Weekend October 12, 2012
What a strange week.
The paucity of hard economic news was punctuated by a quite remarkable mea culpa issued by the International Monetary Fund. Or rather the punctuation was provided by the chatter within the commentariat about the apparent regret the IMF has in arguing for austerity prior to the full recovery of sundry economies that it monitors.
You see, the IMF has suddenly come to the realization that cutting government spending is not an expansionary policy. Nope. The numbers don’t add up that way. Austerity is, as has long been advocated here, a one way ticket to contraction. Now the IMF doesn’t quite come out and say whoops. Instead it uses the usual jargon laden obfuscation of economics. It even consigns its volte face to a marginal column where only the commentariat will notice. I imagine this is so the general public of those nations deeply down the road in failed austerity driven attempts to expand will not notice and express their rightful anger at having been sold snake oil and not efficacious policy.
Austerity led expansion is snake oil no matter how you bottle it. That millions of unsuspecting people had to suffer ruin in order for the dolts at the IMF to re-read their history books and re-learn the lessons of the 1930’s is a tragedy. It ought to be a criminal offense – the harm justifies severe punishment. Somehow I doubt we will see hordes of IMF economists being carted off to jail. But its nice to dream about.
The way the IMF packages its mea culpa is sweet: it has discovered, gasp, that the multiplier on spending cuts is more than one.This means that for every dollar of expense reduced the economy loses more than one dollar of GDP. Duh. This seems to me to be a basic lesson of history. Of course it’s a lot more complicated than that, but there’s nothing in the complication not already well documented in Keynes. His entire masterwork is dedicated to learning, explaining, and generalizing from the lessons of the disastrous policies of the 1920’s and 1930’s. It’s all there sitting in the library. The IMF only had to read it. But it didn’t. Not until it had wrought unbelievable damage.
Not that the IMF is alone in its folly. Most central banks, economics ministers, and policy officials seem all in the thrall of the voodoo that superseded Keynes. The absurd belief in market magic and supply side boosterism would be laughable were it not so persistent and damaging. Worse: when the damage started to accumulate and the evidence pointed irrevocably to the failure of supply side magic it took far too long for folks like the IMF to climb down and admit to error. The arrogance of orthodox economists was toxic to social welfare. They put their own reputations and wellbeing ahead of those whose lives they destroyed through the imposition of their ill-founded theories. That their ideas had been debunked decisively seventy years ago apparently was no barrier to their determination to force us all to accept their righteous opinions.
And here’s the real kicker: the biggest culprits are still at it. There are nations who have less wiggle room than others. Some element of austerity may be unavoidable there. But in others, notably the UK and the US, there is no excuse whatever. Taking fright at debt to GDOP ratios well below historic highs bespeaks to weakness not strength. An unwillingness to borrow at zero interest rates is a folly future generations ought to deride in no uncertain terms. Specious argument upon specious argument has been piled up to defend the unnecessary decimation of economies. Why? Ideological lunacy. And unfounded moral sensibility.
Well at least the entire episode has exploded once and for all any pretension economics had to being scientific. Science progresses by correcting its errors. It keeps refining its explanations and laying bare what it fails to explain. Economics, in contrast, magnifies its error by embedding them in its axiomatic foundation, thus avoiding having to discuss them, and so refuses to learn. It is regressive rather than progressive. Right now it is sitting somewhere in the year 1870 waiting for a reason to go further back. We can expect a Marxist critique of capitalism any day now. How new and refreshing that will be. Or has that already been done?
Anyway, at least we learned this week that IMF was wrong and that it knows it was wrong.
I suppose that’s progress.
Maybe.
