Sunday, March 01, 2009

A Plague of Economists

What do economists think about Keynesian ideas, such as deficit spending in the midst of a great depression? Oliver Staley and Michael McKee report, "[James] Tobin's stamp is on the $787 billion stimulus signed by President Barack Obama, former students and colleagues say. His philosophies are influencing Austan Goolsbee, a former Tobin student advising Obama, and Ben S. Bernanke, head of the Federal Reserve. Unlike Friedman, Tobin provides guidance for today’s problems, said Paul Krugman, a Princeton University economist." Furthermore, "Bernanke cited Tobin’s 1969 essay on monetary theory in a 2004 paper discussing options available to the Federal Reserve for stimulating the economy when interest rates approach zero."

So economists are for it.

On the other hand, Will Wilkinson interviews Edward Prescott and Edmund Phelps. The idiot savant Edward Prescott says, "Stimulus is not part of the language of economics... There is an old, discarded theory that's been tried and failed spectacularly, which is where that language of stimulus comes from".

So economists are against it.

1 comment:

bill greene said...

We are truly plagued by the "soft-scientists" that make up today's economists. Thomas Sowell has critiqued the intellectuall elites that rely on abstract theories rather than look to the actual experiences of past generations and past societies. Most of the celebrated economists' ideas and prescriptions are based more on their ideology than any observed evidence. Thus they suffer a twin deficit: a reliance on fuzzy and abstract theories, chosen to support their inner prejudices.

The lessons from history show that every society that once prospered by means of a free economy, eventually, after achieving great affluence, brought on its own decline by efforts to "manage" its economy. Ny study of those free economies of the past reveals that with affluence there came a new elite that sought to control the society from the top. And then, as now, those regulatory efforts suffocated the people and bisinesses actually creating prosperity.

About ten years ago, the Prince of Dubai had a vision, he recalls, that told him to relax his nation's regulations, lower taxes, simplify bureaucratic requirments, eliminate licensing requirements, and do everything possible to facilitate business operations. The result was a great STIMULUS to his nation, that within a decade became the show place of the Middle East.

The Prince, though crediting a vision, probably did no more than look around at Singapore, Hong Kong, and other current and past economic success stories. Simple common sense shows that empowering the people, all the people, allowing them freedom to operate with minimal restraint, will inevitably create a very stimulated business environment.

Our economists cannot or will not see that obvious simple solution because they are still basically just copying the witchcraft of olden days.

With chants and smoke and mirrors these people bring fame and fortune to themselves and misery to everyone else. And the politicians make use of the smoke and mirrors to execute the most grandiose plans that enshrine and ensure their careers living off the public purse.