Do you think Congress is responsible for this countries economic problems, or President Obama?
Can we say neither?
Sure, Congress & the administration have had a rough year trying to get along, but most of that hasn’t really affected our economic policy to a degree that it would really send us over the edge.
If you’re looking for someone to blame, we would start with the ten years prior at the Fed, then look at the banks and how they so poorly dealt with a rapidly collapsing housing market, and then Europe, which today is largely responsible for many of the fears and woes that things are going straight back to 2008. If you haven’t, we’d also recommend you listen to this This American Life podcast which really does a great job of explaining “The Giant Pool of Money.” It won a Peabody!
The failure of the economics profession to address our deeper problems theoretically is mirrored by the failure of other sciences on a more practical level. To wit: America’s best minds are still heading to Wall Street to an unnerving, even pathological degree—further evidence that finance remains the dominant sector of the economy.
There’s only one problem with [House Minority Leader] Boehner’s message: so far, the things that Republicans have said they want to do won’t actually boost employment or reduce deficits. In fact, much the opposite. By combing through a variety of studies and projections from nonpartisan economic sources, we here at Gaggle headquarters have found that if Republicans were in charge from January 2009 onward—and if they were now given carte blanche to enact the proposals they want to—the projected 2010–2020 deficits would be larger than they are under Obama, and fewer people would probably be employed.
Some of the best work on this subject has been done by Ian Parry, a senior fellow at Resources for the Future. His calculations suggest that adding all the quantifiable costs into the price of oil would increase the cost of each gallon by about $1.23. If you’re very worried about global warming, kick that up to $1.88. According to the U.S. Energy Information Administration, the average price of a gallon of gas is $2.72 right now. If Parry is right, it should be as high as $4.60.
That’s almost certainly an underestimation. There are plenty of costs we don’t know how to price. How much of our military policy is dictated by our need for secure oil resources? How much instability is created by our need to treat oil-producing monarchies with kid gloves? How much is the environment worth in a poor country that prefers oil investment to air quality?
Large swaths of economics are going to have to be rethought on the basis of what’s happened.” So said Larry Summers, President Obama’s chief economic adviser, in an interview in the weeks after the markets crashed a year ago. Yet to a remarkable degree, economic thinking hasn’t changed very much at all.
Now financier George Soros is announcing a $50 million effort to speed things along. This week Soros is gathering some of the leading practitioners of the market-skeptic school, who were marginalized during the era of “free-market fundamentalism,” among them Nobelists Joseph Stiglitz, George Akerlof, Michael Spence, and Sir James Mirrlees. He’s also creating an “Institute for New Economic Thinking” to make research grants, convene symposiums, and establish a journal, all in an effort to take back the economics profession from the champions of free-market zealotry who have dominated it for decades, and to correct the failures of decades of market deregulation. Soros hopes matching funds will bring the total endowment up to $200 million. “Economics has failed not only to predict and explain what happened but has also failed to protect society,” says Robert Johnson, a former managing director at Soros Fund Management, who will direct the new institute. “That’s what the crisis revealed. The paradigm has failed. There is no guidance.”
It might be tempting to dismiss all this as a war of words among brainiacs. It’s not. The critical issues being discussed in Washington about the future regulation and control of the financial industry—the very nature of Wall Street and the health of the economy—depend on this battle of ideas. What led to wholesale deregulation in the ’90s and ’00s wasn’t just Wall Street lobbying money. It was also that key legislators and policymakers, among them Larry Summers, persuaded themselves that deregulation was sound economics and good policy, and that markets and Wall Street institutions could take care of themselves. Many of those views have been discredited by the crisis. But in the absence of a new paradigm of economics, confusion still reigns in Washington. With no new concept of the proper role of government and regulation in the economy, of the proper balance between the markets and their minders, the old school still dominates.