economic theory

Meanwhile back in the economy …

I read with some amusement that Standard and Poor’s, part of the axis of evil that brought us the crisis, has now announced that it sees a brighter future for US government debt. It thus re-affirms its AA+ rating for that debt and spoke of the strengthening economy and the beneficial effects of the spending cuts and tax increases that have stalled the pace of the build up in debt. This is odd because those same things – spending cuts and tax increases – are the cause of a weaker recovery than some of the underlying data would suggest. Our government, primarily, but not exclusively, Congress, is doing everything it can to slow the economy down. S&P, possibly anticipating a turn for the better in policy making, intones against doing anything positive like adding debt to accelerate growth. That would highlight just how erroneous S&P’s basic analysis has been for ages. Remember those AAA rated derivative  junk bonds? They were put together by clever buddies of the analysts at S&P, so they were worth the AAA rating. US debt is issued by the dummies down in Washington so it’s only worth an AA+. This is odd given that the dummies own a printing press to make good on their debt, whereas the clever people don’t. But we shouldn’t allow such details get in the way of our super sophisticated ratings thought process – it might make us look foolish.

I must admit that I agree with S&P over one thing. This period of quiet in the Republican war on everything Obama touches cannot last. There is more stupidity in our future when the next debt ceiling debate starts in earnest.

Which reminds me: what is it about the debt ceiling that riles right wingers so much? Raising the ceiling has nothing at all to do with future policy. All it means is that the current policies – some of which hark back to George Bush days and even earlier – need to be funded by raising debt. It is not a sign of the runaway ‘socialist’ tendencies of Obama. It has everything to do with paying for things we’ve already bought. Given the torrent of homespun homilies about sensible budgeting and paying-your-way we are treated to from Republicans in Congress, you’d think they would understand the difference between reneging on your debt – which is what a refusal to raise the ceiling implies – and incurring that debt – which is what the budgeting process is for.

Then again how can we expect them to think clearly when the budget is improving so quickly, and the medium term debt situation looks so much better, thus eliminating their key argument.

There is no debt problem.

Poor dears, they’re going to have to think of something else to panic about.

Perhaps they should worry about Social Security.

Maybe not.

The latest report from the trustees of the Social Security system was relatively upbeat. Payments, as currently calculated, will be paid in full through 2035. Only after then does some adjustment have to be made to keep full payments being made.

This is hardly a crisis.

But I imagine we will still read impassioned arguments in the media, and especially in the right wing establishment media, about how we have to make draconian cuts in entitlements in order to ‘save’ the system.

I have to admit I have never quite understood the logic of the doomsayers. Reduced to simple terms their argument is that we need to make cuts in entitlements now in order to avoid making cuts in entitlements some other time. Got that? We need to make cuts so as not to be forced to make cuts. That’s plain weird. If the plan is underfunded out there in twenty or more years why don’t we top up the funding? That way we avoid making cuts of any kind. Now or then.

Besides twenty of more years seems like a very long time in which to think of something better to do. It certainly suggests we don’t need to panic right now.

Speaking of the long term. It never arrives. We all live in a long series of short terms. So making policies to fend off a potential problem out there in the murky future is silly. Who knows what will happen in the interim? No one. That’s who.

Apart from economists of course. They adore the long run. Their theories that look really stupid in the short run because all the evidence contradicts them are all said to be correct in the long run. This is convenient because no one ever goes back to check, and all the short term messiness hides the errors. So when a learned economist tells you that the so-and-so ‘law’ of economics works in the long run, you can safely ignore that law. What they are really saying is that they wish it would work in the short run, but it doesn’t, so they then want to pretend that it will all work out eventually. It’s an academically polite way of being clueless but sounding clever at the same time. Economics is chock full of laws and other phenomena that work in the long run. None of them are relevant to now, to today, or even to tomorrow, but we are all supposed to take it as an article of faith that sometime and somehow the long run kicks in and the heavens align differently so that all that mumbo jumbo becomes crystal clear accurate prophecy. So, for instance, we are assured that the economy, if left to its own devices, is headed toward some sort of equilibrium. All that turbulence you see around you, and all that manifest disequilibrium is just short term adjustment going on. That this short term adjustment has been going on since time immemorial is no reason to wonder whether it is the normal state of affairs that needs an explanation.

This would be useful if all the focus on those supposed long run things was simply a way of getting a fix on the short run mess. By shedding a light on it, for instance. But so enamored of the long run have economists become that they have drifted off into their idealized dreamland entirely. So they simply makes statements like ‘all well-informed economists know that such-and-such a law works in the long run’, and then promptly stop thinking. It’s a way of stopping debate by assertion.

To which the rest of us merely have to say that we experience the world as a never ending flood of short term events, and that to assert that we know for sure that something will work out in the long run flies in the face of our reality, infused as it is with uncertainty. By the way that uncertainty is not just about the future. It is also about the past. We are all just as vague about the deep past as we are about the long term future. We all know as much about our ancestors ten generations back as we know about our descendants ten generations forward. Which is to say we know nothing about them.

And, as a very wise man once said, in the long run we are all dead. Yes I know that’s not exactly what he said, but the meaning remains clear. We should worry about today’s, and the easily foreseeable future’s, problems as we can, and not be so arrogant that we know enough about the distant future – that long run – to fix it all now. Modest adjustments are all we can do. Sometimes that’s all we will ever need to do.

Like to Social Security, for example.

And we don’t need ‘grand bargains’ for budgets where there’s nothing grand to bargain about.