Click amount to donate direct to CounterPunch
  • $25
  • $50
  • $100
  • $500
  • $other
  • use PayPal
DOUBLE YOUR DONATION!
We don’t run corporate ads. We don’t shake our readers down for money every month or every quarter like some other sites out there. We provide our site for free to all, but the bandwidth we pay to do so doesn’t come cheap. A generous donor is matching all donations of $100 or more! So please donate now to double your punch!
FacebookTwitterGoogle+RedditEmail

Do Economists Bleed?

Two prominent medical researchers reviewed hundreds of thousands of records on infant and childhood mortality dating back over the last eight centuries. They discovered that over the vast majority of this 800-year period, only around half of newborns survived to adulthood. They concluded that we should not expect our children to live to adulthood.

Anyone reading this paragraph should be fuming at the absurdity of this sort of extrapolation. Almost everywhere in the world in the 13th-19th centuries people lacked the health care advances that we take for granted. They lacked modern sanitation advances, like sewage disposal and clean drinking water, their diets were often grossly inadequate, and they didn’t have the benefits of modern medicine, like antibiotics. The enormous differences in these and other areas make it absurd to extrapolate about health outcomes from prior centuries to the present situation.

While the absurdity of such extrapolations on health outcomes should be immediately apparent, for some reason those in policy circles think it is perfectly reasonable to make the same sort of extrapolations when it comes to economic outcomes. Two prominent economists, Ken Rogoff and Carmen Reinhart, did an extensive examination of financial crises over the last eight centuries. They found that the after-effects of these crises tend to be long-lasting, with economies often taking a decade or more to get back to normal levels of output.

This is an interesting and worthwhile historical exercise. But why would anyone think that this past history any more condemns economies to suffer prolonged downturns from the recent financial crisis than the past history will condemn our children to an early death? Just as we have made enormous advances in public health and medicine, we have reason to believe that we have made enormous advances in economics as well.

The most obvious advance was the writings of Keynes in the 30s, who explained how an economy could endure a prolonged downturn like the Great Depression. He also explained how the government could provide the boost necessary to get an economy back to normal levels of employment and output. There of course has been much work subsequent to Keynes that builds on his basic insights. In principle, this work implies that there is no reason that economies should ever again be forced to endure long periods of high unemployment, just as there is no reason for us to expect 16th century mortality rates for our children.

However, many in the media and policy circles insist in telling us that we are doomed ? we just have to accept that it may be close to a decade before we get back to normal levels of unemployment. In the meantime, tens of millions of people around the world will be condemned to unemployment or underemployment, because the folks responsible for managing the economy messed up.

It’s worth asking what this view tells us about the economy and economists. As far as the former, this view of the economy takes on an almost mystical aura. The sins that led to the financial crisis leave us with no recourse; “we” simply must accept that there is nothing that we can do. (The people saying this are never among the unemployed.)

The proponents of the predestination view often point to the large amount of debt that was accrued in the boom that led to the bust. And of course there is a vast amount of debt, especially among households, but this also implies that there is a vast amount of wealth corresponding to this debt. One person’s debt is another person’s asset. The role of economics is to devise ways to ensure that those with the money either spend it, or that wealth somehow shifts from those who have it but won’t spend it, to those who would spend it, but don’t have it.

This might be difficult, especially given the politics, but what makes it impossible? In principle there are an infinite number of ways to increase spending (e.g. government stimulus, expansionary monetary policy, a lower valued currency). Each of these routes has drawbacks, but how can anyone rule out the possibility that any such policy will work?

This brings up the second point about economists. We can point to the success of modern medicine in improving and extending our lives, so we know why we have doctors. But if the economists really want to tell us that there is nothing that they can do about the worst downturn since the Great Depression, then it is not obvious why we would need them.

After all, economists are not cheap. They often get six-figure salaries. In addition, their pay packages can be the models of bloated benefit structures. Many of the IMF economists who were telling the Greeks about the need to raise their retirement age to the late 60s will have the option to retire with six-figure pensions in their early 50s.

If economists could show great things that they had done for the world economy then perhaps such generous pay and benefits could be justified, but if they really want to tell us that they can’t do anything, why not just save the money? After all, would we be paying doctors so generously if their answer to every problem was to apply leeches to bleed the patient?

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy and False Profits: Recoverying From the Bubble Economy.

This article originally appeared in The Guardian.

 

More articles by:

Dean Baker is the senior economist at the Center for Economic and Policy Research in Washington, DC. 

Weekend Edition
October 19, 2018
Friday - Sunday
Louis Proyect
The Education Business
October 18, 2018
Erik Molvar
The Ten Big Lies of Traditional Western Politics
Jeffrey St. Clair
Lockheed and Loaded: How the Maker of Junk Fighters Like the F-22 and F-35 Came to Have Full-Spectrum Dominance Over the Defense Industry
Lawrence Davidson
Israel’s “Psychological Obstacles to Peace”
Brian Platt – Brynn Roth
Black-Eyed Kids and Other Nightmares From the Suburbs
John W. Whitehead
You Want to Make America Great Again? Start by Making America Free Again
Zhivko Illeieff
Why Can’t the Democrats Reach the Millennials?
Steve Kelly
Quiet, Please! The Latest Threat to the Big Wild
Manuel García, Jr.
The Inner Dimensions of Socialist Revolution
Dave Lindorff
US ‘Outrage’ Over Slaying of US Residents Depends on the Nation Responsible
Adam Parsons
A Global People’s Bailout for the Coming Crash
Binoy Kampmark
The Tyranny of Fashion: Shredding Banksy
Dean Baker
How Big is Big? Trump, the NYT and Foreign Aid
Vern Loomis
The Boofing of America
October 17, 2018
Patrick Cockburn
When Saudi Arabia’s Credibility is Damaged, So is America’s
John Steppling
Before the Law
Frank Stricker
Wages Rising? 
James McEnteer
Larry Summers Trips Out
Muhammad Othman
What You Can Do About the Saudi Atrocities in Yemen
Binoy Kampmark
Agents of Chaos: Trump, the Federal Reserve and Andrew Jackson
David N. Smith
George Orwell’s Message in a Bottle
Karen J. Greenberg
Justice Derailed: From Gitmo to Kavanaugh
John Feffer
Why is the Radical Right Still Winning?
Dan Corjescu
Green Tsunami in Bavaria?
Rohullah Naderi
Why Afghan Girls Are Out of School?
George Ochenski
You Have to Give Respect to Get Any, Mr. Trump
Cesar Chelala
Is China Winning the War for Africa?
Mel Gurtov
Getting Away with Murder
W. T. Whitney
Colombian Lawyer Diego Martinez Needs Solidarity Now
Dean Baker
Nothing to Brag About: Scott Walker’s Economic Record in Wisconsin:
October 16, 2018
Gregory Elich
Diplomatic Deadlock: Can U.S.-North Korea Diplomacy Survive Maximum Pressure?
Rob Seimetz
Talking About Death While In Decadence
Kent Paterson
Fifty Years of Mexican October
Robert Fantina
Trump, Iran and Sanctions
Greg Macdougall
Indigenous Suicide in Canada
Kenneth Surin
On Reading the Diaries of Tony Benn, Britain’s Greatest Labour Politician
Andrew Bacevich
Unsolicited Advice for an Undeclared Presidential Candidate: a Letter to Elizabeth Warren
Thomas Knapp
Facebook Meddles in the 2018 Midterm Elections
Muhammad Othman
Khashoggi and Demetracopoulos
Gerry Brown
Lies, Damn Lies & Statistics: How the US Weaponizes Them to Accuse  China of Debt Trap Diplomacy
Christian Ingo Lenz Dunker – Peter Lehman
The Brazilian Presidential Elections and “The Rules of The Game”
Robert Fisk
What a Forgotten Shipwreck in the Irish Sea Can Tell Us About Brexit
Martin Billheimer
Here Cochise Everywhere
David Swanson
Humanitarian Bombs
Dean Baker
The Federal Reserve is Not a Church
FacebookTwitterGoogle+RedditEmail