October 05, 2010
That is what the young George Washington would have told his father if he had been an economist. If anyone ever doubted that the economics profession is chock full of a bunch of shameless incompetents, the current situation proves them wrong.
We are sitting in the middle of the worst economic disaster in 70 years entirely because the economists in positions of responsibility (e.g. Alan Greenspan, Ben Bernanke, the Bush Administration economists, the Congressional Budget Office economists, and the vast majority of professional prognosticators cited in the media) could not see an $8 trillion housing bubble.
This is worth repeating a few hundred thousand times. Tens of millions of people are facing the loss of their jobs and/or their homes because bozos with Ph.Ds in economics could not do their job. And none of the bozos got fired for their incompetence. Most are still making 6 or 7 figure salaries.
Perhaps the worst part of the story is that rather than trying to correct their mistake, most economists are making up fairy tales about the “new normal,” essentially saying that the public is just going to have to get used to high rates of unemployment.
The reality is that we know how to reduce the rate of unemployment to more normal levels. We have known this for 70 years. The answer is for the government to create demand by … spending money. According to sophisticated economic theory, people work for money. If the government spends more, then more people will have jobs.
Yes, this creates a larger deficit. And the problem with this is absolutely zero. The financial markets make this point every day since people are willing to hold long-term government debt at very low interest rates. The market is moved by investors with tens of billions of dollars on the line, not shrill Chicken Littles screaming about deficits.
If we leave our economic policy to economists too dumb to see an $8 trillion housing bubble and the shrill Chicken Little deficit hawks then we will experience high unemployment for years to come. Bad advice can be very expensive.
This article originally appeared on Politico’s The Arena.
