Sometimes—in reading the news, what passes for economy analysis, and the opinions of the punditariat—it seems we’re all just dancing around the mulberry bush. . .
For example, now in the face of Draconian austerity policies, Giancarlo Corsetti and Gernot Müller want us to believe in the invisible confidence fairy:
Due to the sovereign-risk channel, highly indebted economies become vulnerable to self-fulfilling economic fluctuations. In particular, an anticipated fall in output generates expectations of a deteriorating fiscal budget, causing markets to charge a higher risk premium on government debt. Through the sovereign-risk channel, this tends to raise private borrowing costs, depressing output and thus validating the initial pessimistic expectation.
Under such conditions, a procyclical cut in public spending can stem the possibility of a confidence crisis, by limiting the anticipated deterioration of the budget associated with output contractions. This suggests that highly indebted countries may be well-advised to tighten fiscal policies early, even if the beneficial effect of such action – prevention of a damaging crisis of confidence – will naturally be unobservable.
And then there’s the worry, expressed by Simon Wren-Lewis, that if macroeconomic policy errors are tied to “hidden agendas” and “moneyed interests,” there’s not much academic economists can do.
Here’s an idea: why not do research on what those hidden agendas and moneyed interests are and figure out who is benefiting from the imposition of what many of us consider to be “policy errors”?
Not surprisingly, Gary Becker and Richard Posner are at it again, arguing that capitalism really isn’t in crisis—because governments have been tarnished, too (Becker) and that attempts to lessen economic inequality inevitably lead to economic inefficiency (Posner).
There is nothing in the economic logic of capitalism, any more than in the biological logic of evolution, that drives an economy toward income equality. The basic logic of both systems is competition, and competition produces losers as well as winners. A class of workers can become extinct, just as a species can. The difference is that the combined effect of envy and democratic politics can result in policies that distort competition in order to increase the welfare of the losers in the competitive struggle. Such policies tend to be inefficient and thus to retard the smooth operation of capitalism as an economic growth engine. Evidence for this proposition is found in the sluggish economic performance of many European nations.
Finally, there’s the complaint—a favorite of employers and of business reporters—that the problem of unemployment is there’s a shortage of skilled workers. (Although to his credit, Peter Whoriskey does note that, while there may be as many as 600,000 jobs going unfilled, there are more than 12.8 million workers unemployed in the United States.)
“Politicians make it sound like there’s a line out front of workers with a big sign saying ‘No more jobs,’ ” said Matt Tyler, chief executive of a precision metal company in New Troy, Mich. “Nothing could be further from the truth.”
How about this: if there’s a shortage of workers with particular kinds of skills, because corporations have found it profitable to offshore some jobs and introduce new technologies for other jobs, why not train the workers and pay them a decent wage?
But no, they prefer to keep dancing around the mulberry bush. . .