A few days ago I published a Diary here in Daily Kos updating the observations regarding The Problem With Economics Today that I had made in an even earlier Diary. The first two comments back on my updated Diary, unfortunately for my efforts, pointed out that back in February 2010 in the New York Times, Paul Krugman and in 2003, L, Welsch Basic Econimic Principles had written articles that covered of same ground as my Diary.( Not only that but they do it in a much clearer way than I do.) I strongly recommend to the reader both of these articles.
I am pleased to see a member of the economic establishment like Professor Krugman take such a strong and courageous position against the current trends within his profession.
Although I agree whole heartedly with Professor Krugman that the entire edifice of modern economics and economic theory needs a thorough house cleaning, it should be pointed out that he remains an insider clinging to the position that the profession in which he has dedicated his life, is reformable from within. Maybe it is and then again maybe it is not. But can we really afford at this time in our history to stand by, cheering him on and waiting to see if he succeeds? Somehow I do not think that is the response he wants to see from his readers.
In this Diary, I intend to touch on a few points not mentioned or left out of either article.
They are:
Why did they go so wrong?
Can we trust them to advise us now?
Can they clean up their own mess and become credible advisors?
What should we do as individuals knowing that the very basis of the fundamental structure of our society and prosperity was a shuck and jive by a group of academics seeking recognition, power and monetary reward from those with the resources to give it to them?
Why did things go so wrong?
As Krugman points out and as I mention, in the early 1970's or so students began flooding into the Universities to study economics and finance ("Greed is Good" and Gordon Gekko) just about the same time as there appeared on the scene an economic theory developing in the ambitious and hungry Universities in the center of our country (Krugman's freshwater economists) that was accommodating to the interests of prospective employers of these new scholars and their political supporters in government. It also helped everyones job prospects that that economic theory evolved just at the same time that, to the general public at least, arcane mathematics requiring specialists to understand, were being applied to economics. These students armed with their arcane knowledge and political bona fides began to get plum jobs in industry and government. Even the recalcitrant Keynesians (Mostly on the coasts hence Krugman's saltwater economists) saw the writing on the wall and as Krugman points out accommodated themselves to this new reality.
Thus armed with a skill more pleasing to employers (what could be more pleasing than someone who could prove mathematically that whatever you did as long as you made money everything would work out well for you and for society) and to the employers supporters in government, new positions in companies and whole new divisions in government were created just to employ this new episcopate.
Imagine if you will what this new formulation of old time religion gussied up with mathematics must have sounded like to the captains of industry and masters of finance, "whatever you do no matter how awful, if it makes you more money, then everything is right in the world. Even more we promise you that government will eventually give you their assets to play with, and remove burdensome regulation and as an added bonus we will lower your taxes." What's not to like.
Of course the politicians realized a good thing when the saw it too and added "Give us your money for our elections and we will make sure it happens."
Can we trust them to advise us now?
In a short answer no. They, the economics community, is so busy defending itself to preserve their recent prerogatives in the face of the fact that they and almost everything they have told up to now has been proven wrong, anything they say must be taken with a great deal of suspicion.
Even the Keynesians both old and new as Krugman points out, have to reevaluate their most cherished beliefs. As I wrote in my previous blog they seem to me to have missed the point. It really does not matter if there is a greater or lesser demand for bonds, or for cash or for quality investment vehicles, if there is no industrial policy to assure that there are goods being made and jobs created, if there is no environmental policy that maintains the availability of the resources that we all depend upon, If there are no educational goals for the public, no social rights.
The classical economists maintain that if there enough capital around and there is a demand then these needs will be met. When has it been that capital will wait around under the pressure of the market for, say the creation of a new generation engineers to handle the new technologies? Why we can get them right away offshore the conservative economists claim. And yes they are right and that is the problem is it not?
They, the economists, Krugman included, seem to me to be saying if we only do this particular thing then the recession will end or inflation will be controlled and we will all somehow get back on the road to happiness and prosperity. Not so. Without the industrial, environmental, social educational policies they are no more than glorified ponzi schemes that benefit only those who bury their assets in their backyards or secrete them in their "survival shelters". Even Keynes himself had a viable working industrial economy to work on. Where are the industries and the resources of the United States today?
Can they clean up their own mess and become credible advisors?
Again I have to say no, at least not in the immediate future. First, as Krugman point's out the economic community cannot agree within itself what it should do now, nor does it appear to understand what went wrong with their theories. Second, their jobs yes and even the exalted position of their profession and their reputations require that they salvage the essence of their theories that were so pleasing to their employers. In my last blog, I quoted Socrates to illustrate this and I will do so here again:
It would seem, it is the part of a good economist to know how to deal with his own or his employer's foes so as to get profit out of them? Xenophon, The Economist.
As an attorney I know and everyone else knows that in an advocacy situation I represent my client. Even when I or any attorney is advising his client he follows Socrates advice to deal with "his employer's foes so as to get profit out of them".
Because the lawyers role is so fraught with ethical dilemmas, the attorney's canons of ethics always prohibit and attorney from from representing or giving advice to anyone that would in any way conflict with that of this client. Still no one really trusts us attorneys. Think of it, economists have no such rule to protect the rest of us from their conflicts of interests.
What should we do now?
I would like to say that we should begin by firing all the economists working for government now that in anyway requires them to give advice on financial or economic matters. I would like to also suggest that these positions be replaced in whole or in part by non-economists. I would also like to suggest that all those as well as any economist hired by government in the future be required to sign on to an ethical standard for conflict of interest like that in the attorney's canon of ethics. Merely prohibiting the taking of jobs that require appearance before their specific governmental employer as the ethical rules now in effect in some cases provide, simply does not cut it, I would like that and a lot more to happen but I know it will not.
What can be done, however, is vote. Vote in the next election and the election after that. Franklin Roosevelt advised that:
Nobody will ever deprive the American people of the right to vote except the American people themselves and the only way they could do this is by not voting.
Franklin D. Roosevelt
We must also recognize that in the Democratic Party the least we get is an internal dispute within the party between the progressives and the conservatives with a better than even chance the progressives will prevail on any particular issue. With a Republican victory we do not get even that.
Even the most conservative Blue Dog Democrat will vote with the Democrats to organize the House of Representatives and the Senate. We cannot afford to lose that because if we do, we can never hope for progressive policies.
So what can we do about the current state of our economy and our nation and of the economic advice we have been receiving? As the dust has settles from the primary where we may have or have not unseated a particularly reactionary Democrat, we must now VOTE and VOTE DEMOCRATIC in the general elections. We cannot afford to lose what we have gained so far even if we believe it to be meager.
As I have said in my prior Diary, Keynes may have observed that "in the long run we all will be dead", nevertheless society goes on and our children and our children's children depend for their happiness, prosperity and perhaps their very existence upon what we do today. Future society and our descendants have given us their proxy. We vote for them as well as for ourselves.
Despair is not an option.
Join me on Trenz Pruca's Journal
Bonus quote, thanks to goinsouth:
Capitalism is the extraordinary belief that the nastiest of men, for the nastiest of reasons, will somehow work for the benefit of us all. - JM Keynes