'Up Out of a Macro-Economic Dark Age'

Full post at Firedoglake here.

Paul Krugman has said we are living in a "Macroëconomic dark ages" where knowledge of the past is "being lost." Specifically he points out how long exploded fallacies are being offered up as deep scholarly truths. To be a classicist for a moment, there was, in fact, a Dark Ages during the Bronze Age when the Greeks lost their knowledge of writing. It was during this post-literate era that Homeric poetry came into being. It was part of a larger transition to the iron age. The fall of Rome hasn't been the only fall from light.

He repeated those points at the Thinking Big conference yesterday. Which featured a double barreled blast of the case for economic sanity. Highlights included Robert Borosage making a persuasive case that there is no going back to the "old economy" and Larry Mishel laying out how insecurity and broken labor markets have left us at the edge of the precipice. The idea that public good led to higher incomes was something known to "The New Liberalism" of the late 19th century, [not to mention] the 20th century.

There is empirical evidence from politics of how badly confused the American public is. While as much as 80% of the American public wants some kind of stimulus bill passed, the support for the stimulus bill being placed before them hovers in the mid-fifties. What makes this a sign of an economic dark age is the internals of that number. Only 51% of people in the Gallup poll thought a stimulus bill was "critically" important, and Rasmussen's tracking poll has support improving but at 44%, still below half of the American public. What's interesting is that 55% of Americans fear the bill is "too large." The reality is that the stimulus bill, as written right now, is almost certainly too small.

What is going on here is the "family budget fallacy." This is when people look at a national budget, and think as if it is their family budget. They think of family income, which they cannot do much to improve, and think that the country is the same way. Income rains down from someplace else, and if times are bad, the only thing to do is cut, cut, cut, and cut some more. However, this is exactly wrong. A country as a whole has a potential earning power; when output falls well below that number, borrowing to boost it back up increases the total income of the nation. The output that is created would not have happened otherwise. . . .