The Economist of July 14. 2012 (p. 71) contained an entertaining and information article on some recent findings in psychological research. Researchers have found:
1. Give a person an icy drink at a party and it causes them to be more likely to perceive other guests are giving them the cold shoulder. On the other hand a warm drink makes people feel more warm towards others (hence the popularity down through history of the coffee shop?).
2. A Canadian study found that subjects who sat at a slightly wobbly table next to a wobbly table were more likely to opine that relationships of celebrities were unstable. They also were more likely to rate stability as a more important factor in their own relationships.
Friday, August 24, 2012
Tuesday, August 21, 2012
A plea to Republicans to step outside their political comfort zone
For most of us our political ideas don't result from long years of studying the alternatives. We don't chose a party because we have studied how Republican or Democratic ideology has worked in the real world, we go with the ideology we find emotionally comfortable. In some cases our emotional comfort zone is defined by our personality, in some cases it is defined by the social environment in which we are raised. For most of us our emotional comfort zone - whether we are Democrats or Republican's, is an amalgam of these two factors. Once we have made that emotional choice both parties have volumes of logic we can adopt to reinforce our choice.
That's why political advertising is often so grossly misleading. It is aimed at our emotions, not our deliberative intellect. Political ads don't represent an attempt to help us study facts and determine what an intelligent choice would be, they are aimed at lighting a fire under our emotional comfort zone. Often it doesn't matter much. Both parties will do well enough that they will cancel out the really bad ideas the other party puts forward. But not always. There is a core issue in the current election that is one of those exceptions - it matters greatly.
I was a Republican for many years. It was my emotional comfort zone. I voted for Richard Nixon, and Ronald Reagan and George Bush senior for President. But my profession exposed me to historical facts and economic data that eventually caused me to leave the party in 1992 because it was becoming apparent to me that Republican economic ideas were based in ideology, not reality.
I write to make a plea to Republicans to step outside their emotional comfort zone and take a hard look at how current Republican economic orthodoxy measures up against history and economic data.
Mitt Romney and Paul Ryan are basing their campaign on the notion the way to bring back prosperity is to cut taxes, cut the size of government and cut regulations on business. The campaign is very adept at building logical explanations to make the case that business is not creating new jobs because of regulations and government interference, that if we cut taxes on the wealthy it will spark investment, that if we cut the size of government it will free up the private sector to step up and put us all to work.
But, as former Chief Justice Oliver Wendell Holmes once said, a page of history is worth a volume of logic. Here are some easily documented historical facts useful in evaluating the Romney/Ryan plan:
It's formula of cutting taxes, cutting regulations and cutting the size of government is exactly the same formula the Republican party put forth in the 12 years they controlled both houses of Congress from 1995 to 2007 (adding control of the Presidency in the last six years) that led to a huge expansion in the National debt, produced pretty mediocre GDP numbers along with bubbles in the stock and housing markets, and ended in the most spectacular economic crash since the Great Depression.
The formula is also the same formula that caused the Great Depression. Republicans took over both houses of Congress in 1919, added the Presidency in 1921, and controlled all three until 1933. They cut taxes, cut regulations and cut government. The result was eight years of mediocre growth during which bubbles in housing and the stock market developed, followed by a crash in 1929.
Unlike 2007, when the Republicans were being shown the door by the voters just as the collapse began, the Republicans continued to control both houses of Congress and the Presidency between 1929 and January of 1933. Herbert Hoover was convinced that the private sector would pull us out of the downturn, so continued with the Republican polices that reduced the influence of government, lowered taxes and eliminated regulations. It didn't work. By the time the Republicans were shown the door in 1933 unemployment was near 25%, 5000 banks had failed, foreclosures were rampant in all part of the country. The circumstantial case is strong that a big part of the reason the recession that followed the 1929 crash turned to a depression was because of the Republican policies. Voters certainly made the connection. In the 47 years from 1933 to 1980 Democrats controlled both houses on Congress for 38 of those years.
1921-1933 and 1995-2007 were the only times in the last 100 years where Republicans controlled all the levers of the Federal Government (other than 1953-54 - which was also followed by a recession).
Beyond the circumstantial evidence of US history, the Romney/Ryan plan ignores slam-dunk evidence from Economic studies that have looked at the effect of cutting government. The international monetary fund looked at 173 times in the last couple decades where developed countries cut government spending. They found that in a situation like we are currently in, with very low interest rates, there was nearly a 100% correlation between cutting government spending and a drop in GDP and a rise in unemployment.
The Romney/Ryan plan is very similar to the policies the Conservatives rode into power in Britain a couple years ago. They started cutting government, and many Brits were sure the recovery from the 2008 crash would now take off. Instead, predictably ,GDP growth has turned negative and Britain has been in recession for the last three quarters (the last quarter was surprisingly bad according to the BBC). The unemployment rate in Britain has been trending up and is at about 8%. Although the unemployment rate actually dropped a little last month, one has to suspect that drop related to the massive government spending on preparing and hosting the Olympic's rather than being evidence of an economic rebound.
The evidence the Romney/Ryan campaign offers to support their plan is the booming recovery following the "Reagan" recession in the early 1980's. It is a totally false comparison. It's like saying you should eat an orange by just picking it up and biting into it like you would an apple. The cause of the recession in the early 1980's was extremely high interest rates - the Fed had interest rates up near 20% at one point in their effort to battle inflation. The recession was a product of the fact business could not afford to borrow money to operate or expand. When inflation cooled off, the Fed lowered interest rates and suddenly business could afford to borrow and expand. What President Reagan did that contributed to the rapid recovery was, not cut government spending, but to spend a lot more Government money by greatly increasing defense spending.
In short the recovery in the early 1980's the Romney/Ryan plan offers as its principal justification was in an environment of interest rates falling from historically high levels coupled with low consumer debt. That recipe is not available to us right how. We have historically high consumer debt and interest rates have hovered at near zero for a couple years. The current conditions could not be more different.
In my 47 years as a voting citizen I have never seen either party building their platform around ideas as demonstrably wrong as the Romney/Ryan economic plan. If Mr. Romney and Mr. Ryan get elected, and do what they say they are going to do, it appears to me almost a certainty we will be back in recession within a year, and at risk of a serious depression.
I am not asking that you take my word for it. But I am asking that you, please, step outside your emotional comfort zone for awhile and start doing your own research. Instead of nodding your head and indulging in the emotional comfort you feel when Conservatives tout the Romney/Ryan plan, look for provable facts they offer to support the plan, and check the facts. Look into the history of the great Depression, the great recession. Look at what has happened in Britain since the David Cameron took over. Look for economic studies that have looked at what happens to GDP and the employment rate when Government's cut spending.
Please.
That's why political advertising is often so grossly misleading. It is aimed at our emotions, not our deliberative intellect. Political ads don't represent an attempt to help us study facts and determine what an intelligent choice would be, they are aimed at lighting a fire under our emotional comfort zone. Often it doesn't matter much. Both parties will do well enough that they will cancel out the really bad ideas the other party puts forward. But not always. There is a core issue in the current election that is one of those exceptions - it matters greatly.
I was a Republican for many years. It was my emotional comfort zone. I voted for Richard Nixon, and Ronald Reagan and George Bush senior for President. But my profession exposed me to historical facts and economic data that eventually caused me to leave the party in 1992 because it was becoming apparent to me that Republican economic ideas were based in ideology, not reality.
I write to make a plea to Republicans to step outside their emotional comfort zone and take a hard look at how current Republican economic orthodoxy measures up against history and economic data.
Mitt Romney and Paul Ryan are basing their campaign on the notion the way to bring back prosperity is to cut taxes, cut the size of government and cut regulations on business. The campaign is very adept at building logical explanations to make the case that business is not creating new jobs because of regulations and government interference, that if we cut taxes on the wealthy it will spark investment, that if we cut the size of government it will free up the private sector to step up and put us all to work.
But, as former Chief Justice Oliver Wendell Holmes once said, a page of history is worth a volume of logic. Here are some easily documented historical facts useful in evaluating the Romney/Ryan plan:
It's formula of cutting taxes, cutting regulations and cutting the size of government is exactly the same formula the Republican party put forth in the 12 years they controlled both houses of Congress from 1995 to 2007 (adding control of the Presidency in the last six years) that led to a huge expansion in the National debt, produced pretty mediocre GDP numbers along with bubbles in the stock and housing markets, and ended in the most spectacular economic crash since the Great Depression.
The formula is also the same formula that caused the Great Depression. Republicans took over both houses of Congress in 1919, added the Presidency in 1921, and controlled all three until 1933. They cut taxes, cut regulations and cut government. The result was eight years of mediocre growth during which bubbles in housing and the stock market developed, followed by a crash in 1929.
Unlike 2007, when the Republicans were being shown the door by the voters just as the collapse began, the Republicans continued to control both houses of Congress and the Presidency between 1929 and January of 1933. Herbert Hoover was convinced that the private sector would pull us out of the downturn, so continued with the Republican polices that reduced the influence of government, lowered taxes and eliminated regulations. It didn't work. By the time the Republicans were shown the door in 1933 unemployment was near 25%, 5000 banks had failed, foreclosures were rampant in all part of the country. The circumstantial case is strong that a big part of the reason the recession that followed the 1929 crash turned to a depression was because of the Republican policies. Voters certainly made the connection. In the 47 years from 1933 to 1980 Democrats controlled both houses on Congress for 38 of those years.
1921-1933 and 1995-2007 were the only times in the last 100 years where Republicans controlled all the levers of the Federal Government (other than 1953-54 - which was also followed by a recession).
Beyond the circumstantial evidence of US history, the Romney/Ryan plan ignores slam-dunk evidence from Economic studies that have looked at the effect of cutting government. The international monetary fund looked at 173 times in the last couple decades where developed countries cut government spending. They found that in a situation like we are currently in, with very low interest rates, there was nearly a 100% correlation between cutting government spending and a drop in GDP and a rise in unemployment.
The Romney/Ryan plan is very similar to the policies the Conservatives rode into power in Britain a couple years ago. They started cutting government, and many Brits were sure the recovery from the 2008 crash would now take off. Instead, predictably ,GDP growth has turned negative and Britain has been in recession for the last three quarters (the last quarter was surprisingly bad according to the BBC). The unemployment rate in Britain has been trending up and is at about 8%. Although the unemployment rate actually dropped a little last month, one has to suspect that drop related to the massive government spending on preparing and hosting the Olympic's rather than being evidence of an economic rebound.
The evidence the Romney/Ryan campaign offers to support their plan is the booming recovery following the "Reagan" recession in the early 1980's. It is a totally false comparison. It's like saying you should eat an orange by just picking it up and biting into it like you would an apple. The cause of the recession in the early 1980's was extremely high interest rates - the Fed had interest rates up near 20% at one point in their effort to battle inflation. The recession was a product of the fact business could not afford to borrow money to operate or expand. When inflation cooled off, the Fed lowered interest rates and suddenly business could afford to borrow and expand. What President Reagan did that contributed to the rapid recovery was, not cut government spending, but to spend a lot more Government money by greatly increasing defense spending.
In short the recovery in the early 1980's the Romney/Ryan plan offers as its principal justification was in an environment of interest rates falling from historically high levels coupled with low consumer debt. That recipe is not available to us right how. We have historically high consumer debt and interest rates have hovered at near zero for a couple years. The current conditions could not be more different.
In my 47 years as a voting citizen I have never seen either party building their platform around ideas as demonstrably wrong as the Romney/Ryan economic plan. If Mr. Romney and Mr. Ryan get elected, and do what they say they are going to do, it appears to me almost a certainty we will be back in recession within a year, and at risk of a serious depression.
I am not asking that you take my word for it. But I am asking that you, please, step outside your emotional comfort zone for awhile and start doing your own research. Instead of nodding your head and indulging in the emotional comfort you feel when Conservatives tout the Romney/Ryan plan, look for provable facts they offer to support the plan, and check the facts. Look into the history of the great Depression, the great recession. Look at what has happened in Britain since the David Cameron took over. Look for economic studies that have looked at what happens to GDP and the employment rate when Government's cut spending.
Please.
Sunday, August 19, 2012
Did Mr. Bush's bellicose foreign policy hurt tourism?
The Economist (6/30/12 p.33) noted that for the first time in history a tourism agency to promote tourism in the US has been created - Brand USA.
Although the US is the second most visited country in the world (behind France) a study by a consultancy group found that the US share of world tourism spending fell by a third between 2000 and 2010, from 17.2% to 11.6%. Global travel between 2000 and 2009 increased by 31%, yet the number of visitors to the US fell from 26 million to 24 million, which the consultancy calculates as amounting to $214 Billion in lost revenue to US Businesses over the decade.
There were three primary reasons the consultants who did the study cited for the drop:
1. We are so culturally dominant we have turned much of the rest of the world into us, so we are perceived as not that different.
2. Other countries like China, India, Vietnam or Brazil are now perceived to be the "new" world.
3. Visitors were turned off by the "brash and arrogant" American's.
There doesn't appear to me to be much we can do about the first two items on the list. But how could we suddenly start being perceived as "brash and arrogant" starting in about 2000? Hmmmmm. What changed in 2000?
Although the US is the second most visited country in the world (behind France) a study by a consultancy group found that the US share of world tourism spending fell by a third between 2000 and 2010, from 17.2% to 11.6%. Global travel between 2000 and 2009 increased by 31%, yet the number of visitors to the US fell from 26 million to 24 million, which the consultancy calculates as amounting to $214 Billion in lost revenue to US Businesses over the decade.
There were three primary reasons the consultants who did the study cited for the drop:
1. We are so culturally dominant we have turned much of the rest of the world into us, so we are perceived as not that different.
2. Other countries like China, India, Vietnam or Brazil are now perceived to be the "new" world.
3. Visitors were turned off by the "brash and arrogant" American's.
There doesn't appear to me to be much we can do about the first two items on the list. But how could we suddenly start being perceived as "brash and arrogant" starting in about 2000? Hmmmmm. What changed in 2000?
Wednesday, August 15, 2012
GDP as impacted by Cuts in Government and Taxes
Last July (2011) I did a blog addressing the Washington Gridlock of the moment which was at that time characterized by Republicans who threatened to let government slide into insolvency unless they got an agreement to cut taxes and the deficit. Since economic studies and history both demonstrate pretty conclusively that cutting taxes and the size of government reduces GDP and increases joblessness, I predicted that if the Republican's succeeded we would see a rise in joblessness and a drop in GDP, and I promised to revisit the issue one year later to see if I was right. Here is a link to that blog:
http://motrvoter.blogspot.com/2011/07/tax-cuts-and-creating-jobs.html
Well, in the end the Republicans backed off after the Bond markets threatened to downgrade the credit rating of the US and Congress kicked all the fiscal issues on down the road (which they have done a couple more times since then). So, I am revisiting the issue as promised, but really have nothing to say since the situation is essentially unchanged. Republicans are still convinced against the overwhelming evidence of economic studies and history that the cut and cut path will lead to prosperity. In fact Mitt Romney just named the King of cut and cut economics as his Vice Presidential running mate.
So I guess I will promise to revisit the issue if at some point the Republican's get their way and start hacking away at taxes and the size of government. I am hoping that doesn't happen since the last time the Republican's were running the show my business got hammered in the collapse of 2007-2008.
http://motrvoter.blogspot.com/2011/07/tax-cuts-and-creating-jobs.html
Well, in the end the Republicans backed off after the Bond markets threatened to downgrade the credit rating of the US and Congress kicked all the fiscal issues on down the road (which they have done a couple more times since then). So, I am revisiting the issue as promised, but really have nothing to say since the situation is essentially unchanged. Republicans are still convinced against the overwhelming evidence of economic studies and history that the cut and cut path will lead to prosperity. In fact Mitt Romney just named the King of cut and cut economics as his Vice Presidential running mate.
So I guess I will promise to revisit the issue if at some point the Republican's get their way and start hacking away at taxes and the size of government. I am hoping that doesn't happen since the last time the Republican's were running the show my business got hammered in the collapse of 2007-2008.
Wednesday, August 8, 2012
Why corporate profits are at an all time high
(Synopsis and commentary on an Economist article (Buttonwood), July 21, 2012, p.62)
Corporate profits are at unheard of levels. In the United States Corporate profits amount to 15% of Gross Domestic Product. The article cites three possible reasons:
The first is a claim often made by business people, that corporate executives are worried about excessive regulation, so are unwilling to make capital investments. I am not aware of any evidence offered that overall regulatory burdens are any heavier than they were 10 years ago, or 30 years ago. This argument smacks of setting up a straw man to deflect blame - it is an easy thing to claim and resonates with everyone who ever struggled with a bureaucracy.
The second is that firms are reluctant to invest because of weak domestic demand, and the euro crisis and slowing growth in the rest of the world is making exporting products less attractive. (I find this is a plausible explanation for some reluctance to invest).
The third, and, to quote Buttonwood, "the most intriguing", is that pay incentives for Corporate executives are to blame. As bonuses managers get share options, and the value of the option is usually linked to corporate profits. Long term investments undermine short term profits, so executives are disinclined toward long term investments as they may undermine their bonus. In addition professional fund managers may prefer companies who hoard profits as that keeps the companies share prices up, and makes the fund manager's short term performance figures healthier. So the Fund managers prefer the money go to share buy-bacsk that boost the value of the remaining shares.
Buttonwood finishes by noting "Business-people are among the most vocal in their calls for government deficits to be cut, but if firms spent more, and hired new workers, deficits would fall of their own accord."
Saturday, August 4, 2012
On Capitalism and Socialism
One of the curious characteristics about debates about Capitalism and Socialism is the tendency for those on both sides of the debate to assume a system can't have elements of both. The Capitalists argue ferociously that a little bit of socialism will undermine Capitalism, the economy (and freedom). On the other hand those of a Socialist bent are equally vociferous in arguing Capitalism has no redeeming quality's.
In my experience either/or choices are seldom imposed by reality, they are imposed by our own desire for simple answers.
What sparked a recurrence of this thought in my mind was reading a book review (Economist, July 14, 2012, p.74). The book is "Why Capitalism" by Alan Metzger. As the Economist characterizes Mr. Metzger's argument, he believes Capitalism is the only system that leads to freedom and economic growth. I assume Mr. Metzger isn't arguing there has been no society in history that wasn't free that experience economic growth, so I guess he is somehow arguing you can't have freedom without (pure?) capitalism.
I wonder what the people of Sweden, or the other very successful and happy denizens of Northern Europe that have created pretty successful amalgams of free enterprise and socialism would say to him?
As summarized by the Economist Mr. Metzger evidently argues the problems in Capitalism aren't from the theory, the problems are a result of the "elements of state control" and that get grafted onto the capitalist systems that always lead to corruption, waste and excessive regulation. I wonder if he was paying attention in the last decade to things like Enron, Lehman Brothers, or if he has any friends or relatives who got sucked up by sharp real estate people selling nonsense loans to buy overpriced houses.
What strikes me as most startling is his assumption freedom and capitalism go hand in hand - that you can't have a free society that isn't capitalist. Modern free societies are scarcely 2 centuries old, a fraction of the history of humanity, and up until the last 50 years you could count the "free" countries on one hand. In my estimation a truly free society does not yet exist. Even in the US if someone wants to make stupid personal decisions that affect no one else, government often steps in. In the scope of human history the democratic free society is a pup just beginning to develop. Mr. Metzer seems to be stuck in a mindset sort of like the ancients convincing themselves the earth is flat because they wanted to be an expert and did not have the powers of observation and imagination to conceive of any other explanation.
Another book reviewed at the same time (same cite) - "A Capitalism for the People: Recapturing the Lost Genius of American Prosperity" by Luigi Zingales - is focused more narrowly on what the problem is in the US (and most other countries). Government focuses on being pro-business instead of pro-markets. US Law is riddled with complex subsidies that favor certain businesses to the detriment of the market - and the detriment of taxpayers.
Overall these reviews seem reflective of a tendency in public dialogue to assume we have to be either capitalist or socialist, we can't choose different systems for different parts of society. I do not believe it is impossible to develop a system that combines the best attributes of Capitalism and Socialism in a successful free society. I do believe it won't be easy, but few things worth having are easy.
In my experience either/or choices are seldom imposed by reality, they are imposed by our own desire for simple answers.
What sparked a recurrence of this thought in my mind was reading a book review (Economist, July 14, 2012, p.74). The book is "Why Capitalism" by Alan Metzger. As the Economist characterizes Mr. Metzger's argument, he believes Capitalism is the only system that leads to freedom and economic growth. I assume Mr. Metzger isn't arguing there has been no society in history that wasn't free that experience economic growth, so I guess he is somehow arguing you can't have freedom without (pure?) capitalism.
I wonder what the people of Sweden, or the other very successful and happy denizens of Northern Europe that have created pretty successful amalgams of free enterprise and socialism would say to him?
As summarized by the Economist Mr. Metzger evidently argues the problems in Capitalism aren't from the theory, the problems are a result of the "elements of state control" and that get grafted onto the capitalist systems that always lead to corruption, waste and excessive regulation. I wonder if he was paying attention in the last decade to things like Enron, Lehman Brothers, or if he has any friends or relatives who got sucked up by sharp real estate people selling nonsense loans to buy overpriced houses.
What strikes me as most startling is his assumption freedom and capitalism go hand in hand - that you can't have a free society that isn't capitalist. Modern free societies are scarcely 2 centuries old, a fraction of the history of humanity, and up until the last 50 years you could count the "free" countries on one hand. In my estimation a truly free society does not yet exist. Even in the US if someone wants to make stupid personal decisions that affect no one else, government often steps in. In the scope of human history the democratic free society is a pup just beginning to develop. Mr. Metzer seems to be stuck in a mindset sort of like the ancients convincing themselves the earth is flat because they wanted to be an expert and did not have the powers of observation and imagination to conceive of any other explanation.
Another book reviewed at the same time (same cite) - "A Capitalism for the People: Recapturing the Lost Genius of American Prosperity" by Luigi Zingales - is focused more narrowly on what the problem is in the US (and most other countries). Government focuses on being pro-business instead of pro-markets. US Law is riddled with complex subsidies that favor certain businesses to the detriment of the market - and the detriment of taxpayers.
Overall these reviews seem reflective of a tendency in public dialogue to assume we have to be either capitalist or socialist, we can't choose different systems for different parts of society. I do not believe it is impossible to develop a system that combines the best attributes of Capitalism and Socialism in a successful free society. I do believe it won't be easy, but few things worth having are easy.
Tuesday, July 31, 2012
Economists need to step outside themselves
Economist Paul Krugman's recently released book "Stop this Depression Now" reminded me of one of the basic truisms I have harbored about economics - the subject is so complex that although any economist who wants to build a career has to develop and publish hugely complex mathematical formulations and theoretical constructs, since there is no consensus on much of anything, in the end many famous economists are pretty clueless about what makes an economy work.
At the moment we are enduring the spectacle of Republican leaning Noble Prize winning economist's who shower data on folks to support their believe that Government taxes and spending are the problem with the economy, while Democrats have their Noble Prize winning economists who have volumes of data to support their view that Government spending is the cure for our economy.
If you took a group of average folks and asked them how to fix the economy, you would get a wide variety of responses, generally reflecting the emotional worldview each person is comfortable in rather than any real hard data. We all adopt views in life so we have some default position from which to make decisions. That adoption usually has more to do with our personality as it interacts with our life situation than it does with dispassionate careful study of all the diversity in human behavior. We have to many decisions in life to spend time studying everything, and most of the time macroeconomics is pretty far removed from the things that touch our lives on a daily basis.
I don't think some economists are any different. Early in life they found a viewpoint they felt comfortable with and they built their career's on developing data and theories to support their viewpoint.
Krugman's book cited a bunch of economists who agreed with his view Government spending is the way out of our current economic morass, and a bunch who believed the private sector and the free market are the pathway to jump start our economy. On the assumption the side of the political fence any particular economist falls on might be a function of his personality and background I randomly picked 10 names out of Krugman's book (including Krugman) and did a little spread sheet with some basic data about each.
Two of the 10 were born long ago. Englishman John Maynard Keynes - the patriarch of the Government spending view, - who was born in 1883, and Milton Friedman - the patriarch of the supply side theories that were the intellectual justification for the Reagan and Bush tax cuts - was born in 1912.
Of the other 8 the 4 cited as being the spokesperson for the tax cuts and deficit reduction wing of economics, were all born between 1925 and 1939. The 4 (including Krugman) who are supporters of the idea Government spending is the cure for this economic doldrums were all born between 1939 and 1953.
Nothing scientific about this little survey, but it does suggest the possibility a more careful review may provide some support for the view that an economist's basic predilections may often have more to do with when they are born than with a hard headed view of all the available data.
At the moment we are enduring the spectacle of Republican leaning Noble Prize winning economist's who shower data on folks to support their believe that Government taxes and spending are the problem with the economy, while Democrats have their Noble Prize winning economists who have volumes of data to support their view that Government spending is the cure for our economy.
If you took a group of average folks and asked them how to fix the economy, you would get a wide variety of responses, generally reflecting the emotional worldview each person is comfortable in rather than any real hard data. We all adopt views in life so we have some default position from which to make decisions. That adoption usually has more to do with our personality as it interacts with our life situation than it does with dispassionate careful study of all the diversity in human behavior. We have to many decisions in life to spend time studying everything, and most of the time macroeconomics is pretty far removed from the things that touch our lives on a daily basis.
I don't think some economists are any different. Early in life they found a viewpoint they felt comfortable with and they built their career's on developing data and theories to support their viewpoint.
Krugman's book cited a bunch of economists who agreed with his view Government spending is the way out of our current economic morass, and a bunch who believed the private sector and the free market are the pathway to jump start our economy. On the assumption the side of the political fence any particular economist falls on might be a function of his personality and background I randomly picked 10 names out of Krugman's book (including Krugman) and did a little spread sheet with some basic data about each.
Two of the 10 were born long ago. Englishman John Maynard Keynes - the patriarch of the Government spending view, - who was born in 1883, and Milton Friedman - the patriarch of the supply side theories that were the intellectual justification for the Reagan and Bush tax cuts - was born in 1912.
Of the other 8 the 4 cited as being the spokesperson for the tax cuts and deficit reduction wing of economics, were all born between 1925 and 1939. The 4 (including Krugman) who are supporters of the idea Government spending is the cure for this economic doldrums were all born between 1939 and 1953.
Nothing scientific about this little survey, but it does suggest the possibility a more careful review may provide some support for the view that an economist's basic predilections may often have more to do with when they are born than with a hard headed view of all the available data.
Subscribe to:
Comments (Atom)