Are We That Dumb?
Apparently.
The growing consensus in the media and commentariat is that a recovery has begun, that the economy is therefore OK, and so we need to shift our attention to setting the stage for tightening both fiscal and monetary policy. And this tightening had better come soon since there is a tsunami of problems ready to destroy the civilized world if we don’t act now. Or even sooner.
The problem I have with this train of thought is that nothing in the data suggests it’s true.
Nothing.
I have just read Paul Krugman’s blog where he notes the same thing. His conclusion is that we have entered one of those all too familiar periods of US history where the facts and the consensus opinion our not in step. What makes things worse is that, inevitably, it is the facts that lose in such a confrontation. The last time we were like this was during the run up to the Iraq war when no amount of fact checking could persuade the media that an invasion was the wrong course of action.
I just hope this current disconnect does less damage, and that we do not have to be subjected to a string of mea culpas over the next few years as the economy flounders deep in depression.
Because that’s where we will be if this herd mentality infects policy too much.
I fear it may be too late anyway.
The simple fact is that our economy is very weak. The recovery is more technical than real. Jobs are horrendously scarce and the employment outlook is still grim. Don’t just listen to me: the general consensus of economic forecasters is that we will still have an unemployment rate in excess of 8% deep into 2012. Think about that. Nearly three years from now our unemployment rate will be higher than it was when Bill Clinton used a poor economic record to wrest the White House from Bush Senior.
This nugget of information is not exactly top secret, so I would have thought that the current administration would be pulling out all the stops to get unemployment down as rapidly as it can. Winning elections usually focuses political attention on inconvenient things like a lack of jobs.
But no. The Obama folks have fallen under the same spell as the media. All the talk now is of tough action to be taken soon to tighten the Federal budget. Just in case those nasty bond people decide to pull the rug out from underneath us.
Here’s another interesting nugget: PIMCO our largest domestic bond fund, and one of our most successful, just bought up a huge pile of US bonds. That does not sound like an imminent panic. On the contrary it sounds like a vote of confidence.
The only way I can explain the disconnect between the facts and the curious fiction found in the media is that we live in an era of attention deficit disordered reporting. No matter what the crisis is, no matter how deep, nor how difficult it might be to cure, it must not last long. We need new angles and new stories to keep the front page fresh. So, after due time, we must shift our attention to the aftermath of the crisis rather than on its continued existence. After all the fact that we have a crisis is soooo yesterday.
We have reached the Age of Immaturity.
To some degree this explosion of stupidity is being fed by the counter-revolutionaries of the free market brigade. They have manned the intellectual barricades in order to salvage what reputation they can from the chaos their ideas have wrought. This resistance to honest re-appraisal of theory and its concomitant embrace of delusion pervades the entire fabric of all institutions who were fully invested in the free market deregulatory era. Don’t forget that our society became obsessed with stock market watching over the last few years. We gorged on spurious economic and financial data and were spoon fed market based ideology by endless cable TV talking heads all who seem to have grown up in the post Reagan era. Not one seems to have heard of Keynes. And few seem bothered by the prospects of depression. Since nothing lasts long in this fast paced world, the assumption is that the recession cannot last long either. Every news station and cable TV channel pours out daily minutia about the economy and therefore the competition to be on the leading edge of the next story trumps [sorry about the pun] any need to dwell on the current story.
This is why risk management failed us so miserably over the last few years: it got in the way of a good, positive, message.
The funny thing is that, as I reflect on my years in banking, the same problem existed back then. The difference between the two eras is that nowadays the stupidity is magnified by the vast array of news outlets. Back then the damage was confined to the banks whose managers fell prey to the good time stories. And there were plenty of them even then.
So here we are rushing full tilt into a group think disaster. The economy is great. The stock market is flying again – that’s all that really matters – and the only hiccup between here and nirvana is the potential threat from the bond market and the falling dollar.
Therefore all serious people will surely act early and firmly to demonstrate our commitment to defending the dollar and balancing the budget. [Does anyone care that the dollar dropped like a stone during the Bush years and that none of these same commentators mentioned it?]
Damn the consequences.
Apparently it far better to sink on a neatly run ship than to float on a messy one. It shows our commitment.
How else do I explain tepid financial reform? Weak stimulus? Dithering on jobs programs? Ridiculous commentary about bond rates?or hysteria about debt levels?
Are we that dumb?
Yes we are.
