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Tuesday, August 24, 2010

 
The Church Of The VSP

by digby


A lot of smart people, Krugman in particular, are making the observation that the bankers, economists and Big Money Boyz are making it up as they go along and it certainly does seem that way. No matter what the circumstances, they profess that it's impossible for the Fed or the government to do anything to help average people and that tax cuts for the wealthy are the answer to every problem in good times and bad.

Krugman writes:

Let me try to explain what bothers me about this sort of thing, aside from the fact that it would be an utter disaster for the economy: it’s the way Rajan — and many other economists — seem to be making up new doctrines on the fly to justify their policy prejudices.

I’m all in favor of innovative thinking. But my view is that what you say about policy at any given time should be based on some kind of model — and furthermore, you should be willing to apply the same model to other situations, not make it a one-off used to justify what you happen to favor right now.


This discussion reminds me of the old perennial "why are we in Iraq?" The Very Serious people always had different reasons, but they supported the same conclusion: we just needed to be there. I don't know if this comes from faith based ideology, herd instinct or conspiracy. It could also be class/social bias (village syndrome) or simple careerism. Whatever it is, it's a problem.

Krugman thinks the economic elite are for for monetary tightening because they are biased against easy money and will find any basis they can to justify that. The question then becomes, why would anyone have an bias against easy money unless they are attaching a moral value to it? There can be no scientific basis for rejecting it. It's just another tool in the central bank toolbox right? My guess is that they *believe* the little people must pay the price for the excesses of the elites because that's their natural role in the economic scheme of things and that the economic elites must be left unfettered to "produce" lest they go on strike or otherwise refuse to do their part. (Bond vigilantes! Confidence fairies!) This also requires the little people to pay the price. This is theology not science and not even ideology. They simply believe.

Whether this comes from social or professional pressure or from true conviction is harder to know. But it doesn't matter. Very Serious People agree and that's all it takes for terrible decisions to be made and then compounded over and over. Perhaps we should deal with the root of that problem at some point.


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