It takes a great economist

...to show you just what a village of idiots has been in charge of economic and financial policy. You don't have to read my rant but if you would like a panoramic and insightful review of the role of the wizards of the dismal science in our present state of world economic illness, do read this longish essay by Krugman.

Krugman has the vantage point and the level headed delivery I suppose one would expect of a Nobel laureate in economics. You usually have to pay Vanity Fair to hear what Stiglitz has to tell us but Prof. Krugman dishes out insight in the New York times more regularly and for a lot less. I'd pay the Times for this service if I had to.

He gave a good perspective on the health care impasse last week. I already was of the opinion we have too many crooks designing or sponsoring the legislation for any real reform to result but Krugman put a historical context around the picture that cements my disinterest in whatever they may do in Washington.

But even Paul Krugman could dig a little deeper in this week's appropriately critical filleting of how all but a two or three of the elites of economic forecasting missed all the signs of the world's, and particularly the US's looming financial fiasco's. He ends up saying the formerly cocksure enterprise of economic academics is in disarray and must learn humility. He says economists, now that the presumed wholeness of their lash-up of theories has been dashed to pieces, must learn to deal with "messiness" of irrational markets and investors that did not fit their tidy theories. Krugman's best theme in the piece is gently and massively poking holes in the neoclassical idea, beloved of our disgraced neofascistconservative pols, that markets are level playing fields populated with rational actors and can do no wrong.

Friedman is dead, so are his ideas. Krugman just touches the surface of the problem that I find with the academic economics that run the real world to ruin.

The birth of economics as a discipline is usually credited to Adam Smith, who published “The Wealth of Nations” in 1776. Over the next 160 years an extensive body of economic theory was developed, whose central message was: Trust the market. Yes, economists admitted that there were cases in which markets might fail, of which the most important was the case of “externalities” — costs that people impose on others without paying the price, like traffic congestion or pollution. But the basic presumption of “neoclassical” economics (named after the late-19th-century theorists who elaborated on the concepts of their “classical” predecessors) was that we should have faith in the market system.

Externalities indeed! The entire overworked surface of our planet is just an externality in the models of most economists, abstracted into a few productivity numbers if considered at all. That entire field rarely considers how much of the health of economies is stolen from the earth. It is like cash added to an account but not entered in the ledger: It allows all the leaks and pilfering and mismanagement which are also omitted from the record, to go on yet magically the statements show we still have money in the bank. Krugman is on the record as suspecting that economies are hurting because too many of us using too much of everything have shoved us dangerously close to pumping the last barrel of oil, digging up the last ingot of copper. Krugman suspects but I feel certain.

In the face of what should cause uncertainty and caution, how have our economists advised us? They have consulted the markets. On this, the old quotes are the best and Krugman has all the gems:

...Keynes considered it a very bad idea to let such markets, in which speculators spent their time chasing one another’s tails, dictate important business decisions: “When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.”

who gets health care?

I don't particularly support the outcry for health care. Its not entirely because I have had for decades what most consider a thorough and mostly employer paid health coverage. Are you 60 and can't get your HMO to do a full body MRI or anything beyond a PSA test just to have a baseline? Thats my situation.

We may waste huge amounts of money on administration and on PREDICTABLY futile treatments of terminal patients. Those expenses will be hard to back out of the system and they are snarling the present congressional debates.

But we are barking up the wrong tree. Removing from our health care burdens obesity and diet-induced diabetes and the long years of patching the living yet rotting bodies should not need a doctor's efforts but rather our own efforts. "First, do no harm", goes the doctors oath...why can't consumers be held to the same standard? If we locked the god damned cars in the garage and shuttered the fast food joints in favor of more locally produced and vegetarian diets, as you have all been hearing for most of your lives, we would mostly live longer and be healthier up until genetics pulled the plug on us. I would only really support more prevention, starting with less consumption and wiser more informed consumption. Michael Moore can easily say our health care system is sick ...but how healthy is the portly Mr. Moore? I love the depth of Moore's sympathy and courage in his long crusade for a little justice for victims of the corporate oligarchs but his thinking and arguments are at times as shallow as his sympathy is deep. When he took on GM, it was not to lambaste them for making and convincing us to drive environmentally disastrous cars for the sake of their higher markups. No, he just wanted to save jobs at buick plants. If they had made something more responsible than Buicks at those plants, we might still be buying from GM.

The fears and perceptions that power health care hysteria, made to seem so real by the bounty of pathetic poster child cases among uninsured are none the less an unbalanced view. Rather like our climate crisis, as long as the ultimate causes arising from our personal gratification and convenience are obscured by the final dire effects being so many years and stages of remove from those causes, we will only clamor for window dressing rather than solutions. There is no cure for death. But "living better" is not the consumer orgy you have been programmed to desire.

Does that sound wrong to you? Does this sound right?:

If the authorities "know" Bernie made-off does not have cancer then I know that
Bernie made-off does get better health screening that millions of Americans who did
not steal billions of dollars. What a country this is! Perhaps you too can get a good cancer screening if only you can defraud someone out of a few billions.

The R-word has been sighted in the MSM.

[or, "how to make yourself feel like a financial expert by merely reading"]

``The cards are on the table and a recession is coming,'' Henry Herrmann, chief executive officer of Waddell & Reed Financial Inc. in Overland Park, Kansas, which manages $70 billion, told Bloomberg Television. ``Our focus is going to be on things like dividend yields, solid brand names, consumer staples, less cyclical exposure and those sorts of things. Broadly speaking, earnings estimates are coming down.''

The dreaded R word that Greenspan and all Bush Administration econotoadies bent numerous rules to avoid pronouncing, has not be put off for long, just made more severe.

And Herrmann better not bet his farm on the consumer staples either. It isn't just the deteriorating world of high financiers that is a statistic in support of declaring a recession: the republican party's favorite trickle down theories, the faith that their megarich corporate sponsors would drip dollars into blue collar pockets, work in practice far more swiftly and efficiently when it is absence rather than excess of money to be distributed:

Consumer spending held flat in August as high prices and lower earnings pinched U.S. households and put the economy in line for the first quarterly drop in consumer spending since the 1990-1991 recession.

The Commerce Department said August consumer spending held steady after dropping 0.5% in July. "Consumers are pulling back really across the board," said Bank of America economist Peter Kretzmer, who expects spending to decline at a 2.2% annual pace for the July through September period, following a 1.2% gain in the second quarter.

And consumer spending for the quarter as measured in the reported Commerce Department stats is an overstatement of the economic health: after correcting the dollars spent for the inflation that has taken place in that time period, we actually bought less stuff, not a steady level of stuff. Being 70% of the nation's economic activity, a decline in consumer spending pretty much makes a recession all by itself. When that last happened, in 1991, what did we do the the bush in the white house then? Eh? [The more damning question about us voters is why did we then plant another bush in the white house?]

Will I gloat over bad news like this when Obama is in office? It seems unlikely I will get the chance. We have let the Bush administration screw things up so thoroughly for so long that Obama, if he can merely arrest our downward spiral, would actually be a hero...there is nowhere to go but up.

I hope.

That this low ebb of American economic power is the bottom is not entirely certain but I am a far more optimistic person by nature than evolution usually tolerates. So let me make my prediction that things will worsen in the economy only a little while longer, perhaps until next February...and then level off and begin a slow, hardworking but upward progress...if you and I, fellow citizen, are willing to do the work.

Why not make a prediction? I have been bitching about the neocon economy since at least 2006. I started bookmarking posts by economists around the time of the '06 election because I found my own opinions uninformed on economics. I was drafting but not publishing posts by Nov '07 because plenty of smart people had already been painting a picture of fiscal malaise seeping, despite officials in denial, into most quarters of commerce. I had no trouble foreseeing at the end of last year, in general terms, that Bush and Wall Street would trash our economy by the middle of this year...All I had to do was read the right columnists on the economy. And after all, voters have been worrying about the economy more and sooner than the politicians they elected. But let me hedge a bit: "upward progress" will never return us to the unsustainable excesses of consumption by which consumers helped wreck our economy...our wealth ultimately deriving from an over taxed nature, our life style will hence forth need to be a bit more modest.