Brad DeLong

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Notes for the Beginning of: What to Do?

This is how I explain what has happened to myself.

Nobody should begin without warning.  So we ought jot down some initial observations that provide a starting point for what follows.  Some will become highly relevant.  Others will fade as we dig deeper into our subject and discover that they were not germane to the main theme.  They are in no particular order, since imposing order suggests a level of understanding unjustified by experience.  We simply do not know what we do not know and therefore ought make no pretense otherwise. [My economist friends please note!]

Here goes [borrowing along the way from DeLong, Gerstle, and one or two others]:

  1. The spate of growth experienced in industrialized nations accelerated radically sometime around 1870
  2. The trajectory of that growth appears vertiginous and is, therefore, unlikely to be maintained.  But, we have grown accustomed to it and find it hard to face a future without it.  We make the assumption that the present is not an anomaly, but is a new normal
  3. This rapid growth — usually expressed in the terms economists use, and based entirely upon technological innovation — is the foundation upon which all modernity now rests.  Everything we enjoy, better health, longer lives, greater opportunities, broader cultural exposure, and better day-to-day security of existence, in sum our better wellbeing, are all due to the surge in economic growth since 1870.  Everything sits on an economic foundation — economics needs a better explanation of why/how this all happened
  4. This moment in history then, as many have observed, ought to be propelling us towards a future very different from the abject nature of all previous human history — we have broken free [temporarily?] from what has become known as the Malthusian trap and the fabled Utopia ought be within our grasp
  5. In particular this growth has allowed us to reshape our societies in ways that the constraints of the past disallowed.  We have created what we call democracies that include even the least privileged people — albeit haltingly —  in the political decision making framework
  6. It was the degrees of freedom created by rapid economic growth that gave traditional elites — aristocratic, monarchic, religious, military, and landed — both an incentive and the space to share their privileges.  Including the masses became both necessary, [as motivation], and wise, [as reward], in order to maintain elite benefits from growth.  The alternative, per the period 1789 through 1917, was revolution and destruction of traditional elite power
  7. Rapid growth also compressed history insofar as change occurred not across generations but within them.  Eras that used to be timed in terms of centuries are now timed in decades.  Couple this with the existence of multiple generations simultaneously and the traditional cohesion of memory and experience has been overturned.  We live with multiple histories and cultures competing for pre-eminence within each society all at once.  This complicates politics — inter-generational conflicts muddle class conflicts
  8. The political sharing of elite power and the greater speed of change initiated/was initiated by a vastly increased political conflict over the distribution of wealth.  Whereas traditional societies had set patterns of distribution based upon time honored social structures, modernity had to invent its own distributional values.  The battles to reach a so-called fair distribution has ebbed and flowed largely swept along by shifts in technology and ownership/use of that technology
  9. Distributional conflict led to a period of intense ideological creativity and argument: Fascism, Communism, and classic liberalism all emerged to compete as frameworks to establish and divide power, wealth, and status.   This argument appeared to end sometime in the late 1980s.  After which one ideology dominated for a while.  Some argued that history had ended, whereas it was only in abeyance
  10. Because things started to go wrong.  The pace of innovation slowed which, in turn, slowed the pace of productivity improvement; the degrees of freedom for elite power sharing were thus reduced; tension mounted; pre-modern social structures began to re-emerge; distribution consequently began to revert to traditional arrangements; ideological conflicts re-arose; politics soured.  The re-mergence of radical inequality — both vertical and horizontal [per Elizabeth Anderson] — undermined, if not destroyed, democracy. 
  11. The march towards utopia [per DeLong] — despite our evident historic prosperity — stalled.  Why?
  12. Because we went back in time — society congealed into more noticeable classes once more, only this time the elite was populated not by monarchs, aristocrats, the landed gentry, or military and religious leaders.  It was comprised of an upper echelon business class and its technocratic supporters or adherents [including academic economists per Diane Coyle].  This class accumulated a disproportionate share of the national wealth which it used as a resource to entrench itself by capturing government, dominating the framing of public and intellectual discourse, purchasing influence within the media and judiciary, and by upending the institutions meant to maintain balance in society 
  13. The chokehold of this new elite class is the primary cause of our malaise.   As this class syphoned off wealth from everyone else — as elites have usually done in the past — it ignored the ongoing structural transformation of the economy.  It benefitted from the globalization of capital and so could maintain its own upward trajectory, and, at the same time, overlook the long term consequences of climate change, demographic mix and aging, and the implications of the transition into a service rather than industrial economy 
  14. To these issues our elite has no answers — it has too narrow and self-serving a perspective to create novel responses to potential crises.  The intellectual bankruptcy of the ruling class became particularly evident in the lead up to, and in the aftermath of, the Great Recession.  Its obvious self-justification and rent-seeking have been on full display ever since.  It is a corrupting and negative influence that has to be eliminated if we are to return to our prior path of shared prosperity and relative political harmony.  We have collectively sacrificed any meaningful definition of liberty and justice at the altar of shareholder profit.  To restore any semblance of democratic dignity we need to rebel.  How?

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Jobs: Do We Give Up Too?

Mark Thoma has caused quite a stir. Which you probably missed because he’s a fairly unassuming academic in his normal guise, and a regular, sharp, commentator on his economics blog. He is one of those economists who pops up now and again in the media with a non-orthodox view, and a practical approach. Along with notables like Brad DeLong, Dean Baker, and Paul Krugman he has done much of the heavy lifting necessary to orient economics towards a real world solution and away from the loony stuff preached by our friends in Chicago.

His presence within the economics blogosphere looms larger than most so when he announced that he was ‘giving up’ hope that the Obama administration would attempt a significant job creating effort his words carried a great deal of weight. And stirred quite a debate.

He is correct, of course, that all the stimulus efforts so far have been inadequate and lightweight. Had we done more, sooner, the economy would be much further down the road towards robust health, and we would not all be wringing our hands over the turgid pace of recovery.

The really sad part is that the administration knows all this and yet still falters whenever pressed by ideological foes of stimulus. The recent ‘jobs bill’ – it deserves quote marks because of its derisory amount of spending – was more slap in the face for the unemployed than a help.

Equally sadly, the talking heads of the media have fallen prey to the silly chatter from the world of finance that America needs to switch towards belt tightening sooner rather than later. The fear of a spike in interest rates and portentous blather about a downgrade of US bonds by the rating agencies, grip the media’s attention far more than long unemployment lines. It has become as if we are resigned to a jobless recovery because we cannot afford the cure.

Fear, in other words, drives our decision making, not a focus on a solution or a determination to make our economy well again.

This implies we have not learned from the japanese experience of the past twenty years.

The Japan has become the poster child of what not to do after a huge asset price bubble collapses. The Japanese failure has been analyzed up and down by a veritable army of economists. It is the seminal reason that Paul Krugman shook off his allegiance to orthodox economics and embraced the Keynesian way. Practically every step a whole sequence of Japanese leaders took had a perverse impact. Japan lost wealth a prodigious rate; it piled up debt; it has impoverished its future; and has settled for mediocrity in the present, all because of its misdiagnosis and then timid response to its crisis.

We are following much the same course.

The simple reason is not economics, it is weak kneed politics.

The economists around Obama know what to do. They just cannot get themselves to argue strongly enough that we should do it.

They fear the cloddish opposition the Republicans will throw up: as if Jim Bunning knew anything at all about economics. Beyond the simply cloddish, they fear the calculated cynicism of people like Romney who object to government spending as a vote catching position rather than a well worked out economic policy. The procession of GOP leaders decrying big spending is long and shameless. Their position has instinctive appeal to a large number of voters. After all it seems intuitive that we should tighten our belts when money is scarce.

Wrong. Wrong. Wrong.

It is extraordinarily disappointing to realize how little attention many of our erstwhile leaders pay to history. It is even worse to realize that those who have learned the lessons of history are too weak to implement the knowledge they gleaned from that study.

Our one and only hope for a strong recovery is a demented spending spree, with the government printing money and handing it out to anyone willing to spend it.

Period.

Everything else condemns us to a Japanese experience, and the deliberate reduction of our children’s wealth.

But we have reached the point in our discussion of policy that folks like Thoma now give up. Publicly.

The effort to get the administration to do the right thing seems a hopeless cause. So Thoma quits and DeLong chimes in that he agrees.

So do we give up too?

Heck no.

We need more stimulus. Now.

Addendum:

Those of you who like pictures in order to understand things – I am with you believe me – should all rush to this chart on Brad DeLong’s site.

He shows the shortfall in economic activity, which he notes is about $1.3 trillion at the moment. Two points to note: that the gap is between current activity and projected activity as if the recession had never taken place. The idea being to put a number on the damage done by the downturn. The second point is to note that this loss is permanent. There is nothing we can do to recoup that lost spending. This is what I mean when I talk about impoverishment: we lost a ton of spending and, by extension, all the wealth that such spending implies, during this crisis. That lost activity is far greater than the cost of the bail-outs and the stimulus combined.

And it is to mitigate that loss, to shorten the period of loss and to lessen its amount, that we deploy government spending. In a vernacular sense we fill the void that the gap represents through artificial spending. We plug the hole.

By so doing we prevent much of the permanent loss. The cost is that we have to repay the amount we deploy. But that cost is a smaller burden on the future than the unfilled gap, because we kept ourselves on, or close, to our historic trajectory.

Pictures are helpful.

More stimulus. Now.

OK.OK. I know that we won’t get more stimulus. But it won’t be because we didn’t shout for it.