Eating Your Foot

We have an amazing amount of stupid in our country when it comes to economics.

Case in point. One of our state legislators, representative Jake Andregg, R–Lehi, claims that taking federal money for Medicaid expansion, is akin to cannibalism.

“It’s like eating your foot because you think there’s protein there.”

Unfortunately, Jake is not the only one holding on to the stupid. Even our Kenyan, Muslim, Socialist President seems to be painfully misguided, with regard to economics, as J.D. Alt at New Economic Perspectives points out.

“A few years ago, when the hysteria about the nation’s “deficit” first emerged, President Obama could have calmly pointed out that because the sovereign government issues the nation’s currency and spends it into the private sector, having a sovereign “deficit” is actually a GOOD thing. He could have shown the American people a simple chart and patiently explained that the federal government CAN’T limit its spending to what it collects back in taxes (creating a “balanced budget”) because that would mean no net new Dollars would remain in the private accounts of citizens and businesses—in a real sense, the private economy would begin starving.”

This concept is so confusing. Most American’s believe that our government is just like their small business or their household, where they have to balance the checkbook.

William Black, associate professor of economics and law at the University of Missouri-Kansas City, reminds us that a country is not like a household.

“A Nation is not like a household (even a Nation that has made the terrible mistake of giving up a sovereign currency and adopting the euro). If a Nation cuts spending on “social welfare programs” when they are most needed during a severe economic contraction two results are certain. It will increase the misery inflicted by the recession or depression. It will also slow its recovery from the economic crisis compared to what would have been the result had it maintained, or preferably, increased spending. When a Nation cuts its social spending during a serious contraction it makes the problem of inadequate demand worse. The result is that the contraction is likely to deepen and any recovery is often halted and reversed.”

Economic stupidity is not limited to Americans. It’s a world-wide phenomenon, unfortunately.

Mark Blyth’s new book, Austerity: The History of a Dangerous Idea, gives us some important clues. Many books have been published in the last few years explaining why some economic ideas (the efficient markets hypothesis; the Black-Scholes option pricing model) are dangerous. Blyth, a professor of international political economy at Brown University, explains why a blind fixation on austerity is one of these terrible ideas. However, his book does two additional things that other books in this genre do not. First, it asks why bad economic ideas, like austerity, have such powerful consequences. Economists themselves do not think that ideas are powerful, and their models usually assume that people are motivated by straightforward self-interest rather than complicated notions. Second, it asks why these ideas keep on coming back. Every time governments have experimented with austerity, it has led to disaster, and yet a couple of decades later, their successors try again, with equally dismal consequences.”

This austerity craze goes beyond economics to ideology. And frequently this ideology rest on concepts of morality. The austerity craze is based on the idea that people lived too well during the boom years and now they are going to have to pay for their sins. Blyth describes this as an economic morality tale.

“After the initial shock wore off, American neoliberals interpreted the economic crisis as a morality tale about the need to reduce government debt by ending entitlements and hacking away at out-of-control government spending.”

Exactly. Neo-conservative and neo-liberal politicians have cynically used this crisis to do what they have always wanted to do–reduce the state down to the size that they can drown it in the bathtub. But, there’s still an element of ideology involved. Blyth ties the quest for austerity to appeasing the confidence fairy.

“These arguments acquired ever fancier mathematical trappings. Economists came up with toy models under which austerity could actually expand the economy by restoring business confidence. And this general wisdom seeped down into politics. In 2009, Alberto Alesina and Silvia Ardagna wrote a paper arguing that austerity was a signal that politicians sent to entrepreneurs, guaranteeing that tax increases would not happen in the future so that they would have the confidence to invest in the present.” 

Neo-liberal economic theories have been employed to advance a specific agenda. But economists are not gods, they generally reflect the outlook of the wealthy and powerful, to the detriment of the average worker.

“John Maynard Keynes famously argued that politicians are the unwitting slaves of the ideas of defunct economists. Blyth’s book is a practical application of Keynes’s dictum, asking what those ideas are, why they are so important, and where they came from in the first place. If Blyth is right, we are only going to get out of the mess we’re in by developing new ideas that work better than austerity and can shape a new economic order, at least for a while…The economy is much too important to leave to economists. We need to understand how ideas shape it, and Blyth’s new book provides an excellent starting point.”

And, of course, don’t eat your foot.





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1 Response to Eating Your Foot

  1. Jeff Nguyen says:

    Naomi Klein’s “Shock Doctrine: The Rise of Disaster Capitalism” is a good read if you haven’t already. Good point that austerity is an ideology masquerading as an economic policy.

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