We've been viewed by the wider world with mistrust and suspicion on other matters, but on the subject of money even our harshest critics have been inclined to believe that we knew what we were doing. They watched our investment bankers and emulated them: for a long time now half the planet's college graduates seemed to want nothing more out of life than a job on Wall Street. This is one reason the collapse of our financial system has inspired not merely a national but a global crisis of confidence. Good God, the world seems to be saying, if they don't know what they are doing with money, who does?
planet money, usually a good go-to for a quick lesson in economics, committed much the same fallacy as einhorn in its last podcast, a lacklustre attempt to show the scientific side of academic economics rent by ideological division. we were told that the two main positions were keynesianism (demand-side) and austrian/friedmanite (supply-side). the two economists selected to represent each side sparred off--independently of one another, of course; formal debating was apparently too controversial--over the subject of the depression, which has become, for those who do not read newspapers and are not smashed over the head daily by cnn headlines swathed in over-the-top computer animation, the de facto metaphor for the current financial crisis. in the end, no conclusion was reached, with both keynesianist and supply-sider maintaining their righteousness without recourse to dirty things like numbers. i suppose that this was supposed to bring some kind of comfort to the mean mind of the average listener, who, terrified by the unflattering news that the gentlemanly dr. jekyll-figure cut by the economy was all along a hideous sewer-smelling homunculus, a mortgage-eating mr. hyde, is in very dire need of reassurance that science can still predict everything, and that the omniscience of the experts remain unbattered by any storm.
this is all an unforgivably long-winded way of pointing out a glaring absence in the current debate about how to mend the jackassery that destroyed so much of our money: new ideas. the surprise evinced by einhorn's soul-struck world is born of the same tunnel-vision exposed by the folks at planet money. do we really believe that all of this is a technical glitch, and that established methodologies will somehow, even if exercised more skillfully by people other than ourselves, send it all back to the way it was? if you're looking to economics to explain the problem you're shit out of luck. economists may be among the few academics (along with political scientists) whose economic expertise moves inversely to their prestige. i elect friedman as a prime example: here is a man who managed, in the course of an unmercifully long career, managed to ruin the economics of chile and indonesia, and to advance income inequality to brazilian heights in china. or, if something more contemporary was desired, how about ben bernanke? the new yorker ran an article on him in early december. here's what it reports dean baker, the co-director of the Center for Economic and Policy Research, a think tank in Washington, as saying about old ben:
“He was behind the curve at every stage of the story. He didn’t see the housing bubble until after it burst. Until as late as this summer, he downplayed all the risks involved. In terms of policy, he has not presented a clear view. On a number of occasions, he has pointed in one direction and then turned around and acted differently."the article is careful to mention, however, that everybody loves bernanke: he's a mediator, a rigorous scholar; a real mensch. the point that it's making is that despite all of this, and despite his accomplishments, he has no idea how an economy works. of course, this goes against many of the ideas which are at the heart of modernity, most especially those concerning specialization and the importance attached to elite scholarly institutions, so i wouldn't be surprised if people were slow to accept the truth. the bernanke story, and, really, the story of 'scientific' economics, is a pretty literal account of why old ideas are not going to solve any of our problems. when the world asked, suffering through its existential nightmare, who on earth could handle its money now that america had failed, it should really have taken a step back and asked whether or not anybody could really have done any better. what did any of us expect? no matter how genteel the protestations of an eighteenth-century scotsman might have been, what else could have happened in a system driven, and especially so in the last three decades, by immediate individual gain? if you put a man in a room with three other men, and then tell him that it would be better for him and for them if he beat the snot out of them, aren't you a bit of a shmuck for being upset when he does?
you may think that this is another inveighing against greed and the capitalist class, and, in a way, you're right. i think that exactly that kind of inveighing is required at moments like this; shame is, after all, a powerful device for exacting social revenge. but 'greed is bad' is an old idea--far older, in fact, than its opposite. we knew that before this happened and, i hope, we won't forget in the near future. the point now isn't to retread biblical lessons, but to start offering viable alternatives to the institutions and the structure into which they were arranged. america is quite obviously overdependent on finance. as the financial times put it,
A huge debt-powered financial superstructure was built on top of the real economy to the point where high-octane finance became increasingly out of touch with productive enterprise ...
so that
a benign instrument designed to reduce risk turned into a monster that came close to destroying the entire financial system.our overdependence has both immediate practical implications and a much wider, and slower-moving, cultural effect. dealing with the latter is, of the two, the problem with the weightiest consequences. it's not just belt-tightening in the short-term that we will look forward to, but a much more profound intellectual starvation, as the ideas that were touted as so self-evidently right that opposition to them was dangerous madness turn out to have left us all with empty bellies. that, anyway, is why i don't trust demand-side keynesianists any more than supply-side friedmanistas, and why the same reductionist paradigms that got us here won't be any better for getting us out.
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It was pretty interesting to see, especially when things started looking real bad (October-November 700B bailout town), that absolutely no one was willing to offer any suggestions on how to fix what had happened. No one. No one even had any idea what was going on - the scope, the effects, none of it. How can economists consider what they do a science when everyone - everyone - was "suddenly surprised" about what went down?
ReplyDeleteAlso, I agree with you about the Planet Money podcast, Fight Night or whatever. It was pretty crappy, and because they weren't actually in the same room the urgency of the argument was even further removed. They were talking about the future of the American economy and it was like they just typed their arguments into Macspeak.
I don't think it's totally fair to say that absolutely nobody predicted the financial crisis, but to be sure those economists who did were in the minority.
ReplyDeleteLikewise, while I accept that stiff ideological constructs are often detached from actual human behavior (to say nothing of empirical data), you can't argue that they are entirely unhelpful or that one approach is just as unhelpful as another.
In the midst of an economic crisis it is tempting to hear the diversity of economic opinion and to see in the failings of an economic system the total futility of its study. But this not only ignores those voices and those schools of thought that in retrospect were analytically correct, it condemns the field to the same intellectual stagnation for which we now criticize it.
i don't see condemning a discipline's philosophy as equivalent to relegating the whole thing to the dustbin. my point wasn't that economics--that is, the 'pure' concept removed from the architecture that's been used to fill it out--is useless. i'd be tossing away a good deal of my future if that were the case. my point here is that if, commanding the kind of resources that economics does, and if, with the weight that it (unlike all other social sciences) carries with the public, the discipline, as it is currently constructed, was entirely unable to do what it claimed was within its power, then i don't see why we should trust it to solve the problem that its ignorance helped to create. it was academic economists who were in charge of monetary policy in the united states, and it was academic economists who made possible all of the freewheeling in credit markets that led to their utter failure. to my mind, that doesn't give any of their larger ideas, nor the methodology by which they bolstered them, any weight whatsoever. that's why groping for old tropes will, in the end, only reproduce old problems.
ReplyDeleteI agree. But I am saying--and this isn't so much a point of disagreement with as it is a qualification of your argument--is that by railing against all these "academic economists" who have got us in and then justified the mess we now find ourselves in ignores a sizable if minority group of academics who DID warn of the crisis and DO still have credibility in my mind. And if we talk about the intellectual bankruptcy of all the now reigning schools of economic thought without much differentiation, we don't allow ourselves to make some pretty important value judgment. For example, while the Keynesian economics of the 1940s is obviously full of holes, it is not by its nature an impossible (and more importantly, immoral) view of the world, like that put forward by the Austrian school.
ReplyDeleteAgain, I'm not trying to paint your argument as overly simplistic. I'm just providing a caveat which I think is really important to make explicitly.