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Dysfunctional Economics Dean Baker on The wrecking society: Economics today ... The amount of damage being inflicted on countries around the world by bad economic policy is astounding! 
Countries with large trade deficits, like the US, Greece and Spain should move toward more balanced trade [EPA] Original article: http://www.aljazeera.com/indepth/opinion/2012/10/201210156340797431.html Peter Burgess COMMENTARY (from 2012) I like Dean Baker's work. He is a modern economist who seems to understand that the world of 2012 is a whole lot different from the world of Adam Smith and appreciates that what world in 1950 is not going to work so well a half century later. In his article, the idea that economists can do more damage than heavy weaponry fits very well with my own thinking ... though heavy weapons do damage as we have seen in Iraq and in Syria in recent years and months. I agree with Dean Baker ... and I think Keynes would too ... that budget deficit financing at this point in history would do a whole lot more good than the austerity formula that is being promoted by much of the leadership elite. President Obama's attempts to have stimulus big enough to be really effective has been a non-starter in the politics of Washington including the rather lukewarm support it gets from many of the experts in his own Party. The idealogues of the modern 'right' are dead wrong in thinking that government debt is worse than economic stagnation. But it is worse than that, and Dean Baker only hints at this matter. The way the modern economy works is very very different from the way the economy worked a few decades ago. Productivity today is very high and fewer workers are needed no for the same amount of output ... or more accurately, way less workers are needed to produce a whole lot more of output. When Adam Smith was thinking about the economy and society, productivity was very low and it was a struggle to produce enough food, goods and services that people needed. In other words, at that time economics was all about optimization in an economy of shortage. Today, the modern economy is an economy of surplus. Rather little work ... therefore few workers ... are needed to produce the food, goods and services what people need. In such an economy the 'equilibrium' is reached with a very high level of unemployment. Well almost. In this economic model only the people who have money to buy things that they need are included. The 30% ... or 40% or 50% ... of people on the planet who cannot afford to buy things are ignored. So while there is massive unemployment of workers there is also massive shortage in the economy sometimes identified as the 'Bottom of the Pyramid' (BOP). In a money profit capitalist market economy the economic outcome is going to be unsatisfactory for both the workers who 'used to be able to buy things' and the population at the 'BOP' who have never been able to buy things. On the other hand a 'value based' market economy could result in very different outcomes, and, of course, this is what TrueValueMetrics (TVM) is all about. When I was working in line management in the corporate sector I became well aware that results were very dependent on incentives, and incentives were very dependent on meaningful metrics. I also learned very quickly that everyone is going to game the system to their own personal advantage as much as they can, and very fast. So while getting metrics so that they work is difficult, it is also vitally important. In my view the metrics of business, economics and society have been sending the wrong signals for years. Some ... actually many ... people have point this out over a very long time, but nothing much has changed. The good news is that several efforts have been made to make improvements in metrics and reporting, but none has had the impact needed. This might be about to change, in part because technology makes new approaches possible that are more powerful than much of what has existed before. The public now has access to digital technology that only a few years ago was only accessible to big corporations and the military. My hope is that the TVM methodology can be part of better metrics ... or if not TVM something along the same lines only better. Dean Baker's article suggests the time is right for some serious reform in the way economist measure and recommend. Peter Burgess More Peter Burgess COMMENTARY ... March 2023 A lot has happened in the last 10 years or so ... and I think most people would observe that things have not gone particularly well. There is a lot of evidence that the world has become a lot more violent and democratic politics has weakened in many ways. The election of Domald Trump to become the President of the USA was a major blow and in UK the vote for Brexit a major mistake. In the USA, the Biden Presidency has been able to recover from Trump in a more constructive manner than could reasonably have been expected given his razor thin majorities in House and Senate ... and now lost in the House after the 2020 mid-term election. Trump destabilized the world at every turn during his presidency ... but Biden has managed to get the US engaged in a much more positive way. Putin's aggression in Ukraine in March 2022 is ongoing and very bloody ... Ukraine has stood its ground, and hopefully will push the Russians out of all of Ukraine including Crimea in due course. NATO and the allies have come together quite well ... better than might have been expected a few years ago, but it is going to face growing opposition from a growing 'peace at any price' flank in the USA and elsewhere. An impression I have from some recent road trips in the USA is that the USA is in a much better place than one would expect simply by watching the TV News and reading the newspaper headlines. Trump broke the Republican Party but it retains a dangerous amount of potential for political violence based on a massive amount of misinformation promulgated by key figures in the media and big political donors. Biden and the Democrats have a strong performance to talk about ... but their messaging is awful. This is important, but they won't address the issue which is a shame and dangerous because the GOP and Trump remain a power for evil that is very much a problem. Interesting times! | ||
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The wrecking society: Economics today ...
The amount of damage being inflicted on countries around the world by bad economic policy is astounding, writes Baker. Written by Dean Baker ... Dean Baker is a US macroeconomist and co-founder of the Centre for Economic and Policy Research. Last Modified: 15 Oct 2012 10:41 There is an old story from the heyday of the Soviet Union. As part of their May Day celebrations they were parading their latest weapon systems down the street in front of the Kremlin. There was a long column of their newest tanks, followed by a row of tractors pulling missiles. Behind these weapons were four pick-up trucks carrying older men in business suits waving to the crowds. Seeing this display, the Communist party boss turned to his defence secretary. He praised the tanks and missiles and then said that he didn't understand the men in business suits. The defence secretary explained that these men were economists and 'their destructive capacity is incredible'. People across the world now understand what the defence secretary meant. The amount of damage being inflicted on countries around the world by bad economic policy is astounding. As a result of unemployment or underemployment, millions of people are seeing their lives ruined. The current policies have led to trillions of dollars of lost output. Bad policy From an economic standpoint this loss is every bit as devastating as if it building had been destroyed by tanks or bombs. And people have lost their lives, due to inadequate healthcare, food and shelter, or as a result of the depression associated with their grim economic fate. US economy struggles to regain footing If an enemy had inflicted this much damage on the United States, the countries of the European Union, or the countries elsewhere in the world that have been caught up in this downturn, millions of people would be lining up to enlist in the military, anxious to avenge this outrage. But, there is no external enemy to blame. The villains are the economists, still mostly men, in business suits. The New York Times reported last month that formerly middle class workers in Spain are now picking through dumpsters looking for food. There are similar accounts from Greece. Both countries have unemployment rates hovering near 25 per cent, with youth unemployment rates that are nearly twice as high. And, the expectation is that things will only get worse. The latest projections from the IMF show the economies of both countries continuing to shrink through the rest of 2012 and for the whole of 2013. It is also important to remember that the IMF's growth projections have consistently been overly optimistic. There are similar stories across the euro zone and now also in the United Kingdom as that nation's leaders have pursued economic policies that have thrown it back into recession. And of course the US is also losing close to $1 trillion in output each year, with close to 23 million unemployed, underemployed or out of the workforce altogether because of poor job prospects. The economists in policy positions are doing their best to convince the public that the economic catastrophe that they are living through is a natural disaster that is beyond human control. But that is what Vice-President Biden would call 'malarkey'. This is a disaster that is 100 per cent human caused and is being perpetuated by bad policy. Social wreckage The original collapse was the result of central bankers who were at best asleep at the wheel, or at worst complicit in the financial sectors' wheeling and dealing, ignoring the risks that massive housing bubbles obviously posed to the economy. However, the response to the downturn has made a bad situation far worse than necessary. As the evidence keeps telling us, the basic story is about as simple as it gets. The housing bubbles were driving demand prior to the collapse both directly through building booms and indirectly from the consumption generated by bubble generated housing equity. When the bubbles burst the construction booms went bust. And when the bubble generated housing equity vanished so did the consumption for which it provided a basis. 'The economists are instead steering the world toward more years of stagnation and rising unemployment and poverty.'The basic economic problem in this context was finding a way to replace the lost demand. The right-wing politicians and their allied economists can repeat all the nonsense the like about promoting business confidence and tax breaks for job creators, but there is no remotely plausible story in which it would be possible to generate enough demand from investment to make up for the demand lost from the collapse of the bubbles. This means that in the short-term the only way to make up the demand is from the government budget deficits. This is not even economic theory, it is simply accounting. In the longer term, the shortfalls in demand will have to be made up from a rebalancing across countries. Countries with large trade deficits, like the United States, Greece and Spain will have to move toward more balanced trade. In the case of the US this can only plausibly be done with a decline in the value of the dollar. In the case of the euro zone, there is no plausible alternative than to have the surplus countries, most importantly Germany, have more rapidly rising wages and prices in order to allow the deficit countries to regain competitiveness. All of this is pretty straightforward, but the economists are instead steering the world toward more years of stagnation and rising unemployment and poverty. The human and social wreckage they have caused puts our enemies to shame. Dean Baker is a US macroeconomist and co-founder of the Centre for Economic and Policy Research. Source: Al Jazeera ... The views expressed in this article are the author's own and do not necessarily reflect Al Jazeera's editorial policy.
| The text being discussed is available at | http://www.aljazeera.com/indepth/opinion/2012/10/201210156340797431.html and |