The Market Speaks

Yeah, I post a lot of Krugman.  Sue me.

Even a casual trawl through the headlines of the time turns up one dire pronouncement after another. “Obama’s radicalism is killing the Dow,” warned an op-ed article by Michael Boskin, an economic adviser to both Presidents Bush. “The disciplinarians of U.S. policy makers return,” declared The Wall Street Journal, warning that the “bond vigilantes” would soon push Treasury yields to destructive heights.

Sure enough, this week the Dow Jones industrial average has been hitting all-time highs, while the current yield on 10-year U.S. government bonds is roughly half what it was when The Journal published that screed.

And

By the way, I’m not just talking about the hard right; a fair number of self-proclaimed centrists play the same game. For example, two years ago, Erskine Bowles and Alan Simpson warned us to expect an attack of the bond vigilantes within, um, two years unless we adopted, you guessed it, Simpson-Bowles. 

So what the bad predictions tell us is that we are, in effect, dealing with priests who demand human sacrifices to appease their angry gods — but who actually have no insight whatsoever into what those gods actually want, and are simply projecting their own preferences onto the alleged mind of the market.

More here.

It continues to amaze me that I, a humble restaurant server, apparently know more about this stuff than the people who run the country.  And that's not me patting myself on the back, either: this isn't rocket science.  It's just reading some economists here and there and watching over the years to see if what they're saying matches what's happening.  So far, the actual economists seem to be beating the pants off of the politicians, pundits, and DC know-it-alls.

Indeed, this deficit hysteria has been going on for four years now, and NONE of the predictions made by the hawks has even come close to coming true.  Nothing.  Nada.  Nonetheless, the deficit hawks continue to rule the day in Washington, and wiser opinions are scoffed at as irresponsible, at best, and destructive at worst.  And "serious" citizens who take their cues from these people push the same line.  

Indeed, I had a little back and forth with a facebook friend on the subject only a few days ago, and he just didn't get it.  He went on and on about spending and the awful reckoning we will soon face if we don't cut the budget to shreds right now.  I pointed out that interest rates continue, for years now, to be historically low.  I observed that a growing economy will raise tax revenues, which will do most of the heavy lifting as far as deficit reduction goes.  I observed that borrowing is virtually free right now because interest rates are so low, and that we can jump start the economy if we want, but that austerity, conversely, will depress the economy making the deficit worse.  It was as though I was talking to a guy on television: "NO!!! THE DEFICIT!!!  EMERGENCY!!!"  I had to drop out of the conversation because it wasn't really a conversation--actual conversations are two way, and my comments were definitely not part of the discussion from his point of view.

So Krugman's right.  This is almost a religious thing.  Deficits=bad; spending cuts=good.  Apparently, that's what the Bible says.  Unfortunately, that's not what economists are saying.  At least not for some years now, not for the circumstances we've been in since the financial crisis.

It's all very depressing.

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