Economic policy in the West looks like an Iditarod race.
Long lines of tightly harnessed economists, bankers and politicians strain to pull sleds into a frozen, trackless, horizonless waste. Hide-encased drivers – Merkel, Obama, et al. – staring through tiny slits in their masks have left their smartest, least tractable lead dogs – Krugman, Stiglitz, et al. – tethered at their ivy-covered igloos to howl in frustration as the mad teams fly away.
Nobel Prize winner Joseph Stiglitz lacks an audience amongst the political classes – everywhere, so far as I can tell. He howls mightily and rightly in the new Vanity Fair. Here’s an excerpt via Mike Allen’s ‘Playbook’ for December 13 on Politico.com:
THE BIG READ — Joseph Stiglitz writes “The Book of Jobs” for Vanity Fair — Web subhead: “Forget monetary policy. Re-examining the cause of the Great Depression-the revolution in agriculture that threw millions out of work-the author argues that the U.S. is now facing and must manage a similar shift in the ‘real’ economy, from industry to service, or risk a tragic replay of 80 years ago.” — “The fact is the economy in the years before the current crisis was fundamentally weak, with the bubble, and the unsustainable consumption to which it gave rise, acting as life support. … It was absurd to think that fixing the banking system could by itself restore the economy to health. … Government spending [during World War II] unintentionally solved the economy’s underlying problem: it completed a necessary structural transformation, moving America, and especially the South, decisively from agriculture to manufacturing. …
“The millions of jobless former factory workers once employed in cities such as Youngstown and Birmingham and Gary and Detroit are the modern-day equivalent of the Depression’s doomed farmers. … Of four major service sectors-finance, real estate, health, and education-the first two were bloated before the current crisis set in. The other two, health and education, have traditionally received heavy government support. But government austerity at every level-that is, the slashing of budgets in the face of recession-has hit education especially hard. … What we need to do instead is embark on a massive investment program-as we did, virtually by accident, 80 years ago-that will increase our productivity for years to come, and will also increase employment now. … We have to transition out of manufacturing and into services that people want-into productive activities that increase living standards, not those that increase risk and inequality.” http://vnty.fr/s 8YoQ5
Increasing risk and inequality is what domestic policy – Republican and Democratic – has been all about since the Reagan Tax Reform in 1986. Remove welfare and social services and flatten tax rates downward: What do individuals get?
I’ve suspected since my first condo refinancing that We, the People, were being conned. I wanted the lower mortgage rate – less than 2/3 what I began paying. The broker pushed me hard to take equity out – ‘Don’t you want a new car?’ – since the condo’s value had doubled. I didn’t. I’ve thanked my gut many times since 2008.
I came to believe, as some others did, that ‘conservative’ economic policy depended on the illusion of free money from real estate appreciation – coupling ‘the American Dream’ with a rainbow’s ‘pot-o’-gold’.
Until it was too late politically, free money hid the lower standards of living deindustrialization and deunionization brought, as well as the upward transfers of wealth welfare and entitlement reform, tax reform and tort reform represented.
The real estate bubble helped the victims of deindustrialization from Youngstown and Detroit to relocate like their Okie and Great Migration ancestors to today’s Hoovervilles and migrant camps: Phoenix, Ft. Myers and Las Vegas. Now that they’re there, bound like medieval serfs to their mortgaged homes, what happens to them?
‘This time, it’s different.’ That’s what we hear just before bubbles burst. And, of course, it isn’t. Since 2008’s loud pop, we’ve heard the same thing as western economies continued to crater.
The cause of the last bubble was different; it always is. But the remedies for resurrecting economies are tried – at least since Keynes – and true. They could even be sold over the counter. The determination not to apply them is new.
Worse, Stiglitz sees that this time is different from other post-WWII downturns. He sees a fundamental change in our economy and political economy. The formulation of the remedies requires thought and compassion. But their shape is as clear as it was to Keynes and his successors: revive demand and educate people for new challenges.
Climate change, social change, economic change: all are occurring at the same instant. Doing less, much less, than we did a moment ago – the nostrum on offer in the EU and US – is the worst remedy imaginable.
Unlike ‘The Hound of the Baskervilles’ in the Sherlock Holmes mystery, we have dogs barking. We should heed them.