Sunday, May 4th, 2014
Many consider that over the years, in some sort of way, economics has failed us in one way or another. We've all experienced the stock market plummeting, and the potential of a second Great Depression is always hanging over our heads. I thought this article was interesting in many ways, being that the author of the article states "Basic textbook macroeconomics has performed very well. But policymakers and politicians have ignored both the textbooks and the lessons of history." And the result has been a vast economic and human catastrophe, with trillions of dollars of productive potential squandered and millions of families placed in dire straits for no good reason. "In what sense did economics work well? Economists who took their own textbooks seriously quickly diagnosed the nature of our economic malaise: We were suffering from inadequate demand. The financial crisis and the housing bust created an environment in which everyone was trying to spend less, but my spending is your income and your spending is my income, so when everyone tries to cut spending at the same time the result is an overall decline in incomes and a depressed economy. And we know (or should know) that depressed economies behave quite differently from economies that are at or near full employment. For example, many seemingly knowledgeable people — bankers, business leaders, public officials — warned that budget deficits would lead to soaring interest rates and inflation. But economists knew that such warnings, which might have made sense under normal conditions, were way off base under the conditions we actually faced. Sure enough, interest and inflation rates stayed low." That's what I think is so interesting. That these textbooks that are being passed out among students in high school, much like in our senior economics class, are describing scenarios in which we can reach and withhold a steady, powerful economy, yet... ALL of these huge money holders and important people that make these great big decisions, are failing to follow good plans. I suppose it's easier said than done in this case. "Whatever the reasons basic economics got tossed aside, the result has been tragic. Most of the waste and suffering that have afflicted Western economies these past five years was unnecessary. We have, all along, had the knowledge and the tools to restore full employment. But policymakers just keep finding reasons not to do the right thing."
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