Most Americans, if they’re at all religious, should get on their knees and thank God that rightwingers didn’t run America’s economic policy in the aftermath of the financial crisis and near-depression which their policies helped cause. Although our economy isn’t exactly glittering today, it could be much worse than it is. In Europe, where Germany has imposed the kind of austerity measures beloved by conservatives everywhere, unemployment is 25% in some countries.
Germany’s obsession with austerity stems from a psychosis, not rational economic thinking. The hyperinflation of the 1920s, designed to inflate away the reparation debts imposed by the Allies after World War 1, opened the way for Hitler’s rise to power and the Nazi horrors that followed. This scarred history is so deeply engraved in the German psyche that fear trumps reason in German policymaking. As a result, Europe is suffering unnecessarily.
Today, seven years after capitalism’s most recent big crisis, America’s economy is growing more slowly than the postwar average, but at least it’s growing. The U.S. economy is doing significantly better than any other of the world’s major economies. That’s a direct result of the fact our country did not follow conservative monetary and fiscal policy prescriptions in the wake of the financial system’s nearly-disastrous collapse.
Economics, unlike physics, is an inexact science because it studies human behavior, not physical forces. Although economists heavily rely on math to construct their models and try to understand what makes economies tick, what they do is social science, and it lacks the precision of hard science or mathematics. For this reason, there is wiggle room for disagreement over economic theories and debate of what works or doesn’t. But that doesn’t mean something is true in economics just because someone says it is.
The lack of agreement on economic theory and policy also makes economics a major political issue. Paul Krugman, a Nobel Prize-winning economist and New York Times columnist, whose syndicated column is published by the Seattle Times, writes this weekend that, “Monetary policy probably won’t be a major issue in the 2016 campaign, but it should be.” The rest of his article mostly talks about the Federal Reserve.
The “Fed,” as it’s often called, has played a prominent role in rescuing America from the Great Recession. While the newly-elected President Obama, aided by a Democratic Congress, managed to pass a modest stimulus package in the early days of his administration, the Democrats’ loss of a 60-vote Senate supermajority (necessary to overcome filibusters and move legislation) in 2009 and the GOP takeover of the House in 2010 closed the door to any significant further fiscal stimulus. Thus, getting the U.S. economy moving again has fallen almost entirely on the Fed’s shoulders.
You should understand that fiscal stimulus — i.e., deficit spending by Congress in economic downturns — is a much more powerful economic tool than monetary stimulus by the Fed, but when the latter is all you’ve got, is what you use.
If I may digress briefly, deficit spending can have some interesting and unforeseen side effects. Perhaps the best example of that is the Columbia River dams, which were built in the 1930s as make-work projects to create jobs and pump money into the economy during the depths of the Depression. No one knew what to do with the water or electricity, so they gave it to the farmers for almost free. The Columbia Plateau that comprises most of eastern Washington has very good soil for agricultural — it came from volcanic eruptions, and it turns out that volcanic ash is great for growing crops — but is arid and could not support farming without irrigation water and electricity to run the pumps. So the Columbia River Project turned eastern Washington into a productive agricultural region that now comprises about 5% of Washington’s economy, and provides jobs and a way of life for about 22% of Washington’s population. But the real story of the dams is what occurred after World War 2 was thrust upon the United States. Suddenly, America needed vast quantities of electricity to make aluminum for airplanes … and plutonium for bombs. Very fortunately for our country, the electricity was already available when we needed it — not only from the Columbia River dams, but also from the Tennessee Valley Authority dams, which also were a federally-owned Depression-era make-work project — and it’s not a stretch to say those dams won the war for us. Whatever you may think of the atomic bombs and their use against Japan in the closing days of the war, we wouldn’t have had airplanes without the electricity generated by the Columbia and TVA dams.
So, whenever you hear conservative knee-jerk “armchair experts” decry fiscal stimulus, just remind yourself of how terribly wrong their ideas were in the 1930s and what would have happened to us if we had listened to them back then.
Paul Krugman makes basically the same point in his article this weekend. He says, “[T]he Republican base and many leading [Republican] politicians havestrong views about the Federal Reserve … it matters that the emerging Republican consensus on money is crazy — full-on conspiracy-theory crazy.”
He’s right, it does matter, and the problem is that monetary policy flies below the radar of nearly all voters, even well-educated and news-engaged ones. It matters because Republicans sometimes win elections (as they did last fall), and when they do, our country comes under the sway of their crazy policies. It matters because Republicans hate the Fed policies that staved off a Great Depression 2.0; and, if they can’t do away with the Fed altogether, at the very least they want radical changes to those policies. That has consequences for all of us. Among other things, their German-like hyperinflation obsession could turn our growing economic into European stagnation and recession.
Make no mistake about it, their economic thinking is dead wrong, but that won’t stop them because they’re so firmly wedded to ideology, not practicality. As Krugman points out,
“[Rand] Paul likes to warn that the Fed’s efforts to bolster the economy may lead to hyperinflation; he loves talking aboutthe wheelbarrows of cash that people carted around in Weimar Germany. But he’s been saying that since 2009, and it keeps not happening.”
I might add that rightwing conspiracy-theory wackos keeping comparing the U.S. economy to Zimbabwe and Greece, too — completely ignoring the fact that we have the world’s best-performing economy. Do you need any more evidence that they’re wrong?
Krugman also mentions the “2010 open letter from leading Republicans to Ben Bernanke, then the Fed chairman, demanding that he cease efforts to support the economy, warning that such efforts would lead to inflation and ‘currency debasement.'” It so happens that the U.S. dollar is the world’s strongest currency, and is getting stronger by the day, which is creating problems for financial markets and U.S. exports. (I’m sure you know that oil is America’s biggest import item; do you know what our top export product is? Not agricultural products, as you might suspect; it’s Boeing airplanes.) Those Republicans were wrong again.
Krugman continues,
“You may think that at least some of the current [Republican] presidential aspirants are staying well clear of the fever swamps, but don’t be so sure. Jeb Bush appears to be getting his economic agenda … from the George W. Bush Institute’s 4% Growth Project, [whose] head … is a prominent ‘inflation truther,’ someone who claims that the government is greatly understating the true rate of inflation.”
Unless you keep up on these things, you’re probably not aware that current Fed policy is battling deflation, not inflation; but knowing that — I just told you — what do you think would happen if the Fed, under pressure from a political leadership with a racially different worldview, switched its policy emphasis from deflation to inflation? Why, we’d get deflation of course, because all the policy initiatives from then forward would have deflationary effects. Deflation would mean falling prices, but it also would mean falling wages, making debts harder to repay, make assets like houses less valuable in dollars (and plunge millions of homeowners back into underwater status), and cause a sharp contraction in consumer buying as incomes fell and consumers waited for prices to go even lower. This is called a “deflationary spiral,” it’s extremely hard to escape once you’re in it, and it’s a greased slide down into economic depression. That’s why economists fear deflation and fight it with every policy tool they have.
So monetary crazy is pervasive in today’s Republican Party. But why? Class interests no doubt play a role — the wealthy tend to be lenders rather than borrowers, and they benefit at least in relative terms from deflationary policies. But I also suspect that conservatives have a deep psychological problem with modern monetary systems. You see, in the conservative worldview, markets aren’t just a useful way to organize the economy; they’re a moral structure: People get paid what they deserve, and what goods cost is what they are truly worth to society.”
This is palpable nonsense. CEOs who lose money for their shareholders don’t deserve to be paid a red cent, much less the tens and hundreds of millions in compensation they extract from their captive boards; and private equity and hedge fund operators who asset-strip and then flip companies, throwing their employees out of work and bankrupting their shareholders, don’t deserve the billions they walk away with. These are market failures, weak spots in capitalism, not moral examples.
“[Paul] Ryan is on record declaring that his views on monetary policy come from a speech given by one of Ayn Rand’s fictional characters.”
Is that someone you want running our country’s economy? Me neither. Krugman summarizes,
“Once you understand that this is how many conservatives really think, it all falls into place. Of course they predict disaster from monetary expansion, no matter the circumstances. Of course they are undaunted in their views no matter how wrong their predictions have been in the past. Of course they are quick to accuse the Fed of vile motives. From their point of view, monetary policy isn’t really a question of what works; it’s a matter of theology: Printing money is evil. So as I said, monetary policy should be an issue in 2016. Because there’s a pretty good chance that someone who either gets his monetary economics from Ayn Rand, or at any rate feels the need to defer to such views, will get to appoint the next head of the Federal Reserve.”
Of course, rightwingers despise Krugman; and if you cite any article by him, or mention his name, they’ll immediately lapse into the snarky mocking mode that rightwing dogmatics fall back on whenever you talk about something they don’t understand and can’t debate with you.
So, let me summarize what has actually happened since 2009, starting with employment, the most visible manifestation to most people of whether economic policy is working. Almost immediately after Obama took office, the rate of job losses began to decline, and in a little over a year, the economy was gaining — not losing — jobs. You can see a graph of that here. Since March 2009, when the stock market bottomed, stocks have soared; and while you may think that mainly benefits rich people, it also has benefitted millions of middle-class workers with retirement savings in IRAs, Roths, 401(k)s, and company defined-contribution pension plans. Perhaps more importantly for the 99%, home values have significantly recovered, which is important for many reasons — not least that being underwater and unable to sell keeps homeowners from relocating to where the job opportunities are. But most important of all, while we’re not there yet, we’re on the way to returning to a normal economy.
In short, we averted another 1930s-type depression with its extreme unemployment levels, and today have a growing economy with hope of life getting back to normal, because of the policies that were adopted in response to the 2007-2008 financial crisis and the very severe recession that followed. For the most part, the decisions that were made were mostly right, and the policies in place are largely the right ones, so when the 2016 election rolls around, do you really want to elect people who think those policies were all wrong and intend to reverse them? Or to stay home and not vote, as many of you did in 2014, and let others make that decision for you?
Not me.
P.S.: Here’s another explanation (by a veteran Wall Street professional) of why the rightwing dogmatists don’t know what they’re talking about, and why Rand Paul’s calls for an “audit” of the Federal Reserve is idiotic.
Photo: Paul Krugman has a Nobel Prize. The next time you hear a wingnut blow off what Krugman says, ask him where he got his economics training, and what recognitions and awards he has received for his work in economics. He’ll probably tell you that Nobel Prizes are a dubious honor. After all, Martin Luther King Jr. got one, too. And so did Al Gore, Barack Obama, and a bunch of other people that rightwingers hate. But Ayn Rand didn’t get one. You can question some of the Nobel Prizes that have been awarded (such as the Nobel Peace Prize given to Henry Kissinger), but to get a Nobel Prize for anything, someone has to believe you did something right. And Krugman does seem to know what he’s talking about, which is more than you can say for his knee-jerk critics.