05-16-2013, 11:32 PM
Almost a year ago I posted this in reference to a Krugman article I quoted:
http://forums.macresource.com/read.php?2...sg-1384485
And now Krugman has written this in "The New York Review of Books" :
I think I see glimmers of the "morality play" mentality losing its grip on the collective psyche, but maybe it just seems that way to me because I want to believe it is happening.
Incidentally, belated apologies for the somewhat condescending and/or nagging tone of that post from almost a year ago. I think I was feeling some frustration with the forum at the time.
http://forums.macresource.com/read.php?2...sg-1384485
I like that he alludes to the morality mentality that seems to have an undue influence on some people. They see what is happening as some kind of morality play - people did a bad thing by taking on too much debt and now they have to pay the price for it. It is true that too many people took on stupid debt and they do need to deleverage (reduce their debt), but a LOT of people who are suffering through this quasi-depression did not act irresponsibly but are never-the-less suffering from the economic downturn. Looking at this as purely a morality play is a cop-out for digging in and really getting an understanding of what has happened. Instead of looking at it as a morality play we should look at the situation like engineers trying to solve a problem. We have an economic machine that has the capacity to produce much more goods and services - and very importantly, the jobs that go with doing so - than it is now producing. What needs to be done to fix it? Well, identify the limiting factor. I think that the empirical evidence is clear - the limiting factor is demand. Krugman is saying what a good economic engineer would say in this situation.
. . . . . . . . .
It's like having a broken down car and being told by the mechanics to get down on your knees and pray for forgiveness for your sins rather than them setting about the business of actually making the thing run.
And now Krugman has written this in "The New York Review of Books" :
Everyone loves a morality play. “For the wages of sin is death” is a much more satisfying message than “Shit happens.” We all want events to have meaning.
When applied to macroeconomics, this urge to find moral meaning creates in all of us a predisposition toward believing stories that attribute the pain of a slump to the excesses of the boom that precedes it—and, perhaps, also makes it natural to see the pain as necessary, part of an inevitable cleansing process. When Andrew Mellon told Herbert Hoover to let the Depression run its course, so as to “purge the rottenness” from the system, he was offering advice that, however bad it was as economics, resonated psychologically with many people (and still does).
By contrast, Keynesian economics rests fundamentally on the proposition that macroeconomics isn’t a morality play—that depressions are essentially a technical malfunction. As the Great Depression deepened, Keynes famously declared that “we have magneto trouble”—i.e., the economy’s troubles were like those of a car with a small but critical problem in its electrical system, and the job of the economist is to figure out how to repair that technical problem. Keynes’s masterwork, The General Theory of Employment, Interest and Money, is noteworthy—and revolutionary—for saying almost nothing about what happens in economic booms. Pre-Keynesian business cycle theorists loved to dwell on the lurid excesses that take place in good times, while having relatively little to say about exactly why these give rise to bad times or what you should do when they do. Keynes reversed this priority; almost all his focus was on how economies stay depressed, and what can be done to make them less depressed.
I’d argue that Keynes was overwhelmingly right in his approach, but there’s no question that it’s an approach many people find deeply unsatisfying as an emotional matter. And so we shouldn’t find it surprising that many popular interpretations of our current troubles return, whether the authors know it or not, to the instinctive, pre-Keynesian style of dwelling on the excesses of the boom rather than on the failures of the slump.
I think I see glimmers of the "morality play" mentality losing its grip on the collective psyche, but maybe it just seems that way to me because I want to believe it is happening.
Incidentally, belated apologies for the somewhat condescending and/or nagging tone of that post from almost a year ago. I think I was feeling some frustration with the forum at the time.
