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Or, conventional wisdom kills.

The economic truisms we live and breathe with every day aren’t challenged, yet they direct policy.  Are they true?  Do they work?  Did they work in the past?

In Jeff Madrick’s article in Harper’s Magazine, “Revised History” the author makes it clear that the victor writes the history books.  For the rest of us, we must seek out a factual, provable explanation begging to be offered.  

Unfortunately, “conventional wisdom” crowds out the marketplace of ideas.  As the great economic theorist and author of The Great Crash of 1929, John Kenneth Galbraith, said about the myths that whitewash counterfactual arguments, “The conventional view serves to protect us from the painful job of thinking.”

One accepted myth is that the reason for America’s prosperity is small government, widespread education and technology.  Madrick:

The first [myth] might be that America owed its rapid economic growth in the 19th century to the small size of its federal government.  This widely accepted narrative neglects the many regulatory and legal reforms that went into effect in those years, reforms guaranteeing fair competition in business and the right of ordinary people to buy land.

The myth also ignores state-financed investments in canals and railroads; the development of free primary (and later, high school) education paid for with taxes; and the building of sewers and water-sanitation systems in cities, which controlled disease.  It overlooks high tariffs, imposed by the federal government, that spurred the development of manufacturing.

This is not to mention the economic benefits of slave labor (hardly a laissez-faire arrangement), which required government enforcement.  For good or ill, intervention by the state into economic life was a reality of the time.

The conservative message that went mainstream is that the double-digit inflation of the 1970s was due to the Fed pumping too much cheap currency in the money supply, therefore lenders demanded higher rates which in turn led to the slippery slope of inflation.  Madrick offers Alan Binder’s exhaustive study of the cause of 1970s inflation as a counterfactual.  Binder was no slouch.  He had been Fed vice chairman:
Two years’s worth of major crop failures led to soaring food prices and the Arab nations’ oil-price hike, which quadrupled artificially low prices of approximately $3 a barrel to $12 a barrel by 1974.
Yet the most unshakeable myth is that tax cuts and deregulation grow an economy.  We watch as income inequality grows and jobs grow fewer and pay much less.  We saw how deregulation gave the financial sector a chance to gamble away all our wealth and after they bankrupted themselves, they were punished with government transfusions of bailout money.

Now we are treated to a new myth, that austerity cures budge deficits.  If anyone is paying attention to austerity measures in Europe, budget deficits are getting larger, not smaller, because economy activity has trickled to a puddle.  In America we are seriously talking about closing off social insurance that everyone pays into until a person is 70.  A laid-off person aged 45 is having a tough time convincing an employer he/she is able to do the work well at his/her advanced age.  What are the unemployed 45-70 going to do to survive if they can’t get a job?

A simpler and more equitable way to raise funds for social security is to eliminate the social security cap.  Social security taxes are capped at $110,000.  A person earning $110,000,000 pays exactly the same amount of social security taxes as a person making $110,000.  Take away that man-made division and the social security insurance program will be in the black for years to come.  Raise the capital gains tax.  Put the wealth to work for the good of the country and the individual.  These are all painless methods of closing the deficit: shared sacrifice.

Opinion makers are also suggesting we turn Medicare, with its 2% administrative fees, into a voucher program administered through private insurance companies with their average 20% of administrative costs.  Not even taking into account how many people will sicken and die under such a limited amount for necessary care, perhaps we can root out more Medicare fraud.  That’s the purpose of government regulation.  To balance the budget and keep some of our frayed safety net tied together.

The implacable assertions of “my way or the highway” make it impossible to reintroduce the practices of John Maynard Keynes.

Keynes theory simplified, is thus: when demand is low and there are no private buyers, let the government be the buyer of last resort.  When demand is high then private and/or public enterprise becomes the buyers of last resort.  When the economy is bad, when there is too much supply and too little demand, people are laid off, they have no money to spend on goods and services, businesses suffer and lay off more of their employees, and on and on in an endless loop.  Tax revenues dwindle.  

The government has the heft, reach and resources to do things on a nationwide level.  It can deal with large, detailed problems, develop solutions, innovations and implementation.  Some examples: The Space Program, the Interstate Highway System, Hoover Dam and many others.  One shining Keynesian model is The Tennessee Valley Authority (TVA), a federally chartered corporation that provided navigation, flood control, electricity generation, fertilizer manufacturing and economic development for an area that had been particularly hard hit by the Depression.  The unemployed got jobs and they built the solid technological infrastructure that’s still working today.

There are many more examples of how government does and should play a central part in the economic heartbeat of America.  All this double-talk about austerity is simply the demand for money redistribution, only not progressively.  The redistribution flows upward, from the working poor to the beleaguered middle class into the pockets of the 1%.  The top 1% has seen its wealth increase considerably even since the 2008 economic collapse whereas the rest have seen their wages stagnant or even halve.

This is not trickle down, this is trickle up.

The sticking point: what can we the people do about such inequity?

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Comment Preferences

  •  What can we the people do? (6+ / 0-)

    We can refuse to buy into the austerity pimps many lies.

    When wer refuse to buy it, and refuse to shut up about not buying it, and confound the Simpsons and the Bowles of the Beltway by refusing to stop scoffing at their lies and double talk, then the people who need us to vote for them can't afford to just give up and vote for massive austerity as if they are just passive victims of a rising tide they had no control over. Austerity is a Choice, not a Necessity. As long as this is so, it's possible to stop them and stop them cold.

    The whole point of the Pete Peterson exercize is to create a climate where everyone thinks that there is no other possible option but austerity in general and the Pete Peterson to Simpson/Bowles models of austerity specifically.

    They can't win until they end all debate and discussion on the matter. What they want is politically unpopular, would actually be politically suicidal to the people who passed it, so they need everybody to be guilty of the crime.

    If everybody killed Social Security, everybody is to blame. If everybody is to blame, then nobody is to blame.

    That's the gambit.

    I am from the Elizabeth Warren and Darcy Burner wing of the Democratic Party

    by LeftHandedMan on Mon Jan 21, 2013 at 01:45:20 AM PST

  •  Economic theory was developed, it seems, by (5+ / 0-)

    people who had no sense of time. Their excuse for simply comparing one point in time with another and extrapolating from that was that to do otherwise, to try tracking a dynamic process that changes over time, is too complex. That may well have been true before the advent of computing machines. However, that static models persist suggests that people who study economies are people who haven't the first idea what it means to trade and exchange real tangible goods and services (a hair cut, for example, is a tangible service). So, being out of touch, they play with numbers, symbols of reality. In a sense, they take the idea for the act and are content with that. Besides, ideas are great just because they don't have to change.
    But, trade and exchange are all about change and change is all about time. Change occurs from one minute to the next. If one is looking at minutes (points in time) as discrete entities, how can one compute what happens in the interstices?  If one doesn't even notice there is something in the gap, one remains blissfully unaware.
    Economists, having finally noticed that their models were not predictive (could not anticipate what would happen next in the real world), determined that the economy would have to be adjusted to comport with their models. For a while, I think they thought that what was being charged for the use of money (interest), a measuring instrument, would serve as the perfect handle with which to direct the economy. That was sort of like thinking that whether a ruler was made out of wood or plastic or silver or flexible tape would affect the size of a person's waist or his back yard. So, what was eventually revealed was that, if money (the measuring instrument) is removed from the process of exchange and trade, the transaction rate becomes sluggish and eventually risks total collapse (because so much time and energy goes into keeping track by other means?). In other words, money helps the economy go 'round and taking it out slows it down. But, and this is the worst, pouring money back in doesn't start or speed it back up. I suspecte that's because money is like the oil in an engine, not the gas, but that's just my theory.
    Money is a measure, but it also serves as a moral glue or even a substitute. A certified IOU, issued by a credible public body, imparts a measure of credibility to transactions, especially transactions between strangers, that otherwise wouldn't be there. The culture of credibility. That's what a place like Zimbabwe, for example, is lacking. So, the Zimbabwean dollar is defunct as legal tender, even as it is being peddled on eBay to coin and bill collectors.

    We organize governments to deliver services and prevent abuse.

    by hannah on Mon Jan 21, 2013 at 03:06:04 AM PST

  •  Isn't that Alan Blinder not Binder? (0+ / 0-)

    I'm going to put him on my reading list. Thanks for that.

    We're fools whether we dance or not, so we might as well dance.

    by PowWowPollock on Mon Jan 21, 2013 at 03:13:15 AM PST

  •  Good diary. Thanks. nt (3+ / 0-)
    Recommended by:
    JayRaye, emal, angry hopeful liberal

    Might and Right are always fighting, in our youth it seems exciting. Right is always nearly winning, Might can hardly keep from grinning. -- Clarence Day

    by hestal on Mon Jan 21, 2013 at 03:17:21 AM PST

  •  "A sound banker, (4+ / 0-)
    alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional way along with his fellows, so that no one can really blame him."

    John Maynard Keynes, "Consequences to the Banks of a Collapse in Money Values", 1931

    Flashback to 2007: Tanta on "Sound bankers"

    We are in a period where its better to be a sound pundit than an honest, accurate one.  Spew the conventional wisdom solution, even if it will make things worse.  This will be evident earlier in Europe as their situation has constraints that the US does not.

    It's not just that the Government has the heft for big problems, it has a printing press and infinite lifetime.  One thing the WPA commissioned was art - paintings mostly.  It is extraordinary.  Imagine if there were stimulus funds for artists.  Maybe through the back-door, money to states went to schools who kept an art teacher on staff.  The government has the choice to put people to work or to let them stay unemployed.

    However, today is a celebratory day.  I'll temper any thoughts of things not done well enough and remember how much better things are than they could have been.

    •  A "celebratory day" (0+ / 0-)

      Yes. We could be weeping and gnashing our teeth and pulling our hair from the roots at viewing the Romney inauguration.

      We could be somewhere else where the exchange of power included military uniforms, aviator sunglasses, and scowling henchmen on a bloody dais.

      "It could be worse" still doesn't have me dancing in the streets though.

      The Aggressively Ignorant Caucus is getting aggressively ignorant again.

      by Anthony Page aka SecondComing on Mon Jan 21, 2013 at 08:11:44 AM PST

      [ Parent ]

  •  You sent me to Madrick's (2+ / 0-)
    Recommended by:
    JayRaye, emal

    article and he made reference to Charles Beard's book, An Economic Interpretation of the Constitution of the United States. That book was one of the texts I studied in an elective class on the Constitution back in 1958, fifty-four years ago. I did not realize at the time just how old the book was. I didn't buy the book. I had learned as a freshman that pretty much all textbooks were available in the library reading room. So I went there often. It was quiet, clean, cheap, and adorned with pretty girls.

    But back to the serious stuff.

    I do remember that the professor was ambivalent about the book. He presented it as just one view of the Constitution. I suppose that he was supposed to do that, but my father, who never read Beard's book, but who grew up in the Great Depression, had no doubts that the Constitution was designed by rich men for rich men.

    Might and Right are always fighting, in our youth it seems exciting. Right is always nearly winning, Might can hardly keep from grinning. -- Clarence Day

    by hestal on Mon Jan 21, 2013 at 03:43:23 AM PST

  •  Extreme austerity is one thing. (1+ / 0-)
    Recommended by:
    Sparhawk

    But the word austerity is starting to be applied around here to ANY burdens put on the public. Is the 2% bump in FICA (back to where it was before) an example of austerity? would means testing of SS benefits be austerity?

  •  DSM V should have... (2+ / 0-)

    ...an Austerity Obsession personality disorder.

    Boehner Just Wants Wife To Listen, Not Come Up With Alternative Debt-Reduction Ideas

    by dov12348 on Mon Jan 21, 2013 at 04:24:49 AM PST

  •  Removing the cap (0+ / 0-)

    on Social Security is a good idea, but does someone whose income is $110,000,000 a year going to need Social Security? I would certainly hope not!
    How about a more reasonable and realistic figure?
    Also, may I suggest that 45 is not really an "advanced" age  and under normal circumstances, someone that age shouldn't really have a hard time finding a job, as long as they have a decent work history.
    Thank you for the diary.

    “We are not a nation that says ‘don’t ask, don’t tell.’ We are a nation that says ‘out of many, we are one.’” -Barack Obama

    by skohayes on Mon Jan 21, 2013 at 04:25:20 AM PST

    •  Circumstances are no longer normal (1+ / 0-)
      Recommended by:
      nchristine

      There are SO MANY people out of work and looking for work that employers can be as picky as they want. If they don't want to hire anyone over 45 - they don't have to, and in fact for the most part they don't. They take the 20-something fresh out of college who will have to learn the ropes from the get-go (and can be molded in the company's preferred image).

      That also allows them to write off the older candidates with the kiss-of-death term "Overqualified".

      If it's
      Not your body,
      Then it's
      Not your choice
      And it's
      None of your damn business!

      by TheOtherMaven on Mon Jan 21, 2013 at 08:37:03 AM PST

      [ Parent ]

  •  Title is simply not true (0+ / 0-)

    Austerity (at the wrong time, like now) is devastating. But it is not forever, and both societies and individuals do come back. The economic cycles swing, the political cycles revolve, either politely (via elections) or not-so-politely (via mass movements, demonstrations, or military coups), and things change to rebalance winners and losers.

    We must of course continue to push back against the efforts to make the poorest and most vulnerable bear the brunt of the financial collapse that they did not cause (and can't cure). But it doesn't help to catastrophize as if this were the apocalypse.

  •  Austerity... (3+ / 0-)

    the well-discovered country from whose borne no economy returns.

    Strategy without tactics is the slowest route to victory, tactics without strategy is the noise before defeat. Sun Tzu The Art of War

    by Stwriley on Mon Jan 21, 2013 at 07:18:50 AM PST

  •  Good Diary (1+ / 0-)
    Recommended by:
    nchristine

    And it is interesting how many here are defending that conventional wisdom you mention. Interesting push back techniques....many using one fact as proof as ...."a see it isn't so bad, it could be worse", "you overreact to every little cut " or even "the well these things cycle-this is just one of those dips in times". Yes, but they aren't  fooling those who are already well aware of the death by a thousand small cuts. Or they fail to mention those dips from all those cycles that never fully quite return to the same level as before the dip for many...leading in a general downward trend for most...decade after decade...a downward slope...little by little...down down down.

    Yes they mention one fact, but fail to mention all the facts that have occurred over the past several decades that have a cumulative detrimental impact on the underclass. The slow dismantling of the middle class  (which apparently according to the wealthy ruling elites is anyone making $400,000 or less these days). The swelling ranks of the poor and those on food stamps at record level highs. The stagnant wages of 99% and falling numbers of jobs (if you have a job) with paid retirement benefits, because the CEO corporate class feels it more important to reward wealthy shareholders than to reward loyal dedicated employees for their long years of hard work and service.

    Did I mention the backdrop and context of growing levels of income and wealth inequality at historic record highs?...combined with a tax code that shifted the burden off the wealthy and off of wealth but also has led to a starve the beast of govt coffers? You want safe bridges,roads, schools? You want more teachers, policemen or firemen? Too bad your on you're own, we can't afford that. Did I mention the ranks of the unemployed, underemployed, part time employed are all at high levels. Did I mention corporate profits at record high levels?

    Oh did I mention debt ceiling crisis 1 back in 2010 ..which led to 900 billion in cuts. This is a nice backdrop and in addition to the current "cuts" we must endure. We have no choice we are told. Most of those cuts negatively impact the 99%. And about those billions in corporate welfare subsidies for big oil ( record industry level profits) still intact apparently as some welfare cuts are more sacrosanct than others.

    But I digress...

    Austerity lite versus Austerity...all leads in the same deteriorating direction for the 99%..slow painful death...we are told. aren't we lucky friends, it could be worse.
    Small comfort my friend.
    Tick tick tick...

    You can fool all of the people some of the time, some of the people all of the time, but you can't fool all of the people all of the time. Especially the savvy people here at DKos.

    Government of, for, and by the wealthy corporate political ruling class elites. We are the 99%-OWS.

    by emal on Mon Jan 21, 2013 at 07:30:00 AM PST

  •  I loved (0+ / 0-)

    your diary, It is sickening that the people in power do everything to hide the truth from its citizens. Bravo Marie!

    "America is the only country that went from barbarism to decadence without civilization in between" Oscar Wilde

    by angry hopeful liberal on Mon Jan 21, 2013 at 08:50:33 AM PST

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