Deep Thinking about Deep Recession VI: Questioning “Growth” and “One Big Number”
What’s the problem? What’s the problem with the current solutions being offered by world governments like the G20 alliance? What’s the problem with stoking the economy, with massive Keynesian spending projects matched by huge debt and enormous deficits? With building the IMF into the overfunded, legitimizing cavalry?
The problem is we’re working with the same flawed system. We’re legitimizing it and patching it with bandaids while we pump it full of borrowed-from-our-future resources. We’re measuring growth in the same flawed ways. We’re reifying expenditures and consumption levels far, far, over their sustainable, or even long-term workable, levels.
The Economy’s ‘Green Shoots,’ Real or Imagined
The only serious good (yes, good) news for the economy right now is the size of the budget deficit, which ought by past standards to be large enough to stabilize economic activity within the coming year.
Stabilization would be better than free-fall. But stabilization is not recovery. A return to positive output growth without job growth would be cause for relief, perhaps, but not celebration.
Is it happening yet? No. The most important current economic fact remains the loss of 600,000 jobs every month.
Compulsive optimism, otherwise known as grasping at straws, is habitual for some economists, especially if they are selling public policy or common stock. But it is also dangerous, destroying credibility and discouraging action. Repress it.
Despite the separation of powers built into the American political system, U.S. political institutions have, by global standards, proven themselves unusually decisive and effective at critical times. The ability to react swiftly to new challenges is an underlying theme in American history, whether we consider the early missions to the moon, the breakthroughs of the civil rights movement, the pioneering of environmental regulation, or the pro-market Reagan reforms of the 1980s.
It’s a paradox that it’s the large, diverse nations such as the United States that have the greatest ability to maneuver in a crisis and turn on the proverbial dime. That’s good for us, of course, but if a new American Century is about to be born, it’s another sign that the world faces very serious challenges. And that’s not a cause for anyone to cheer.
Where’s the Fun in Personal Finance?
It’s vital that you have goals. Goals give purpose and meaning to your financial decisions. If you’re accelerating your mortgage and saving 15% for retirement, but you’re only doing it because Dave Ramsey (or J.D. Roth) says you should be doing it, you need to examine your priorities. These are great steps, to be sure, but you have to do them for reasons that are clear to you. I cannot tell you what your financial goals are or should be — and neither can Dave Ramsey. You need to discover these for yourself.
How Obama is Using the Science of Change
“We couldn’t have planned a better marketing campaign for behavioral economics,” MIT’s Ariely quips. (See the best business deals of 2008.)
Behavioral economics doesn’t ignore the market forces that were all-powerful in Econ 101, but it harnesses forces traditionally consigned to Psych 101. Behaviorists have always known we don’t really act like the superrational Homo economicus of the neoclassical-model world. Years of studies of patients who don’t take their meds, grownups who have unsafe sex, and other flawed decision makers have chronicled the irrationality of Homo sapiens. Some of our foibles are quite specific, like overvaluing things we have, overeating food in larger containers and overestimating the probability of improbable events — the quirk that made the Meet Barack Obama fundraising lottery such a smart idea. But in general, we’re ignorant, shortsighted and biased toward the status quo. We’re not as smart as Larry Summers. We procrastinate. Our impulsive ids overwhelm our logical superegos. We plan to lose weight, but ooh — a cupcake! We’re especially irrational about money; we’ll pay more for the same thing if we can use a credit card, if we think it’s on sale, if it’s marketed with photos of attractive women. No wonder we apply for mortgages we can’t afford. No wonder our bankers approve them.
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