Keynes vs Friedman . . . with Madrick as Referee

Jeff Madrick's book Seven Bad Ideas: How Mainstream Economists Have Damaged America and the World pits Keynesian economics-- the idea that markets can be extremely erratic and inefficient, especially in times of recession and/or economic chaos, and so active and aggressive financial policy decisions are essential and important-- against the ideas of Milton Friedman (and what those ideas have evolved into . . . a moralistic narrow-minded worship of the beauty and unerring accuracy of the Invisible Hand, free markets, and EMT) and while Madrick keeps it fairly intellectual-- this is not an easy read and certainly not a polemic, it's a point-by-point academic debunking and dismissal of much of what mainstream economists pass for fact (if you want something in this vein that is a little more entertaining, I recommend the writing of Ha Joon Chang) and while you might get bogged down in the chapters about Say's Law and the mathematics of inflation, it's still easy enough to read between the lines and realize how much economic conservatives-- and this includes Bill Clinton-- have fucked things up, by thinking that the abstract elegance of the Invisible Hand means that the axiom (mentioned once by Adam Smith) is the absolute be-all-end all in economics, some universal truth like the Golden Rule (and we all know that Golden Rule has a loophole-- which is analogous to economics because it deals with irrationality-- you should do unto others as you would have done unto you . . . unless you love a good knife fight . . . if you love a good knife fight and wake up each morning hoping, praying to get into a knife fight, for no reason at all other than you love violence and blood and honing your boot knife and so-- since you love knife fighting-- you do this unto others that you meet, assuming they would love a good knife fight as well, most people would say that's a flaw in the Golden Rule and you're totally irrational . . . it's the same with economics: it would be lovely if markets and people within them were totally rational and all wanted the same thing and had the same information and motivation, but that's not how it works, people move in herds, they panic, they operate without perfect information, in markets that aren't large enough to be statistically accurate, etcetera, etcetera) and the important thing to remember is that economics is NOT math and it has a moral component . . . it has a real effect on people's lives and there are no commandments from on high-- even if they're from the IMF-- that are universally right . . . you'll need to read the book to get the fine points but near the end Madrick summarizes things:

"Economies of scale, the growth of trade, the availability of natural resources, educational attainment, the quality of financial institutions, military spending, the rise of wages, the establishment of unions, welfare programs, the optimism of a people, varieties of attitudes toward materialism, the sense of community, marriage and families, the broadening of freedom-- these are major factors contributing to growth and it is hard to separate one from another . . . there are no adequate universal theories of growth because the nature of growth on a country-by-country basis and over time is too individual and involves too many factors . .  this does not stop economists from insisting on a scientific-like one-note explanation of growth"

and so those who propose orthodox supply-side EMT free market economics in the face of every problem-- whether it be a moral, philosophical, sociological, or psychological-- are "profoundly responsible" for what has happened to the American economy and need to realize that these simplistic models are only hypothetical, and have very little empirical factuality . . . this is a must read for politicians and free market advocates, and if our leaders and legislators could be a little more open-minded and creative about economic policy and reform (this can happen, even in the face of lobbyists . . . New Jersey just completely reformed it's corrupt bail system) and realize that markets occasionally work but they are not some universal truth inscribed on a tablet, they are just another economic game with rules and regulations and consequences and incentives, and just like any game, the rules can be massaged and adjusted and outright changed to allow fairer play and better results for all participants and other outcomes . . . football did it with the forward pass (and then pass interference and quarterback protection rules etc. and look at all the scoring) and basketball introduced the three-pointer so that little guys like Stephen Curry could profit as well as big men . . . economics can adapt the same mentality, if people can get beyond this universal acceptance of orthodoxy . . . it ain't religion, it's money.


Whitney said...

Summer Dave = longer "sentences"

Dave said...

Summer Dave = "cornucopia" of "listless hijinks"

zman said...

I spent three years of my life being force-fed law and economics/EMT/free market miracles so I love this sentence despite the fact that it is a plurality of paragraphs. In my humble view, the main problem with EMT and just saying "let the market decide" is that the whole model is based on the premise that everyone involved is a rational actor when in reality many, if not most, people act irrationally at least some of the time.

I look forward to discussing this further with you while playing tennis at OBFT.

rob said...

obft emt symposium!

Dave said...

nice-- that's the thrust of a lot of what i've read lately. we'll bore the hell out of the rest of the crew and then act rationally irrational and beat them at poker

A New Sentence Every Day, Hand Crafted from the Finest Corinthian Leather.