In Markets We Trust

Like many undergraduate students forced to take Economics 101, I was fond of quoting Thomas Carlyle, the 19th century Scottish writer, essayist and historian, to describe the discipline of economics as “the dismal science.” The term reportedly was inspired by T.R. Malthus’ gloomy prediction that population would always grow faster than food, dooming mankind to unending poverty and hardship.

Thomas Carlyle, circa 1860s. Photo by Elliott & Fry
Thomas Carlyle, circa 1860s. Photo by Elliott & Fry.

Even though my classroom economics is now nearly 50 years old, some of the hair-hurting dismal nature of it is coming back as I struggle to even listen to some of the “highlights” of the Republican debates. The presidential wannabes have had so many exchanges dealing with economics at some level or another that you’d think by this stage of the primaries that a few of them would now be able to articulate a clear and convincing argument why their plans are best.

Unfortunately, all I’ve heard is lots of blather about worshipping unbridled capitalism, lowering or abolishing taxes, and dramatically reducing local and federal government by laying off workers and replacing them with contractors within the private sector. Then there’s been the requisite bashing of welfare (except that for Wall St) and unemployment compensation in addition to the denigration of unions.

Of course, there’s lots of talk about the requisite great theme of job creation. But I hear too much nostalgia about an earlier time when manufacturing jobs were prevalent and high paying. But the candidates seem to forget that we’re never going to bring back those blue collar jobs that are now being done by workers in China.

Funny logic that most of them also think that “the market” on its own will create most of the other jobs, only if government regulations were lifted and taxes lowered for the wealthy.

By no coincidence, there’s also little mention of the role predatory banks played when regulations were barely enforced during the years leading up to the 2008 debacle.

And at this stage of the game, does anyone really believe we should take our eyes off the still greedy scoundrels on Wall Street?

Joseph Stiglitz
Joseph Stiglitz

This train of thought has taken me to discussions with my friends Hal and Steve over a recent article in Vanity Fair by Joseph Stiglitz. As Hal sees it, Mr Stiglitz, a Nobel Prize winner and former VP and senior economist at the World Bank, makes a case that there has been a paradigm shift over the past thirty years in the American economy similar in many respects to the 1920s. Thanks to technology and globalization, manufacturing is on a downhill and irreversible slide and with it all those good paying jobs from yesteryear. Instead of cutting spending and taxes, he argues that government needs to invest more in infrastructure, education, and research if we hope to come out of this trough and provide enough good jobs for the future.

In his earlier book Freefall, Stiglitz argued that the Obama administration and the Fed grossly underestimated the depth of the problem in 2008. As a result, the stimulus was neither large enough, nor as well designed as it could have been. Tax cuts and cash for clunkers soon evaporated, leaving us no better off than we were before. And we still have banks that are “too big to fail” and the new regulations are not nearly strong enough to prevent them from gambling again with taxpayers’ money!

As Stiglitz so succinctly puts it: “A banking system is supposed to serve society, not the other way around.”

Romney GOP dogging in South CarolinaSo back to the debates and this coming Saturday’s election in South Carolina. Do we think we will ever hear any of the candidates change their tune a bit and say this is a time for “reckoning and reflection.” Instead of attacking the President, not to mention each other, can we hope that at least one of them will call time out and ask whether it is naive to believe fully in a self-correcting market, the same market that allowed conditions to develop for the biggest financial and economic shock since the great depression of the 1930s? Instead of bragging about their business expertise, their Conservative credentials, their anti-government positions, will any of them question the legitimacy of the sort of economy in which financiers enriched themselves by selling over-priced and risky products to some of the most vulnerable citizens in America?

If the Republicans really believe that cutting taxes for corporations and the wealthy (the so-called “job creators”) and that slashing regulations will bring back the good old days, they are living in a dream world. If that were the magic formula, why did we continue to hemorrhage manufacturing jobs despite two huge tax cuts under Bush?

Screenshot of the Republican DebateIn the face of serious economic challenges, how will their upcoming debates go? Will they get serious for a change and stop bragging about their “family values,” their anti-gay agenda, their ties to evangelicals, their creationist view of life? Will they acknowledge the need for an equitable tax code, will they put aside their drive to squeeze the last buck out of their business dealings, even if their wealth is increased at the detriment of so many others? Will they ponder the possibility that their materialism has outweighed their moral commitment to the betterment of the country as a whole? Will they continue to ignore the needs of the environment? Will they quit labeling the Occupy people as social misfits and a nuisance and recognize them as symbols of the catastrophic breakdown in trust we see growing every day in this country? And will they forever stop looking for more feckless wars to make them look tough in the eyes of their followers?

But no one seems to be talking substantively about what needs to be done, especially since, as Stiglitz says, “Monetary policy is not going to help us out of this mess.” What we need to do, according to him, is to “embark on a massive investment program–as we did, virtually by accident, 80 years ago–that will increase our productivity for years to come, and will also increase employment now. This public investment, and the resultant restoration in G.D.P., increases the returns to private investment. Public investments could be directed at improving the quality of life and real productivity–unlike the private-sector investments in financial innovations, which turned out to be more akin to financial weapons of mass destruction.”

But he is less than sanguine whether we can bring ourselves to do this. Since we have so under-invested in infrastructure, technology, and education for decades, the return on additional investment will be high. He posits that “If we simultaneously increased taxes–for instance, on the top 1 percent of all households, measured by income–our debt sustainability would be improved even more.”

The rub, though, that the Republican candidates won’t address is that, according to Stiglitz, “the private sector by itself won’t, and can’t, undertake structural transformation of the magnitude needed–even if the Fed were to keep interest rates at zero for years to come. The only way it will happen is through a government stimulus designed not to preserve the old economy but to focus instead on creating a new one. We have to transition out of manufacturing and into services that people want–into productive activities that increase living standards, not those that increase risk and inequality. To that end, there are many high-return investments we can make. Education is a crucial one—a highly educated population is a fundamental driver of economic growth. Support is needed for basic research. Government investment in earlier decades–for instance, to develop the Internet and biotechnology–helped fuel economic growth. Without investment in basic research, what will fuel the next spurt of innovation? Meanwhile, the states could certainly use federal help in closing budget shortfalls. Long-term economic growth at our current rates of resource consumption is impossible, so funding research, skilled technicians, and initiatives for cleaner and more efficient energy production will not only help us out of the recession but also build a robust economy for decades. Finally, our decaying infrastructure, from roads and railroads to levees and power plants, is a prime target for profitable investment.”

But back to the reality we continue to hear over and over from the debates. Is anyone even thinking of anything substantive? Or, as my friend Steve said, will they just continue to exploit the fears of their base, those most easily led by their prejudices and most susceptible to manipulated stories and pie in the sky promises? Will they ever awake from their amnesia and recognize the long-lasting damage the Bush years did to our country and stop blaming Obama for everything that is wrong?

According to Steve’s reading, “Stiglitz recognizes that this paradigm shift, these serious, new and non-cyclical structural changes are what is curtailing our ability to pull out of the mess Bush-Cheney and their wrecking crew left. Given the Republican party’s proclivity for feathering its own nest, living by the maxim ‘I’ve got mine,’ I doubt it’s even a long shot that any leader could emerge who would be both smart enough and forceful enough to take the hard decisions we need to avoid our fate.”

In conclusion and to add “balance,” Hal wondered whether I am giving the Democrats a free pass. “Haven’t they been too quiet and timid in responding to many of the most outrageous assertions made by Republicans? Maybe they are just keeping their powder dry and letting the Republicans do their job for them, but I do wonder whether the Democrats have learned the right lessons from the recent debacle as well. Many of them were also believers in “the market.”Stiglitz argues that Larry Summers and Timothy Geithner in particular played key roles in protecting the big banks both under Clinton and Obama. It is ironic, isn’t it, that the regulatory reforms that have been passed are named after Senator Dodd and Congressman Frank, who were just as blind and arguably just as culpable in some ways for the mortgage disaster.”

So, with that uplifting note on The Dismal Science, we are all poised to hear how the good people of South Carolina, those same people that Perry recently fed red meat to by shouting that this is not the first time they’ve been at war with the federal government, will decide their choice for Republican candidate.

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David Evans

I'm retired from another life and live in the mountains of eastern West Virginia with my muse Jody along with one remaining dog.  We've decided no more dogs and cats.  Losing them is just too painful. Being independent and no longer in the reins of someone else's driver, I now have the chance to revisit the many people and places that have enriched my life. The good folks at Wesleyan College in central West Virginia guided me to a graduate degree in fine arts in early 2018.  My plan is to use some of the skills I learned from two years in this creative writing program to tell my story.