April 22, 2013
That is quite literally what he told us in his column. His second paragraph tells readers:
“Among economists, there is no consensus on policies. Is “austerity” (government spending cuts and tax increases) self-defeating or the unavoidable response to high budget deficits and debt? Can central banks such as the Federal Reserve or the European Central Bank engineer recovery by holding short-term interest rates near zero and by buying massive amounts of bonds (so-called “quantitative easing”)? Or will these policies foster financial speculation, instability and inflation? The public is confused, because economists are divided.”
See, we don’t know what to do, so we just can’t do anything. All those suckers who are unemployed or seeing stagnant wages, well we just don’t know. And the fact that those on the top are getting rich with 60-year high shares of national income, well what can we do about that? It’s just too confusing.
While Samuelson may be very confused by economics, those who understood their intro econ have little difficulty explaining the current situation. The housing bubble was driving the economy prior to its collapse. The collapse eliminated more than $600 billion in demand from residential construction and more than $500 billion in demand from consumption. There was also demand lost from a collapse of a smaller bubble in non-residential construction and from state and local government cutbacks forced by a loss of tax revenue. This is not complicated and it was predicted.
In his effort to muddy the waters (nothing we can do) Samuelson gets just about every basic fact wrong. He tells us that consumers aren’t spending because they are reluctant to take on more debt. Actually consumers are spending at very high rates. The savings rate is much lower now than it was at any point in the 1960s, 1970s, and 1980s. It is only high when compared to the bubble driven consumption of the late 1990s stock bubble and the housing bubble of the last decade. (Adjusted disposable income is related to the statistical discrepancy in the national accounts.) The wealth from these bubbles is gone, why is it a surprise to anyone that the consumption they were driving is gone as well?
Samuelson also tells us that firms aren’t investing because the environment is uncertain. That’s a nice story, but the data says the opposite. Firms actually are investing. Spending on equipment and software as a share of GDP is almost back to its pre-recession level. This is very impressive since there are still large amounts of excess capacity in many sectors of the economy. If there is any mystery it would be why investment is so high, not why it is low.
Samuelson has yet more confusion to spread. He tells readers:
“‘We really don’t understand what’s happening in advanced economies,’ Lorenzo Bini Smaghi, a former member of the ECB’s executive board, told the conference. ‘Monetary policy [policies affecting interest rates and credit conditions] has not been as effective as we thought.’ Poor economic forecasts confirm this. In April 2012, the IMF predicted that the euro zone (the 17 countries using the euro) would expand by 0.9 percent in 2013; the latest IMF forecast, issued last week, has the euro zone shrinking by 0.3 percent in 2013.”
Actually we know very well what’s happening. Governments listened to people like Robert Samuelson who complained about budget deficits. They cut spending and raised taxes. It turned out that contractionary fiscal policy was more contractionary than the IMF had anticipated. Fortunately the IMF did research on this issue, so the world knows that austerity was responsible for slower growth even if Samuelson is confused.
However Samuelson doesn’t want us to give up all faith in economics and economists. He tells readers:
“Perhaps the anti-economist backlash has gone too far, as George Akerlof, a Nobel Prize-winning economist, argued. The world, he said, avoided a second Great Depression.”
Huh? Avoiding a second Great Depression is now the mark of success? This is a bit like going to the doctor complaining of chronic headaches. After 4 months of failed treatment the doctor tells you that at least you’re not dying of cancer. That’s better than the alternative, but what does this have to do with the time of day.
The first Great Depression was caused by a decade of failed economic policy. We could have ended the depression at any point if we were prepared to provide the sort of massive stimulus that eventually came about as a result of World War II. Since we have known for 70 years how to avoid a prolonged depression, seeing an economist boast that we are not having a decade of double-digit unemployment is too pathetic for words.
Anyhow, Samuelson’s piece seems intended to spread confusion as an end in itself. If he really is as confused as he seems in this piece perhaps the Post can find an economics columnist with a firmer grasp of economics.
Note: Typos corrected, thanks to Robert Salzberg.
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