Nobody Understands Debt

From the New York Times, Nobel Prize winning economist Paul Krugman:

This misplaced focus said a lot about our political culture, in particular about how disconnected Congress is from the suffering of ordinary Americans. But it also revealed something else: when people in D.C. talk about deficits and debt, by and large they have no idea what they’re talking about — and the people who talk the most understand the least.

Perhaps most obviously, the economic “experts” on whom much of Congress relies have been repeatedly, utterly wrong about the short-run effects of budget deficits. People who get their economic analysis from the likes of the Heritage Foundation have been waiting ever since President Obama took office for budget deficits to send interest rates soaring. Any day now!

And while they’ve been waiting, those rates have dropped to historical lows. You might think that this would make politicians question their choice of experts — that is, you might think that if you didn’t know anything about our postmodern, fact-free politics.

More here.

Click through for details on how, exactly, our ruling class gets it totally wrong when it comes to deficits and debt. But the fact that I, a lowly restaurant server, understand this shit better than the people who get paid to understand it is what concerns me most at the moment.

The financial collapse of 2007 proved spectacularly, and beyond any doubt at all, that one of the most foundational assumptions of our ruling elite about economics, that markets are self-regulating, is wrong, wrong, wrong. If humans were truly rational creatures, such nose rubbing in the shit, as it were, would be cause for immediate and intense reevaluation of everything concerning the field of economics. But that didn't happen. I mean, for a very brief moment, it was looking like a few of the smarter conservatives, David Brooks, for instance, when he called Bobby Jindal's jingoistic GOP response to Obama's 2009 SOTU address "a disaster" for the Republican Party, were starting to take a long hard look in the mirror, but that evaporated quickly. Instead, the Tea Party started making a lot of noise, and, like the lemmings they are, professional Republicans doubled down on their now utterly disgraced neoliberalism. And for the last twenty years or so, Democrats take all their cues on economics from Republicans.

Now the financial debacle and its fallout aren't directly related to the notion of debt and deficits, but the point that facts and observable phenomena are far less important in Washington than conventional wisdom that "everybody knows" is the same. Indeed, we're already starting to see how austerity programs, which are supposedly the way to get out of debt, in the EU are, in fact, reducing tax revenues so sharply that the debt situation is actually getting worse, not better. And that's an observable phenomenon that is being ignored utterly because it doesn't fit with what "everybody knows."

And what really gets me is that most of our leaders aren't lying about this. They honestly believe their own bullshit, and facts be damned. I'm not entirely sure what the end result of all this will be, what it means that, in the end, humans are more emotionally driven animals than contemplative beings of reason, but I'm quite sure that things are going to get much worse before they get better. Indeed, the ruling class needs to have a complete change of its world view before our economic prospects improve.

And such a thing has happened only rarely in the history of human affairs.

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