predictably (if in fact they ever did). The only reason things remain nominally coherent is that fiat currency creates a consensus reality to which we are all forced to subscribe. But endless jiggering with incentives and outright swindles are attacks on that coherence.
Economics, like history, is sometimes good at explaining. Neither is especially good at predicting. The dynamics of markets and cultures are too slippery and irrational for that. But on the short term, things can be gamed, which is what we see in late-stage capitalism. Step back a bit, though, and it’s possible to see those with the wherewithal (the plutocrats) are behaving like a bunch of cannibals eating themselves. Tastes pretty good for a little while.
You and Ann Waldman – the poet in A Poet Rants and Raves – should get together. You have a lot in common.