From guest writer Bruce Kesler, who seems to have found a comfortable new place to pitch his tent at Maggie's -
Economics fails us in the current economic travails, because of its inherent limitations and because it doesn’t deal with a root distortion of the factors considered.
Traditional economic theory has advanced over the past two hundred years, from simpler unifocal causation to multicausal, usually seen to operate mechanistically, which lends itself to mathematic modeling. In various ways, the emphasis is on rational decision making. Time lags are introduced to approximate learning and reaction curves. Neoclassical microeconomics has been aggregated in Keynsian macroeconomics, both lending themselves to feelings of efficacy in prescribing governmental actions.
More recent behavioral economics adds that the process, at the individual or societal level, is less than perfectly rational measured choices, and often irrational. Stated, real or perceived self-interests are imperfectly or not pursued, and experiential feedback is imperfectly or not heeded.
Experiments, data manipulation and controlled observations of inputs and results extend the testing and understanding of the many various approaches to economics. But, they still result in confusion, both by their battling contentions and lack of adequate predictability.
Still, governments and their advisors continue to argue for one course or another, largely based on these theories, and all of us are affected.
This isn’t to argue that such efforts at understanding and guidance are misplaced or unnecessary. It is to argue that more humility is needed in charting such courses.
It is also to argue, now even more importantly, that a major element is missing from current economic thought: some segments of society have grown so large or powerful they are treated as too big to either challenge or fail, which grossly distorts the operations of the economy and results in grossly excess costs that create greater lasting harms.
In the 1970’s and ‘80’s it was said by our big banks, lending to foreign governments, that sovereign governments don’t go bankrupt. But some did, and we paid a huge domestic price in bailing out such lenders. We now see many “failed states” arisen from the post-colonial empires, propped up by international lenders, and we see their violence visited upon neighbors and the world.
The current economic meltdown is traced to huge flows of oil revenues that prop up such states, recycled into developed countries’ debts that prop up irresponsible borrowing and spending by governments, companies and individuals. When the burdens of supporting such debts overwhelms, the house of cards tumbles.
That’s where we are, in a tumbled house of cards.
The answer that comes from our politicians, who see their pet programs and their contributors as too big to be allowed to fail, is to increase our debts through formerly unimaginable greater deficit spending, piling multitudes of new debt upon the existing.
That is a prescription for delay, at best, of a far worse reckoning. Further, it decreases the utility of economic theory to be useful, until it incorporates the irrational factors of “too big to fail” into its calculations.
Economics, and most particularly political economy, must recognize that there is no entity that is too big to fail. Political incumbents are misguided and really primarily self-serving in their delaying expediencies, creating even worse longer-term results. The collapse of the Soviet Union’s managed economy, the Soviet Union thought too big to fail, ought to be an object lesson.
Regardless of measures to prop up individuals, companies or governments, only an emphasis on individual self-responsibility and self-guidance and by extension to companies and governments can create and allow their survival and prospering.
We’ve gone a long way down the slope toward considering that individuals, companies or governments cannot be allowed to fail. That thinking is the first thing that must be allowed to fail.
The Economics of Too Big to Fail by Bruce Kesler @ Maggie's Farm The answer that comes from our politicians, who see their pet programs and their contributors as too big to be allowed to fail, is to increase our debts through formerly unimaginable greater deficit spending, piling multitudes of new debt upon the existing. That is a prescription for delay, at best, of a far worse reckoning. Muslims miffed by Osama Bin Lego. Mohammed Shaffiq, of Muslim organisation...
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