Time out.? Time to have an elementary school education for those that lead us, who have pretensions to understanding economics, at least in terms of how people really work, not the idealized Homo Oeconomicus of the introductory economics textbooks.
Time for them to get a dose of behavioral economics form books like Priceless and “Secrets of the Moneylab” (soon to be reviewed).? People don’t care as much about improving their position in life as much as they do about fairness.? Why? If I did not believe in Jesus, I would say that people assume that the games that they play will be repeated in life, and so they punish those that cheat, because they prize the integrity of the system more than short term results.
There is a simpler explanation, though.? Men/(Women) were created to judge their surroundings and rule it.? Man was created on Earth for moral purpose primarily, not for increase in consumption.? When ethics are transcendent rather than a question of economic advantage (more is better), men will act against their short term interests to promote the long term good.
This is yet another reason why people don’t necessarily act on average to maximize their short-term pleasure.? People will not normally enter into deals that they find morally repugnant even if they would gain from it.? Ask a liberal if they would encourage the Nature Conservancy to sell land to Plum Creek Timber, or one of its peers.? They will object.? Wait, couldn’t they take the proceeds, and buy up more forest elsewhere?? Sorry, this is a sine qua non for them.? They don’t deal with the enemy.
I could come up with many more examples, but I am sure that I would make a lot of people angry, and that is not my goal here.? I am just trying to make people think a little more broadly about economic policy.
So the central bank decides to finance a certain financing market in a panic.? Fairness asks this: why them, and why not me, or everyone?? We don’t care if the economy would supposedly collapse without the aid of the central bank.? Things should be fair; if you are offering it to them, you should offer it to me, or everyone, or you should not offer it.
The same applies to fiscal policy.? Stimulus, should it exist at all, should apply to the broadest category of applicants.? Don’t target troubled industries, particularly those whose products are in oversupply.? Send the stimulus to average people equitably.? Let industries fail, but let consumers choose what they need.? Why should we support industries that are not needed by the public?
So when I read Daniel Henninger in the Wall Street Journal arguing that average people don’t respect spending beyond the budget of the government, I get it.? I GET IT!!!? They have an interest in fairness, which stems from their moral sense that we can’t spend beyond our means, printing press or not.? Yes, the printing press may print, but it does not create value as much as redistribute value into the hands that the government favors, and the average person suspects they are getting none of it.
I am no fan of the Republicans, but do the Democrats understand what fury they have unleashed?? What do average people think when the government runs huge deficits in peacetime?
They look at it and wonder, Why can’t I do that? Why can’t we all do that?? The moral/ethical question pops to the top, regardless of other concerns.
The model of man that economists use is flawed.? Rather than focusing on the weak concept of more is better, they should look at fairness, and other relative comparisons of well-being that people care about.
What’s that you say?? If we do that, all the pretty math doesn’t work?? The pretty math doesn’t work already.? Tests of both microeconomic and macroeconomic theory as currently construed get rejected by the data when they attempt to apply the broadest tests of the general equilibrium theories.? If I am wrong here, please forward onto me the studies contradicting this, because this is what I learned in Grad school economics in the third year — very disappointing to save it until then… why not mention it in Econ 1 & 2?? Oh, you want to keep your jobs, because it beats working for a living?? Aye, laddie, I ken, I ken.? What I don’t get is providing intellectual cover for politicians to run a huge pork barrel.
Many people are sick of the government trying to assure prosperity and failing, to the degree that many are now thinking that the government is not trying to assure prosperity, but merely help out favorites, because that is how a lot of the policy of bailouts, stimulus, credit easing and radical quantitative easing appear.
Summary
I write this because there are many politicians, economists, and journalists/bloggers who don’t get why a large number of people are angry over what the government is doing in the midst of this crisis.? They think that everyone should be grateful that they are applying the Keynesian/Neoclassical remedies that the academics imagine will work.? They aren’t like me, where I think that most of the government’s actions are long-term harmful, and it would be better to do nothing. My hope is that one day average people will know that the government cannot assure or aid prosperity, aside from providing courts and police.
But average people look at fairness, and the snake oil “remedies,” regardless of their validity, do not provide that.? That is why many are annoyed, if not angry.
I predominantly agree with your point, but I think there is one area you are wrong in a big way. You made the following point: “What do average people think when the government runs huge deficits in peacetime?” and place the blame on the Demoracts. Unfortunately, in reality we are not “in peacetime.” We are simultaneously fighting two wars, one of which the Republicans maliciously misled us into, and now it’s being raised as a question of whether we can spend to help people or not?
The real question is whether we can be an imperialistic power and fight two wars, or if we should be somewhat more introverted and take care of our people first. To make this a matter purely of economics is missing one of the BIG points.
I should add, never in our history have we simultaneously been engaged in one war without RAISING taxes, let alone two. Yet as we first got started in this international mess, rather than raise taxes to fund the effort, we were lied to and led to believe that the “war will pay for itself.” Not only that, we CUT taxes.
You had me at “What do average people think when the government runs huge deficits in peacetime?” Peacetime? Have you seen our defense budget?
Okay, ignoring that, I get your point about fairness, or as behavioral economists realize: humans are more sensitive to how we are doing compared to our neighbor rather than on a nominal basis.
One liberal friend got worked into a lather about how “people are starving!” and I reminded him that in the USA and western civilization that nobody’s starving, protein is cheaper than ever on a nominal basis. But we finally decided that his frustration is that Wall Street Masters of the Universe are making more money than ever, income and wealth discrepancies are higher than ever, and yet working class people are losing ground and losing their jobs. Yes, deficits are ramping up, but liberals blame the warmongers and righties blame the welfare state. Both are correct to a degree.
If one thinks that Keynesianism is a crock, then I suppose the last 18 months have been very disappointing. But for those who feel that our imperial conquests are costly and counterproductive, the previous 8 years were painful– and the big prize at the end was that the average guy lost his job to boot.
I find it funny for a bond manager to criticize Keynesian policies,
To be fair to Keynes, he recommended government to spend when unemployment level is very high during the great depression. I have not come across evidences pointing to Keynes recommending deficit spending under near full employment conditions.
It was Nixon’s decision to go out of gold standard, made it possible for government to run perpetual deficits and that decision has nothing to do with Keynes.
The problems, you are attributing to Keynes, have a lot to do with Nixon’s decision and not Keynes.
I hope you will be fairly balanced in your assessment of Keynes.
r
I read your blog because I enjoy and learn from your economic analysis. It’s thought-provoking, and it’s something I can’t find (or haven’t found) anywhere else.
Your political analysis … meh. I don’t agree with it, and I don’t even find that it challenges me. It just seems like a recitation of talking points.
Anyway, I don’t come here just to complain (or compliment). Since you obviously have very strong political and ideological impulses, I wonder if you’d do a post on how you keep them from affecting your investment discipline? When you look back over your history, do you see any evidence of political ideology in retrospect? If so, have you changed your methods to compensate? Anything you have to say on the subject, I’d be interested in reading.
Also, about two years ago (during the debate over President Bush’s TARP proposal), you wrote:
I have long felt that our nation as a whole blames its politicians too much, and does not blame itself enough.
It seems to me that your attitude has shifted significantly since then. Do you agree?
To all, I will have a follow-up post tonight. Many of you brought out matters that I omitted, and care about. There may even be some things that I take back, after I mull it over. Thanks.
re:
That surprises me.
Henninger had absolutely no criticsim of WS antics through the Bush years. The “off the books” funding of ME wars, no problem. What housing bubble?
Mortgage bond profits were examples of “wealth building” capitalist virtues.
Post Enron “corrections” were immoral intrusions into the all knowing wisdom of free market capitalism.
Beyond that, however, there were processes begun long before Obama arrived which led to current econ/standard of living conditions. Seems pretty clear to me the grounding of those processes was sourced by unscrupulous people for “profit” motives charactarized by gaining money w/out contributing value.
Henninger was all for these endeavors/conditions as they built, and denigrated critics along the way in terms similar to his article you link.
Of course people want smaller government when all they’ve been hearing from MSM last year is massive criticism of US gov. spending as responsible for current econ malaise, while very very little in the way of fundamental, concise explanation of the processes which brought us to this point.
Henninger takes the bad and attaches it to a person (BO) for partisan reasons. And IMO, it is this type of messaging which has become dominant in moving critical mass of public opinion behind ideas/efforts and such which have sent us to the crapper.
IMO, Obama is an utter failure… I couldn’t be more disappointed (and I took 3 mos off to pound the pavement for his election effort). However, pinning our economic problems on Obama, while ignoring all the rest of the stuff that got us here…
I dun’o, personally, I go no use for the guy (or his crew). I’m surprised you quote him.
When you say:
well, sheesh… that’s all well & fine, but lacks hugely meaningful distinctions. Represented in these “public sentiment” surveys is a current condition comprised of mass unemployment, hugely inflated bills for recent college graduates unable to find jobs and/or work enabling them to pay loans, and former middle class families/workers w/homes in some process of underwater/reposession etc… not to mention largely evaporated 401ks.
So really David, at least in my view, if we’re going to take an honest look at “fairness” and evaluate the forces that work for or against it, I find it worthwhile to identify entire processes as opposed to 1 point in a timeline. In fact, I find it to be a principle that this selective picking of data to make a larger point is *ALWAYS*… *ALWAYS* wrong in truth.
In physics, gravity does not suggest entropy: only observation of the systematic functioning of “bodies” w/in a system does so. Similarly, current public debt #’s do not, in themselves, suggest all the moving parts in econ activity which resulted in this debt. Would be very interesting to get Heninger on the record for an explanation of what got us here, and square said explanation w/observable & known reality of that process.
…
Currently, it’s quite fashionable in many econ circles to blame Yuan peg for US currency problems. Several of better known econ bloggers have hammered this for some time.
The WSJ OpED (I think) Friday had something to say about this, generally trivializing the notion. Kind’a surprised me, coming from them.
I mention this because there was a tidbit in that “opinion” which, given more thought, I think is hugely relevant/instructive given our current econ foibles. They mention Chinese reinvestment as 15% of GDP, comparing that to US emphasis on “consumption”.
This “consumption” trend in US has been in full surge for at least a decade, to the point of massively excluding the investment side. And in fact, what investment US economy made as a whole was directed over last 10 yrs to… China.
Perhaps the question should be asked: what had China done w/this available capital wrt investment? And how does that compare to US’ investment activity? Who made the decisions on respective shores?
I read WSJ OpEDs to be informed mostly of what IMO is activity of most corrosive influences in US economy/politics/wealth distribution. I have found, for some time, they just make stuff up. And in particular, given their influence, I also find it symptomatic of another big problem w/have here: that OpED page, for decades, was must reading for me… they produced a wide swath of thought from a wide swath of POV, generally written by people of good intention and integrity.
Now… well, Newt/Rove/all kinds of disreputable climate deniers… AFAIC, WSJ OpED is a cesspool. And if also find their previously firewalled sections, detailed and full of excellent hard earned information, are more and more reflecting political/ideological “opinion” rather then revealing meaningful factoids an astute reader can make sense of.
Debt is not our biggest problem, rather it is an expression of national charactar. If people *really* want to change that, we’re going to need a collective introspection into the causes and conditions that produced this.
Currently, I see no evidence there is movement towards such activity.
David: this post bothered me all weekend. Not for your premise, but rather it’s (IMO) far too diminutive scope and (also IMO) carelessness w/words. When you say:
I don’t know about that.
I have read your statements on your faith, relationship w/your pastor (etc.), and have long respected that as (much more then most who labor in your field) there is always a moral underpinning to your thoughts/writing/assertions etc.
But… “created to judge their surroundings”?
Surroundings… that’s a pretty all encompassing term… as in everything: people, street signs, color of neighbor’s home, pros & cons of having a mosque in one’s neighborhood…
What exactly does “judge” mean? Have you ever done an in depth word study on New Testament etymology of the word? It ranges from “observe and understand” to “justice” to “condemnation”… all under the same, non-specific definitions that float around in people’s minds, given their various bents & proclivities.
I have studied scripture exhaustively, and found great value in doing so. Amongst other things, hugely meaningful distinctions in precise meanings of words, as they were originally spoken, translated very sloppily into various English versions, entirely and profoundly alter the meaning. And the consequences of one believing mistranslations, if said folks are putting their “eternal” wellbeing into belief as faith… huge.
The word: know (knowing/knowledge etc.) was uniformly used in KJames for a variety of entirely specific meanings not evident in the translation. Amongst these, was “see”.
This errant mis-translation was used in a number of places, put into contexts where the understanding derived from the wording explicitly indicated the particular “knowing” was by means of being “told” by an “elder”, as opposed to the rather authentic personal experience of “see”(ing).
Profound.
Just in process of living, seeing degradation of grounded moral core in US, I often and reminded of what seems to me an approx. 100% lack of clarity (eg: seeing) in what seems to be a forgotten part of Christ’s statement:
There’s that word “judge” again. And just what did he mean? Does Christian faith demand individuals to, on their own experience and in authentic living, to comprehend the distinction there in?
Evidence suggest to me that most practice the first part of that, and are oblivious to the 2nd.
Take a look around US… infrastructure, dominant media, our water delivery systems, and the forces that are determining things. I dun’o, I see a whole lot of “judging” out there. I don’t see a whole lot of moral definition put to the test in fundamentally validating these judgements, nor do I see much continuity in them.
Rather, as used in our culture, the lack of distinction has pretty much morphed opinion and judgement into one, generic, ungrounded synonymous term.
A consistent reading of WSJ OpED (which your brought into this discussion) has several consistent threads which they crouch in “morality”:
a) wealth building
b) “breaking” of labor (eg: workers… commitment to disorganizing and lowering wages)
They advocated as such through Enron & Ca. Energy crisis, for example. By any measure, the “profits” in this endeavor (“building wealth”) was stealing: they added no value, the held markets hostage and lied about it, yet showing positive balance sheets for entities organized to exploit this stuff was touted as success.
So when you say:
Well, I can agree with that, especially the first part. What I have trouble with is the vast, undefined wiggle room implicit in various critically massed an manifested people/organizations who do the “ruling” part of your statement (rule their surroundings).
So when you follow with:
Well, from what I see, the foundational deconstruction of what we call economy, viewed over this last decade, reveals little (if any) continuity between the “ethics” fundamentals and execution of the “ruling our surroundings” part.
If God has created us for the purposes you say, it’s pretty damn clear he also gives man free reign to screw things up. Or to zero in more precisely, we are responsable. We can choose. We can execute and commit to integrity, or we can try and surive on circus act economics, transcedent social structure, and basically what we got now: bs.
I really do appreciatte what you do on this blog, and have come to respect you.
I suggest to you that, even if you have specific understandings of generalized statements I’m commenting on which are firmly grounded in (for sake of discussion) sound Christian ethics, I am most firmly persuaded that the use of these terms, in current culture, has become so watered down… particularly when it comes to economics (because worst of the crooks seeks to get all the money by any means possible), that they can be exploited by anyone at any time to manipulate large groups of people as desired.
These statements don’t really get the job done I don’t think.
When you have, as we currently do, such a narrow % of people massively informing so many in non-factual ways, the operative “knowing” method is pretty clearly of the less desireable “being told” fashion I described above in my little biblical word study thingie.
Somehow, someway, if we as a culture do not (re?) claim value in having a society which supports individual’s ascendancy to real knowledge (as opposed to propaganda), and which supports honest appraisals (judgement) of our environment (surroundings), we’re gon’a continue heading down the slippery slope.