A case in point is the causes of the current crash. The NYRB features a review, by Roger Alcaly, of two books, Getting Off Track: How Government Actions and Interventions Caused, Prolonged, and Worsened the Financial Crisis by John B. Taylor and The Fundamental Principles of Financial Regulation by Markus Brunnermeier, Andrew Crockett, Charles Goodhart, Avinash D. Persaud, and Hyun Shin, which is a beautiful instance of the blind reviewing the blind. All participants are acolytes of the Great Moderation principle that the economists have invented a magic machine, the Central Bank, that creates the best of all possible worlds once it is correctly tuned up. This belief rests, of course, on a host of other barbarian superstitions, including the belief that if markets don’t really clear, they are best analyzed as if they do, and if they don’t perfectly compete, they are best analyzed as if they do, and if they don’t really efficiently allocate capital, they are best analyzed as if they did. You could call this the three fiction pillar of the perfect economy. Once you have swallowed these romantic premises, you can swallow others without flinching: that there really is an ontological divide between public and private enterprises, that governments don’t produce anything, etc. etc.
Alcaly sadly agrees with Taylor that it is all the fault of the Fed. If only the magic button had been pushed in 2003! If only interest rates had been raised, the crash would have been avoided.
This is a tale for and by simps.
I am a dissenter from the current patriotic slogan, give me amnesia or give me death. Thus, I actually remember the 00s.
And so I know this: what caused the current crisis solved the last crisis. In general, the slowdown in compensation to the working class - and the middle class is largely a working class that aspires to be thought a gated community, although they only own the means of the production in the distorted sense in which the fans own a band - and the unemployment that was bound to result from the crash of 2001 was solved by the same clever economists who are now bemoaning their Oops moment. The solution was a boom that largely depended on milking the one real asset people had - houses. It was a political solution to insure the survival of the politically constructed "Great Moderation", which in turn depended on extruding the care and maintenance of social welfare goods into the private sector and the destruction of labor bargaining power. Economists, now, have flipped the question not to whether the solution to the last crash has delivered us to a bigger crash, but the more sportif question of who predicted the crash. Amnesis requires bread and circuses – in our current parlous state, it requires the destruction of our narrative intelligence through a media regime of absolute pablum and the framing of the debate about our national fate in terms that would shame a seventeenth century peasant. If we want to know what caused the present crash, we have to have an answer to the question, who benefited most from the solution to the last crash? Who benefited from the housing bubble that was the response to the tech crash of 2001? The political answer is, of course, the plutocrats, the financial sector, big oil and defense, and their political proxies, the Bush administration and the Republican congress. The larger answer is the same class of oligarchs that have made such huge strides in entrenching their economic and political power since the country chose to the path of conspicuous consumption, loose credit, and a completely impotent and unorganized labor force – also known as Morning in America. When Alcaly gravely agrees with Taylor that the rates should have been raised and the houseing bubble crushed in 2003, he turns away from the consequences of this retrospective policy choice. It there had been no housing bubble, there would have been no surge in consumption. Instead, the real consequences of the tech bubble crash – overproduction, an unaffordable seizure by the wealthiest 1 percent of a quarter of the nation’s wealth, an out of control rise in the prices of welfare goods – education, medicine, infrastructure upkeep – would have had to have been faced. Taylor can face these consequences with equanimity: he would find decrease in the average median income of the American household a wondrous thing, preparing us for a competitive future. Preparing us, that is, to largely impoverish the working class, so that it is on the same level as, for instance, the Mexican working class. This is exactly what ‘equilibrium’ means. The middle class in this country, which routinely swallows the idea that the problem is the government, is the direct outcome of government action.
There are certain obsessive gestures in Alcaly’s article that one will notice in all mainstream economist’s articles. The funniest by far is the notion of “full employment”.
“Nonetheless, housing is still depressed and nearly 10 percent of the labor force was unemployed in January. We have lost more than eight million jobs, over half of them permanently, since the recession began in December 2007; and long-term unemployment is at record highs. Even if the economy grows 5 percent a year over the next three years, which seems unlikely, the US will probably not return to full employment before 2013.”
What is this “full employment”? You don’t have to dig far to find out that the economists routinely equate employment with non-government employment. That is the presupposition behind the 5 percent figure – that the private sector will do all the hiring.
This is, of course, a joke. In the developed world, no nation has that kind of full employment. In the U.S., government employment is the largest employer, and has been since the fifties. We made it out of the Great Depression partly by accepting the terms of the Great Depression – the private sector will never, ever lead to full employment. It was one of Keynes’ insights that you didn’t even need, as Marx thought, overproduction – underemployment, he showed, is endemic in a money economy – in capitalism. Since then, every state has operated in its own way to sop up unemployment through the state. The U.S., having a massively refracted government structure – not for us the centralizing tendency of the French – consequently shove much of the work, here, onto state and local governments. But the result is the same.
What Alcaly means by full employment is: that the private sector will again employ around 75 –80 percent of the employed population. In other words, we will have a normal underemployment situation, solved via Keynesian means.
Yet I doubt very seriously he knows that is what he means. Economists have not only developed a jargon to keep out snoopers, but to blind them to the obvious.
There comes a point in any kingdom or principality when even its cynics toil in the grasp of its superstitions. We are surely in that moment at the present. And it seems to me that we will remain there, drowning not waving, as our ruins pile up.