Sunday, April 1, 2012
Those were the hours I spent reading Lost Decades, by Menzie Chinn and Jeff Frieden. I had high hopes for this book because of the obvious skills of its authors, and I was scouting it out as a possible text for my class on the financial crisis next fall.
Not a chance.
Over the first several chapters I drifted toward a “mixed bag” appraisal: their explanation of economic and financial developments is exceptionally lucid, the sort of relaxed clarity that reflects a well-stocked storehouse of surplus understanding, so you can say just a bit of what you actually know. On the other hand, there were lots of warning signs: an attraction to the mystical view (sometimes called immaculate transmission) by which failure of a country to save enough “sucks in” imports, a tendency to downplay the dark side of the Clinton years and load nearly all the blame on Bush the Younger, etc. I could point to other, more technical problems, but these would not normally sink an assigned reading.
Then I came to Chapter 6, “Economy in Shock”, and the shock was all mine. Here Chinn and Frieden want to describe the state of the US economy and the challenges that need to be faced, but all they can do is recycle the pseudo-analysis of Very Serious discourse. Examples:
1. The authors treat current political constraints as simple facts of nature, exogenous constraints on what reasonable people should advocate or try to accomplish. After all, the Republican Party is. Grover Norquist is. The domination of US politics by giant wads of cash, a lot of it emanating from the financial sector, is. If these gunners can shoot down an idea, there’s no point in even thinking it.
2. They claim that America is headed for a fiscal precipice due to entitlement programs, and then lump together Medicare, Medicaid and Social Security. Why, in a couple of decades, they say, every penny of government spending will go to the out-of-control welfare state unless we make the “hard choices” to raise taxes and cut benefits. This is nakedly dishonest, of course: such projections are based almost entirely on extrapolations of relative medical cost inflation, and since the government foots the majority of the medical bill, that’s what the problem is. It has nothing to do with “entitlements”: we’d go broke no matter who pays for it. And this is not the only dishonesty; they traffic in the cynical game of proclaiming the astronomic cost of social programs (in the trillions, gasp) over a 75 year time horizon, with no denominator—like, to suggest one modest candidate, the corresponding 75 year cumulative GDP. To me, that’s like wearing a sign that says “Don’t trust a word I say.”
3. Astonishingly, the authors make elementary economics mistakes in the service of ideology. Fiscal deficits, they say, will put us at the mercy of foreigners, who will be the ones to lend to us. Um, no. The share of US debt (public and private) held by foreigners is entirely a function of our current account deficits. And in fact it’s the external deficits, more than the balance between public and private accounts, that constitute the real menace. Fiscal hawkery is essentially about fighting the wrong war.
4. There’s also absurd boilerplate about how fiscal deficits over the next decade or two will enchain future generations, who will have to pay them off. On the contrary, my fearless prediction is that future generations will have the same burden of paying off this generation’s deficits as we do the deficits of our parents and grandparents. (We have to attend to our fiscal space, of course, but that’s a different argument.) The moment I decided to put the book down was when I read “Excessive borrowing now means that our descendants inherit a smaller capital stock and a smaller economy.” There is wriggle room with this word “excessive”, but the basic idea is shot through with confusion. It all depends on what we borrow for, right? I mean, under normal conditions people borrow to accumulate capital, physical and human. A sentence like this makes it harder to think intelligently, which is not what I’m looking for in a book to put in front of students.
So what do you do when you realize you have made a bad investment in scarce reading time? I decided to cut my losses, put down the zombie book, and switch over (in this case) to a nice treatise on insects.