Dark age of economics, catfood edition

Why is this so hard to understand?

This is important background—because the economy’s current problem has nothing, zero, nada to do with deficits. Its problem is a lack of demand. If there were more demand, more people would be employed. The government is the only force capable of creating demand right now, since the housing bubble wealth that had been fueling the economy has largely disappeared. This means that if our commission co-chairs had ever bothered to look at the current deficit in the context of the economic crisis, they would be complaining that the deficit is too small rather than too large.

Their ignorance of basic economics also leads them to hype unfounded fears about the longer-term picture. If they understood the fact that the current deficit is a support for the economy, rather than a drain on the economy, they would not be concerned about the buildup of debt taking place at the moment. There is no reason that the Fed can’t just buy this debt (as it is largely doing) and hold it indefinitely. (The Fed has other tools to ensure that this expansion of the monetary base does not lead to inflation.)

That way, the debt creates no interest burden for the country, since the Fed refunds the interest to the Treasury every year. Last year the Fed refunded almost $80 billion in interest to the Treasury, nearly 40 percent of the country’s net interest burden. This means that the fears raised by Simpson and Bowles of an exploding debt reaching 90 percent of GDP by the end of the decade have no foundation in reality.

 Neither Simpson nor Bowles are economists.  But even if they were, and even if they understood these facts, they'd find a way to unknow them.  If you're trying to mug an old lady for catfood, and lavish a rich lady with pearls, then it's very inconvenient knowing all this.

But economists who should know better don't know better. Or pretend not to.  As Paul Krugman said last year, we really are entering a dark age of economics. But sadly, economics is not the only discipline under attack.  From science to history to the Constitution, Americans no longer hold a common set of beliefs based on evidence and truth.  Instead, their beliefs are divorced from fact, floating along unbuoyed and unburdened by anything real or true. This, of course, is no accident.  It is a by-product of our "Thank You for Smoking" culture that allows corporate interests to fake facts and blur debate -- or buy politicians or reporters to do it for them -- to obscure information that could hurt their bottom lines. Just free-associating here, but I'm thinking Koch brothers, give people more of their own money, you gotta fight 'em over there to fight 'em here, climate change, "deficits don't matter" ... Yes, of course, Cheney -- that human fog machine. In case it's not obvious, almost all this smoke emanates from conservatives.

What's most maddening is when people, especially so-called experts, unlearn things they once knew.  As in many fields, economists live in their own narrow realms studying arcane areas their whole careers and -- hard to believe -- forget the basic facts they learned as freshmen.  As Brad DeLong said:

Given their understanding of macroeconomics, and I mean the basics not the hard stuff, it's becoming a lot easier to understand how financial economists missed the developing bubble and the effect it would have on the macroeconomy. We specialize mightily in academic economics ... (s)o we rely and depend upon the expertise of others to inform us about areas in which we don't normally work. One thing I've learned from the current episode is not to automatically trust that the most well-known economists in the field have done due diligence before speaking out on an issue, even when that issue is of great public importance, or even to trust that they've thought very hard about the problems they are speaking to. I used to think that, for the most part, the name brands in the field would live up to their reputations, that they would think hard about problems before speaking out in public, that they would provide clarity and insight, but they haven't. In fact, in many cases they have undermined their reputations and confused the issues. People have been deferential in the past, myself included, and these people have been given authority in the public discourse - even when they are demonstrably wrong their arguments show up in the press as a "he said, she said" presentation. But, unfortunately for the economics profession and for the public generally, the so called best and brightest among us have not lived up to the responsibilities that come with the prominent positions that they hold.

But sometimes it's willful ignorance, making the dark ages even darker. Krugman:

Remember, what defined the Dark Ages wasn’t the fact that they were primitive — the Bronze Age was primitive, too. What made the Dark Ages dark was the fact that so much knowledge had been lost, that so much known to the Greeks and Romans had been forgotten by the barbarian kingdoms that followed.

And that’s what seems to have happened to macroeconomics in much of the economics profession. The knowledge that S=I doesn’t imply the Treasury view — the general understanding that macroeconomics is more than supply and demand plus the quantity equation — somehow got lost in much of the profession. I’m tempted to go on and say something about being overrun by barbarians in the grip of an obscurantist faith, but I guess I won’t. Oh wait, I guess I just did.

In a letter delivered to Pelosi on Tuesday, Boehner identified the tactic Pelosi might use. "Using the suspension process - which requires a two-third vote in the House to pass legislation instead of a simple majority vote - as the vehicle for a vote on legislation that would stop President Obama's tax hike on all tax-paying Americans would be an obvious attempt to circumvent the will of the House by denying Republican and many Democratic members their right to offer an alternative proposal," Boehner wrote.