How Economists Are Still Getting It Wrong

I felt inspired to write a reaction to Krugman's piece in the New York Times Sunday Magazine about how economists "got it wrong" in predicting this current economic downturn. Krugman blames economists for thinking that financial markets always behave rationally and he calls for a return to a traditional Keynesian viewpoint, namely, that massive government spending can get us back to steady economic growth.

However, in the midst of his blah blah blah about the ideological divides in macroeconomics, he does reveal one thing about the economic perspective: THEY ARE STILL GETTING IT WRONG.

Both sides of the debate, whether neo-classical or neo-Keynsian, are so focused on growth that none of the economists are paying any attention to what we are producing. Economists only care that we are producing more stuff. It could be anything. Really. We don't care. As long as it makes GDP higher.

It could be green energy.

It could be digging a ditch and filling it in again.

It could be land mines (see below)*

It could be new financial derivatives that use life insurance policies (nothing like gambling on when grandpa is going to kick the bucket to advance the growth of GDP).

Whatever.

But that's just it.

Economists should care.

Huh?

Personal consumption now drives nearly 70% of our GDP. Economists don't want to tell consumers what to consumer because they believe that consumers have sovereignty over their own decisions and those decision will be rational (that is the whole point of this market thingy). But if highly educated financiers are prone to irrational behavior leading to epic swings in the market, why would everyone else be so cool, calm, and collected about consumerism.

We are not. We are easily influenced. We can be driven to purchase things we don't really need or maybe even want--yeah that's right, I am saying that sometimes people buy things that they don't really want (listen up economists--buyers remorse is real, just ask anyone).

So my real question is, what good is GDP growth if we just end up getting a whole bunch of stuff we don't want?

Or worse. A whole bunch of stuff that will make us worse off in the future. GDP can measure our size, but what we produce and consume tells a lot about our soul as a country. And as we have already seen, size does not protect us from failure; however, meeting our true needs as a society will certainly make us more stable. And advertisers in our free market, and the flocks of consumers that follow do not necessarily know what they need.

Economists are not paying attention to our needs. They assume they will be met as soon as GDP starts going up. And that is why they are still getting it wrong.




*We're number one in the world at producing weapons with $38 billion dollars in sales contracts just this past year. Yup, it's a real growth industry in an economic downturn--don't you think. And we are creaming the competition: #2 Italy at just over $3 billion in sales #3 Russion with the same. We have ten times that suckas! Wahoo! See (NYT article).

Dalton Trumbo on PBS

Last night, I saw a PBS documentary about Dalton Trumbo, a blacklisted screenplay writer. One particular quote from his book, Johnny Got his Gun, struck me:

 

"If you make a war if there are guns to be aimed if there are bullets to be fired if there are men to be killed they will not be us. They will not be us the guys who grow wheat and turn it into food the guys who make clothes and paper and houses and tiles the guys who build dams and power plants and string the long moaning high tension wires the guys who crack crude oil down into a dozen different parts who make light globes and sewing machines and shovels and automobiles and airplanes and tanks and guns oh no it will not be us who die. It will be you.

"It will be you-you who urge us on to battle you who incite us against ourselves you who would have one cobbler kill another cobbler you who would have one man who works kill another man who works you who would have one human being who wants only to live kill another human being who wants only to live. Remember this. Remember this well you people who plan for war. Remember this you patriots you fierce ones you spawners of hate you inventors of slogans. Remember this as you have never remembered anything else in your lives.

"We are men of peace we are men who work and we want no quarrel. But if you destroy our peace if you take away our work if you try to range us one against the other we will know what to do. If you tell us to make the world safe for democracy we will take you seriously and by god and by Christ we will make it so. We will use the guns you force upon us we will use them to defend our very lives and the menace to our lives does not lie on the other side of a nomansland that was set apart without our consent it lies within our own boundaries here and now we have seen it and we know it.

"Put the guns into our hands and we will use them. Give us the slogans and we will turn them into realities. Sing the battle hymns and we will take them up where you left off. Not one not ten not ten thousand not a million not ten millions not a hundred millions but a billion two billions of us all the people of the world we will have the slogans and we will have the hymns and we will have the guns and we will use them and we will live. Make no mistake of it we will live. We will be alive and we will walk and talk and eat and sing and laugh and feel and love and bear our children in tranquility in security in decency in peace. You plan the wars you masters of men plan the wars and point the way and we will point the gun."

That was written in 1939, and you just don't see anything like this anymore. It's a shame.