Grace Ross: Stop Repeating History; Fix the Economy!

Tuesday, November 05, 2013

Grace Ross, GoLocalWorcester MINDSETTER™

When ex-Federal Reserve Chairman Greenspan was asked by Congressional leaders after the October 2008 crash if he had “…found that his view of the world and his ideology wasn’t right and wasn’t working…” Greenspan had answered: “absolutely” and “precisely” “I was shocked”.

Well, our national “financial experts” are still not getting it right.

Greenspan, often seen as the economic guru, managed to miss the entire housing bubble. See the Boston Federal Reserve chart which showed that home values since 2002 had skyrocketed to a historically unheard of level - that is they were way out of range. The Boston Federal Reserve researcher said of this chart that they had tracked the increase but had not been able to divine the significance and just “put it in a drawer”. In fact, since then we have seen a larger decline in home prices than happened during the Great Depression.

Continuing this unfortunate inability to see and be responsible to the bigger economic picture, all we have to look at now is the impact of Congress being unable to come to any kind of agreement so our federal government got shutdown. The impact figures are now out: $24 billion was lost from the national economy and an estimated 120,000 jobs – all in a period of under three weeks.

Somehow, the politicians – and too many of those who see themselves as “political – want to act like this is about ideological differences – not real life and the real impact of their action or inaction.

The real problem with the purely ideological conversations is this: while it can be useful for trying to map the future based on (hopefully) experientially tested assumptions built into a theory, ideology is never more than a map.

If you think about it, if you want to get from here to there and you have not been ‘there’ yet, you might want a map. Still, a map is only as good as helpful to your particular situation. For instance, if you don’t have a car, a road map isn’t going to do you a lot of good. Instead, you might want a topographical map; one that would tell you whether you’re heading for a mountain that will be in your way when you’re walking or whether it would better to go around the mountain.

That’s all ideology is. It’s a map. It’s an attempt to make sense of what’s happening around you and use it to make sense of the present and maybe project the future.

In contrast, reality is almost infinitely complex and maps are always a gross simplification.

What we know from actual historical experience was that the Great Depression was a mess. However, rather than resolve the situation, it took some 12 years. Elected leaders got into a battle about the national debt. Rather than putting in place the programs that would rebuild the entire economy, the then deficit hawks refused to allow the federal government to spend enough money to pull the economy out of the hole that it was in. Instead, the economy took a second dive – known as a double dip.

We are unfortunately right there once again. In 2010 in my book I pointed out the need to avoid this second dip but we have somehow refused to learn from history. We are trapped into arguments over whose map is right instead of dealing with the more complex realities of what we face.

There was huge fanfare at the state level about what a great job we in Massachusetts were doing rebuilding jobs; we were told this meant that there was such a drop in unemployment that we no longer needed some of the unemployment extensions in the state. That we were ahead of the curve of climbing out of the economic trough – which government leaders kept telling us the whole country was pulling out of.

The federal government had increased the percentage of unemployed workers a state had to face to access one of those extensions. Well guess what? Even with a higher threshold, we Massachusetts residents are back into having three unemployment extensions.

All of this was predictable given the sequester cuts and now, of course, the shutdown of the federal government.

The answers are actually pretty clear. Some of them we can glean from the experience after the Great Depression. Putting the people of the country to work is a critical component. Providing decent jobs where people hopefully receive something approaching equal pay turns out to make a difference as the “When Women work, America works” project has shown.

We have historic proof. Funding for things like decent public education for every child makes a difference. We know the economy is helped when people have healthcare and can work. Also, when we don’t have periodic health emergencies whether it’s food inspectors protecting us for E. Coli or access to actual healthcare not just health insurance protecting us from out breaks of meningitis. All of these are proven ways to insure that the economy does well.

I got stopped by someone saying “… what? Does this make you a Keynesian economist…?” and I thought to myself “…you know what? I’m so boring: I’m not into the ideological argument. I’m not interested in what map you want to theoretically think about might apply…” It may be more useful to remember that Keynesian economics was part of the basis of the economic choices that got us out of the Great Depression.

Whether you think Keynesian economics in some absolute philosophical bubble is the best roadmap or not, what we know is it was created at a time when it was needed. It had clearly some answers because it worked. Whether all those answers apply today, I don’t know.

What I do know is that fighting over the ideology behind a road map isn’t nearly as useful as figuring out whether we’re driving a car or having a walk and using the right map for that kind of situation.

In short, get rid of the ideological purist glasses and fix the economy, Stupid!