I don't know about you, but I am increasingly exasperated by the certitude with which talking heads on TV make assertions reiterating partisan rhetoric on the "economic rescue plan". Why do experts of all hues insist on peddling opinions as fact, despite the complete lack of evidence? Why not reproduce the facts in an intelligible way and leave it for viewers to decide? The truth is they don't know the answers, despite their protestations to the contrary.
Here's Warren Buffet on the topic of the economy. I've reproduced one part of the interview for you below:
Q: "... But there is debate about whether there should be fiscal stimulus, whether tax cuts work or not. There is all of this academic debate among economists. What do you think? Is that the right way to go with stimulus and tax cuts?"
Warren Buffet: "The answer is nobody knows. The economists don’t know. All you know is you throw everything at it and whether it’s more effective if you’re fighting a fire to be concentrating the water flow on this part or that part. You’re going to use every weapon you have in fighting it. And people, they do not know exactly what the effects are. Economists like to talk about it, but in the end they’ve been very, very wrong and most of them in recent years on this. We don’t know the perfect answers on it. What we do know is to stand by and do nothing is a terrible mistake or to follow Hoover-like policies would be a mistake and we don’t know how effective in the short run we don’t know how effective this will be and how quickly things will right themselves. We do know over time the American machine works wonderfully and it will work wonderfully again."
Couldn't agree with him more.
On a different note, the complexity of the economic woes has been excellently summarized by Samuelson in his Op-ed piece. As Samuelson astutely points out, the US is facing three separate economic crises:
- A decline in consumer spending. Consumer spending is 70% of the US economy. With the wiping off of over $7 trillion in personal wealth, people just aren't spending any more.
- A breakdown of the financial system. Financial institutions just aren't lending, and without credit, there is little chance of growth. Part of this has to do with ravaged balance sheets due to mounting losses - the target of the TARP. Part of this has to do with the loss in confidence in several market making derivative and other financial instruments. And, a major part has to do with the uncertainties around people and companies' income potential and the consequential difficulty in developing appropriate lending criteria.
- Slowdown in the rest of the world: This is no longer just a US crisis. The rest of the world is slowing down. While a much smaller part of the US economy, the slowdown in the rest of the world could thwart attempts to kick start growth in the US.
Finally, let's clear up the confusion between the New Deal and Keynesian economics.
Although, Maynard Keynes did advise FDR he was neither the primary advisor to FDR nor the architect of the New Deal. Keynes inter alia advocated massive deficit spending and government intervention to ensure full employment as a means of reversing the depression. As this brief history of the New Deal in Wikipedia suggests, FDR didn't exactly do that. In fact, the US was very conservative in its approach and even tried to return to balanced budgets in the mid-1930s, with disastrous consequences. It is true that many of the structures that regulate today's economy were set up or restructured during the New Deal. However, as an example of Keynesian economics, the New Deal provides at best mixed data that can be sampled to buttress claims by both sides of the argument. The equivalence of the New Deal with Keynesian economics therefore is somewhat misguided.
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