Saturday, July 11, 2009

An Economist Gets It Right!

I was about to give up on them. I was saying things like "the economy is too important to be left to the economists." If you go to just about any professional economist's blog these days you'll often get more thoughtful, logical, probing and realistic analysis in the comments section. For example, here is one of my favorites, Paul Krugman, in a recent column titled The Stimulus Trap: " . . . policy makers should stay calm in the face of disappointing early results, recognizing that the plan will take time to deliver its full benefit. But they should also be prepared to add to the stimulus now that it’s clear that the first round wasn’t big enough." Not particularly edifying -- and almost certainly wrong. But check out the following response from a reader named David, from San Francisco:
If the credit driven excesses of the past, like the dotcom and the housing bubbles, could simply be cured by even more borrowing and essentially creating money out of thin air, then it follows that there are no consequences to economic malfeasance and crimes.

The implicit premise in your insistence for massive additional stimulus is that we can somehow get back to the "good old days", or somewhere close.

What if we have so abused our economy, our dominant economic position in the world, and the reserve currency status of the US Dollar, that the whole system is trying to reset at a new, rational, and lower equilibrium? It is foolheardy to fight an avalanche. Our standard of living is going to go down regardless of what you advocate or what Obama does. The only question is if we are going to gracefully accept this new paradigm.
Thank you, David! And that was only the second comment on the list. I don't have time to sift through all 380, but I'm sure there are many other laymen like David, with meaningful things to say.

And, to my surprise and delight, I just now found a real live economist with something meaningful to say. Robert Reich! You remember him, he was Secretary of Labor during the Clinton administration, when he also had meaningful things to say. Maybe it's his tendency to speak meaningfully -- and honestly -- that got him into trouble with Obama, who seems to have fallen in love with just about everyone else from the Clinton crowd.

Anyhow, Reich just came up with an amazing article, just now published at the AlterNet blog, entitled: When Will the Recovery Begin? Never. This is very good stuff, especially since it echoes things I've been saying for months now. But who pays attention to little me? Maybe now these ideas will get some serious attention, because, and I'm sure I'm being just a bit egotistical when I say this, but: I know I'm right. And if I'm right, Reich must be right too. Say that 25 times in a row. Only Reich will be taken seriously. Why? Because he is an economist. And I am . . . . not (not really, no). Here are a few gems from Reich's great piece:
The so-called "green shoots" of recovery are turning brown in the scorching summer sun. In fact, the whole debate about when and how a recovery will begin is wrongly framed. . .

In a recession this deep, recovery doesn't depend on investors. It depends on consumers who, after all, are 70 percent of the U.S. economy. And this time consumers got really whacked. Until consumers start spending again, you can forget any recovery, V or U shaped.Problem is, consumers won't start spending until they have money in their pockets and feel reasonably secure. But they don't have the money, and it's hard to see where it will come from. . .

Eventually consumers will replace cars and appliances and other stuff that wears out, but a recovery can't be built on replacements. Don't expect businesses to invest much more without lots of consumers hankering after lots of new stuff. And don't rely on exports. The global economy is contracting.

This economy can't get back on track because the track we were on for years -- featuring flat or declining median wages, mounting consumer debt, and widening insecurity, not to mention increasing carbon in the atmosphere -- simply cannot be sustained.

The X marks a brand new track -- a new economy. What will it look like? Nobody knows. All we know is the current economy can't "recover" because it can't go back to where it was before the crash. So instead of asking when the recovery will start, we should be asking when and how the new economy will begin. More on this to come.

Yes, Robert, please. More! This is one economist I'm happy to listen to.


  1. Yes, I trust Robert Reich. I almost voted for Obama based on Reich's support that has gone unrewarded. However, another worthy economist is Nobel laureate Joseph Steiglitz. A few years ago, he co-wrote the book The Three Trillion Dollar war. Steiglitz admits his estimates for the cost of Iraqi-Afghani war was low since since when they wrote the book they could not imagine petroleum going higher than $25 a barrel. Their estimate factors in the long-term care of our wounded. All the same, Steiglitz is not another ecomomist looking for CNN/New York Times contracts or Presidential appointment.

  2. Speaking of Robert Reich, here is a nice three paragraph message from him called Obama's Healthcare Clock is Running Out. Let's see if Obama
    lets universal healthcare just slide by.

  3. Thanks again, Dave. Yes, I've read Steiglitz and can agree that he's another economist capable of getting past all the dogma to something close to the truth. And thanks for the reference to Reich's message, which I read and agree with. Reich has a blog of his own, by the way, which is now on my Favorites list:


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