Today, I voted the first economist off the island. Mark Zandi of Economy.com, owned by Moody's (as if they are one to judge the health of the economy).
In an NPR interview on today's weekend edition, Mark Zandi said several fascinating things. All of them were logical, easy to follow, but still digestible contorted linguistics, intellectually palatable for the managing class to feel serious about.
Here is what he said, in essence:
1) Obama's $850 billion bailout is not big enough.
2) It is too focused on construction and job building and infrastructure.
3) The congressional research service says that stimulation through jobs takes too long to work its way up to solve the financial problems.
4) Tax reduction works faster, unless people choose to save.
5) If we don't save the financial system first, we are going to lose millions and millions of jobs.
So we can't give people jobs, because they will lose jobs if the financial system isn't fixed. I thought the market was broken and no one knew exactly where the break was, so we have to dig the whole thing up and replace it. But in the meantime we are supposed to be patient. They are asking the masses to allow a temporary suspension of "the rules" of how freedom works, so they can patch the economic side of freedom that is taking on water.
We know from world war II and Rosie the Riveter that the free will never again accept oppression imposed by others. The women didn't go home, they went to work. This genie is not going back in the bottle. Let's accept that fact. If the market is broken, the best job is a job.
This is where economics gets tricky. Yes, an economist can say with statistical rationality that a job will produce seven wazzu thousand dollars per thousand spent, spread out over 13.2 years. Really!!? Absolutely, they have PhDs. I went to graduate school with these guys. They are not that accurate. They are not that good. It is outside their confidence interval.
Two examples: Nobel Laureate Gary Becker was once asked by a graduate student what economists really "know". His response was that we are pretty sure that demand curves slope downward. A second comes from Lars Hansen, in dealing with general equilibrium models under uncertainty, would get excited over models with R-squareds of 30% (because other trends were being teased out of very complex data). But, none the less, this as good as economics gets -- at least in the majors.
What don't they see? Well, someone has a job, their life has meaning. Economists can't measure that. they can only measure prices and all that other feel-good gain goes to the masters. They can't measure how a society evolves and a community pulls together rather than pulling apart. It is not in the dataset they start with so it can't be in the outcome. Every magician knows that.
They can't measure the disappointment a father feels when he looks his kids the eyes and tells them he has failed them. It is called a cramdown. Ask a bankruptcy expert how it works. The benefit goes somewhere, or at least a fraction of it.
So let's fix the financial system first. What about this. Which came first, finance or society? Even I know debt swaps, collateralized debt obligations, and mortgaged back alt-A subprime securities came about since the place we have to get back to on an infrastructure basis. So to me, that means jobs first. But take the financial system to that same place. We may have to nationalize, or even globalize. But right now we need democratic communities, not oppressed communities.
The other thing is that with people working, a new economy can emerge. It is in the air. People working with hope invent alternative communication networks and social structures. If everyone is in pain, wallowing in fear about next month or tomorrow, those links don't form. All the time is spent crying instead of laughing even sometimes. That is power. That is what they don't want. I am concerned that some economists "Don't Get It".
BTW, bounded rationality is the concept that the data shows behavior in a certain way that is consistent with "rational" actions over the small events being measured. The "bounded" part just means that the data follows certain mathematical rules -- rules that if were violated would cause the predictibility of the models to fall thorugh the floor. In otherwords, it is like having a map of Route 66, and making decisions about speed limits in Hawaii. Locally, the map and info works but you are on your own if you try to extrapolate. So lets take $3 trillion and do what Mark Zandi of Moodys says is right? Show us the models and give us the data! FOI!