April 10, 2013

Cage Match Clash of the Dry Lab Titans of Economics

And yet, I can't be serious.  I can't seriously believe that simply printing money will lift the industrialized countries out of the doldrums and usher in a new era of prosperity.  This is all a variation on Yossarian & the Bomb Line, that perfectly written scene where Yossarian changes the map in the middle of the night so the squadron doesn't have to fly the dangerous mission over northern Italy.  The aviators had stared at the bomb line day after day, willing it to move beyond the danger point so they could fly another milk run, not a life-and-death battle in the sky. 

Clevinger plays the role of the rationalist:

When night fell, they congregated in the darkness with flashlights, continuing their macabre vigil at the bomb line in brooding entreaty as though hoping to move the ribbon up by the collective weight of their sullen prayers. "I really can't believe it," Clevinger exclaimed to Yossarian in a voice rising and falling in protest and wonder. "It's a complete reversion to primitive superstition. They're confusing cause and effect. It makes as much sense as knocking on wood or crossing your fingers. They really believe that we wouldn't have to fly that mission tomorrow if someone would only tiptoe up to the map in the middle of the night and move the bomb line over Bologna. Can you imagine? You and I must be the only rational ones left."

In the middle of the night Yossarian knocked on wood, crossed his fingers, and tiptoed out of his tent to move the bomb line up over Bologna.”
Joseph Heller, Catch-22

Just to read that scene, and so many others like it, has made life worth living.  Heller was that good. 

Printing money is the monetary equivalent of Yossarian's action.  One might first ask, why are all the big central banks printing money like there's no tomorrow?  The Federal Reserve, the Bank of Japan (at Mach 3), the European Central Bank.  They are cheered on by the Keynesian true believers, such as the chief economist at the New York Times, Professor Paul Numbnuts.  Indeed, all of this hallucinated money is again blowing massive bubbles in the stock exhanges and housing markets.  Bomb lines are being moved in the dead of night.  Will morning ever come?

I watched, in an unedified way, the Economic Cage Match between Prof. Numbnuts and David Stockman, former head of the OMB under Reagan, former divinity school grad student, former Wall Street con man, on George Stephwhatever on Sunday's "This Week."  Stockman had had the unmitigated gall to publish, in the Times itself, a long screed on the many sins of the American economy over the last....80 years.   It was, in fact, a little too much.  It's true that the American economy has run out of gas, insofar as the fate of the American commoner is concerned.  (Large corporations are doing fine, because of the international nature of their business and because their current practice is to hire R2D2, not carbon-based life forms.)  Mr. Numbnuts believes that the lot of the commoner can be lifted through Keynesian monetary (money printing) and fiscal (borrowing more money) stimulus.  It's just that we won't do it.  It's so simple, it's sitting right there, and we won't do it. 

Stockman, on the other hand, is a Debt Freak.  Everything is about debt - public, private, international, whatever.  Too much of it, wherever you look.  Adding more debt to a debt-saturated economy is not going to work.

Both of these intellectual titans left out of their deliberations a factor I consider important: the real world.  Paul Krugman is convinced that this recession (which he sometimes calls a depression) can be remedied, and will be remedied, and it's only a matter of when.  It will happen sooner if we pursue the right "policy."  It will take longer (but apparently will happen anyway, despite doing everything wrong) if we keep on this "austerity" kick, meaning borrowing an insufficiently large fraction of what Numbnuts calls "potential GDP."  (Using an hypothesized number like "potential GDP," a state of affairs that does not actually exist, allows you to claim that the amounts we're borrowing are smaller than they appear to be, "as a share of GDP."  Krugman compares everything to shares of GDP - his lunch tab, his bar bill, his hat size.) 

I notice lately, however, that Krugman is beginning to show a few signs of wear and tear.  Let's face it: it was the summer of 2007 when Bush told us this sucker could go down.  The stock market tanked, millions of people lost their jobs.  We're pushing six years later.  Have we really gotten anywhere?  We have not actually created a single job.  We're stuck.  Everything the society actually needs is produced by the skeleton crew of humans and robots with actual jobs.  Numbnuts tells us that the whole problem is "insufficient demand," but that's what a Keynesian always says.  The demand matches output, and the output is sufficient.  What he's saying is that the Planning & Tanning Economy has gone away, and it needs to be revived, so that the "potential GDP" will become the actual GDP.  We must increase "aggregate demand" for Planning & Tanning.  This is, of course, utter nonsense, the result of imagining that the world conforms to an economic model that once was and now can no longer be.  Americans can't live that way anymore.  They've been reduced to basics, like filling up the tank, paying rent and getting enough to eat.

These Two Titans of Dry Lab Economics, in other words, are debating historical curiosities, the cyclical booms and busts of the past.  Analogizing forward from the irrelevant conditions that existed in 1937, or whenever, tells us nothing about a world up against the Limits to Growth, global warming and overpopulation.  It's currently Now.  But the study of Now is not what these guys were trained to do, and they can't make any money talking about it.  So they go on talk shows and prove each other wrong.  And they're both right that they're both wrong.  It's just that neither one is right about anything else.

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