Wednesday, December 7, 2011

anti-mankiw links; or, the dangers of technocracy

On his blog and in his New York Times articles, N. Gregory Mankiw has slowly but carefully advanced a position which is critical of fiscal expansion. He has given a variety of reasons for his position. These include: fiscal responsibility provides more certainty for investors in determining the future potential of economic growth; as well as observing that the short-sighted character of most politicians leads them to underestimate how difficult an unbalanced budget can be to get out of in the long run.

In presenting these views to the public (i.e. in terms of his rhetoric), Mankiw has often said that he's demonstrating a centrist view of the issue -- evidenced, for example, by his signature on the Simpson-Bowles plan which garnered the support of people on the left and right. Deficit reduction is just simple economics, according to him, because we need investors to stay confident in the strength of our economy.

But deficit reduction is not that simple and focusing on it during a recession might not be the best option. Indeed, the argument that deficit reduction sustains confidence does not hold up. The correct argument for deficit reduction actually seems to be something a bit different: namely, that it can potentially reign in overzealous spending at a time when the economy can afford to do so. That is the gist behind this report by Arjun Jayadev and Mike Konczal entitled "The Boom, not the Slump". In that article (which was referenced in a blog post by Paul Krugman) they work through a few case studies which analyze the timing of austerity measures vis-a-vis movement in some of the economy's broad indicators to show that the case for austerity is weak. And on the other hand, as the Great Depression and World War II showed us, the standard argument for deficit spending in the case of recession has much stronger empirical support.

Still, even when Mankiw's "confidence fairy" argument falls, can he rely on a sound logical footing for his argument? The Jayadev and Konczal paper suggests at first glance that he can't. That is to say, the "sound" economics of Mankiw is really just ideology dressed up as science. In this interesting Monthly Review piece, Marcello Musto applies that exact idea to Europe. Simply put, technocratic discourse is sometimes laden with violence against anyone willing to speak out against the "science" of economic thinking. The result, at least in Europe, is one of the most acute forms of class warfare.

As Musto himself puts it:
The separation between economics and politics that differentiates capitalism from previous modes of production has reached its highest point.  Economics not only dominates politics, setting its agenda and shaping its decisions, but lies outside its jurisdiction and democratic control -- to the point where a change of government no longer changes the direction of economic and social policy.
Introductory economics should start off with a very simple idea: be immediately distrustful of anyone you see (especially elites) presenting the "consensus" view within the economics profession as the "right" policy platform. And, indeed, this is the type of "apolitical" discourse that can end up being the most lethal kind for workers or other groups with less power in the economy.

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