- by New Deal democrat
[You know the drill. Regular nerdy economic blogging will resume tomorrow.]
A few days ago, Paul Krugman lamented that overwhelming data that austerity was a failure hadn't pushed political elites to more forceful action:
I’ve been having a strange reaction to recent news about economic policy. Stuff is happening ... but ... it’s all pretty small-bore stuff.[my emphasis]
And ... mass unemployment goes on.
... I think many of us used to believe that sustained high unemployment ... would push policymakers into doing something forceful. It’s now clear, however, that ... [w]e can probably have high unemployment and stable prices in Europe and America for a very long time — and all the wise heads will insist that it’s all structural, and nothing can be done until the public accepts drastic cuts in the safety net.
I've seen sentiments like this many times over the last four years. I think Brad DeLong has made the same lament a number of times, and Mark Thoma as well.
Respectfully, I believe the academics have their causality reversed. It isn't just chance that at the time that the worst and most persistent downturn in seventy years happened, the response thereto has been stymied by the conservative, "trickle down" economics embraced by the political and professional elites.
No. The worst and most persistent downturn in seventy years happened precisely because conservative "trickle down" economics was most fully embraced by political and professional elites.
That embrace caused the elites to push for and enact financial deregulation. That embrace cuased the elites to push for and embrace the evisceration of centuries of laws against usury (excessive consumer lending interest rates). That embrace caused the elites to ignore the burgeoning of debt by consumers and businesses alike. That embrace caused the elites to push for and enact statutes that made deep holes in the safety net (because lower benefits are needed to incentivize work). That embrace caused the elites to push for and embrace skyrocketing senior management compensation in corporations (because higher benefits are needed to incentivize work). That embrace caused the elites to push for the elimination of the estate tax after over 100 years (because higher inheritances are needed by the great great grandchildren of the wealthy in order to ... well, something or other, but it will incentivize them!).
In short, you simply do not get economic and financial crises like we have had in the last 5 years at a time when had the elites embrace countercyclical economic policies, and measures to protect and shore up the middle and working classes. By 2008, the elites in political, corporate, and academic power had a greater belief in "trickle-down" economic policies than had been the case in a lifetime, and as a result of that embrace, they had enacted policies which led to the inevitable debt crisis.
In 1933 there was a long and living record of this kind of economic downturn, and there was an infrastructure of political (big city machines), corporate (unions), and academic (Keynes and others) power centers to remove the existing elites from power. No such infrastructure exists now - although certainly an academic and grass roots architecture has been forming for the last 10 years. So it should be no surprise that the entrenched elites, well, ... want to remain entrenched, and are not about to be "push[ed] into doing something forceful."