Every policy maker and politician has a story about the economy. The crosstalk of all these stories can be confusing. Sometimes on the same day, are contrasting arguments and articles about the dangers of inflation, deflation, debt, stimulus, deficits, and comparisons to Germany and Japan as harbingers of our path to doom or red herrings to be disregarded—all here, online! Same day!
Many of the key relationships of economics are inverse. A move in one direction actually has the opposite effect. Like when backing up a car, turning the wheel to the right moves the car to the left. Inverse relationships defy the common sense of our culture and experiences. We think in direct terms. Dialectical relationships, especially inverse ones, which make up many of the important concepts and actions in economics are not well understood.
That’s why sound bites build on fallacies have such tenacity and staying power. The believed fallacies of tax cuts allowing the private sector to create jobs (previous cuts didn’t and only demand will), the Fed’s QE flirting with inflation (flat out “no” by any actual measure or data), or the US becoming Ireland (this week) have appeal because they resonate against the grain of their truth.
The numbers are so big and so far removed from the daily finances of Main Street, that Main Street buys the explanation that feels right. Our beliefs only enlarge our insignificance. Tax cuts feel like relief, stimulus induces fear; emotion replaces reason. We can’t cut the adrenalin off, so it’s fight or flight.
Looking at the cultural context of knowledge, especially in economics, offers an insider’s view of how the conumdrums within the field influence mis-turns. I have written often and long about the need to integrate the final views of policy with insights about the non-economic causes of mistakes. The marriage of the humanities and its methods to economics and its mathematics is important to the whole picture.
The mood of Wall Street contrasts starkly with Main Street. The acretion of wealth and its distribution to the golden chosen is in contradiction to construction workers and others who find no expansion in their pay checks. The differences are starting to become an American cliche, a commonly accepted difference that everyone remarks about and notes in passing commentaries, but one that is unlikely to change. In fact, evidence says the gap grows wider.
This new mood puts me in a sad mood. I have a daughter who benefits. But I fear for my friends. American exceptionalism once called for direct actions to help others climb the crystal stair to the American dream. That’s what separated us from tin-horn dictators, military juntas, and countries ruled by corporate plantations. The brotherhood of man was never centered on the “excesses of me.”
But I see Warren Buffett, Bill Gates, and others offering strong hands and I believe there is hope for building a community where the pride and joy we take in a party reflects the delight of using our resources to pull together to make America exceptional.
An Economic Dairy, Nov. 2 – 8
Nov. 2, 2010: I wish Africans had invented zero. Then maybe Atlantic slavery would have been a zero sum game.
Nov. 3. 2010: Every general who commands the troops must coordinate his brigades to cover his flanks. Lao Tzu and the Civil War make that abundantly clear. One of the Administration’s economic policy problems was incomplete and insufficient planning. While having central goals, the logistics suffered. There was no coherent message about the accomplishments of health care, nuclear treaties, wage protections streamed by Democrats. They failed to run through the tape and the crowd was influenced by what they saw after the finish.
On jobs, the feel good examples offered during travel stops didn’t offset the populist fears. With nothing to lose, certainly, a larger stimulus should have be tried. TARP was certainly large enough to bail out AIG and the gang too-big-to-fail. The people deserved the same. Yet, Obama also never tried a public works bill, a bill that funded jobs directly and put a pay check in people’s hands. While the GOP would have screamed, there’s not much resonance against a pay check. It works in Chicago. I’m left wondering why the most success strategy of Chicago politics was never used by savvy Chicago politicians.
Nov. 8, 2010: Those who practice the politics of suffering strike blows intended to wound every good effort to increase economic demand. Without increased demand, there will be no jobs growth. But the Chicken Littles who proclaim the sky is falling look only in one direction for shelter: tax cuts. Theirs is a one note world view.
The administration needs an immediate, massive public education effort, undertaken by leading economists, and yes, the effort can be bi-partisan, to examine the views of economic policy, and the views of those who mislead policy discussions by irrelevant examples, fallacies in logic, distortions of history, and old fashion appeals to fear. It is amazing that most news programs now only have single guest experts whose job is to “interpret” the policy proposals for a $14 trillion dollar economy in sound bites less than 120 seconds long.
The omission of facts, charts, graphs, and other visual aids in a visual medium is clearly intended to be deceptive and spread half-truths that have a full measure of fear and suffering. Economics is a dismal science not because its principles are muddled or unworkable; instead its sound body of developed knowledge and applications is clouded by those who alter and deliberately mis-read facts and exchange them for a currency of apprehension and distress. They send links and posts to each other to congratulate themselves on the success of their efforts. Their success continues to be the country’s downfall.
Nov. 4, 2010: Policy makers, borrowing a science analogy, ignore the fact that the world is round and appeal to micro-sensibility; it appears flat. The hawks add a dash of fear: inflation is near. The doves add a note of caution: deflation doesn’t scare anybody, except economists.
Policy numbers chase political numbers. Which view gains the biggest set within its matrix? After all, analysis has become market driven.
Nov. 18, 2010: Paul Krugman, a Nobel winner in economics has charts and professional data; Sarah Palin has a Wal-mart shopping list. Just who do you think the American people will believe?