Because No One Does Fiscal Reponsibility Like the Federal Government
Radley Balko | September 16, 2008, 1:37pm
Over the last few days, both major party candidates have said Wall Street is out of control, and needs more and better federal regulation. Barack Obama has mocked the concept of the “ownership society,” which is the sensible idea that people should have control over their own lives. John McCain has promised to rein in the “greed” and “self interest” on Wall Street. Both promise a tighter regulatory structure, as do leaders of both parties in Congress.
Here’s my question: The federal government is currently running a $400 billion deficit. If we never add a new federal government program, taxpayers are still on the hook for $59 trillion in unfunded future Medicaid, Medicare, and Social Security liabilities.
Nevertheless, both McCain and Obama are still making wildly expensive promises, and proposing a wide array of new federal programs. Not exactly the models of fiscal restraint, these two.
Yes, markets can be brutal. And it’s never pleasant to watch a correction unfold in real time. I’m certainly dreading the sight of my next 401(k) statement. But even the shadiest of corporations wouldn’t attempt the the shenanigans the federal government employs to hide its liabilities from taxpayers. When it comes to cooking the books, Congress can throw down with Bobby Flay. When it comes to solvency...well...$59 trillion.
All of which makes it a pretty dubious proposition that we’d be better off today if only we’d given more power to our noble politicians to safeguard the public interest from greedy corporations.
Econ 101 | September 16, 2008, 2:18pm | #
Teetering between Friedman and Kenyes (excerpt)
Liberal cycles, historian Arthur Schlesinger believed, succumb to the corruption of power, conservative cycles to the corruption of money.
Both have their characteristic benefits and costs. But if we look at the historical record, the liberal regime of the 1950s and 1960s was more successful than the conservative regime that followed. Except for China and India, whose economic potential was unleashed by market economics, economic growth was faster and much more stable in the Keynesian golden age than in the age of Friedman; its fruits were more equitably distributed; social cohesion and moral habits better maintained. These are serious benefits to weigh against some business sluggishness.
Of course, history never repeats itself exactly. Circuit-breakers are in place nowadays to prevent a 1929-style slide. But when the system seizes up as it has now, we are clearly in for a new round of regulation.
The cycles in economic fashion show how far economics is from being a science. One cannot think of any natural science in which orthodoxy swings between two poles. What gives economics the appearance of a science is that its propositions can be expressed mathematically by abstracting from the real world.
The classical economics of the 1920s abstracted from the problem of unemployment by assuming that it did not exist. Keynesian economics, in turn, abstracted from the problem of official incompetence and corruption by assuming that governments were run by omniscient, benevolent experts. Today's "new classical economics" abstracted from the problem of uncertainty by assuming it could be reduced to measurable, hedgeable risk.
A few geniuses aside, economists frame their assumptions to suit existing states of affairs, then invest them with an aura of permanent truth. They are intellectual butlers, serving the interests of those in power, not vigilant observers of shifting reality. Their systems trap them in orthodoxy.
When events coincide with their theorems, the orthodoxy they espouse enjoys its moment of glory. When events shift, it becomes obsolete. As Charles Morris wrote: "Intellectuals are reliable lagging indicators, near-infallible guides to what used to be true."
Lord Skidelsky is professor emeritus of political economy at Warwick University, England, and author of a prize-winning Keynes biography.
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