HOUSE OF CARDS ECONOMY
Danger time for America

From the Economist courtesy of J. Orlin Grabbe:

The economy's greater flexibility may indeed provide a shock-absorber. A spurt in productivity has also boosted growth. But the main reason why America's growth has remained strong in recent years has been a massive monetary stimulus. The Fed held real interest rates negative for several years, and even today real rates remain low. Thanks to globalisation, new technology and that vaunted flexibility, which have all helped to reduce the prices of many goods, cheap money has not spilled into traditional inflation, but into rising asset prices instead—first equities and now housing. The Economist has long criticised Mr Greenspan for not trying to restrain the stockmarket bubble in the late 1990s, and then, after it burst, for inflating a housing bubble by holding interest rates low for so long (see article). The problem is not the rising asset prices themselves but rather their effect on the economy. By borrowing against capital gains on their homes, households have been able to consume more than they earn. Robust consumer spending has boosted GDP growth, but at the cost of a negative personal saving rate, a growing burden of household debt and a huge current-account deficit.

Click here for the rest.

You know, I don't post these anti-capitalist bits of info in order to show that I know of a better system. Indeed, it strikes me that pretty much any economic orthodoxy is prone to a great deal of error. Rather, I post this stuff to show that, for much of the subject matter that we collectively call "economics," the experts literally have no idea what they're doing, despite all their titles and degrees. "Trust us," they say. "We know better than you." And most Americans do trust the experts, because most Americans understand very little about the field--thank you very much, shoddy indoctrinational public schools.

Consequently, many of the most important questions facing the public are answered by a class of people who are often just winging it. Even when the experts do seem to have the economy humming along nicely, most of the benefits from that are gained by those who are already quite wealthy, and that's where the biggest part of the problem lies: most economists are theologians and missionaries for free market fundamentalism, a.k.a. neo-liberalism, a.k.a. capitalism. That is, their worldview is shaped by the class of wealthy elites they serve, which usually means that their assumptions, conclusions, and priorities are heavily skewed in that direction. In other words, their analysis is screwed up because they don't really think, work, and live in the real world.

So, I guess my bottom line here is to ask, if American economists work exclusively for the minority of the opulent, and, in doing that, tend to offer bogus policy recommendations that ultimately sow the seeds of recession a cycle or two down the line, which screws over average citizens all the more, why the hell do economists have any clout at all?

For more on my love-hate affair with economics, click here.

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