I have been writing this blog going on three years. During that time I have tried to emphasize that there is a real difference between good economics and good politics. Truth be told, they are enemies of one another, at least in the short-term.
Now comes this intriguing quote from American Elephants (and Paul Ryan) that emphasizes this conflict:
“What if your President, your Senator and your Congressman knew a crisis was coming? What if they knew why it was happening? What if they knew what they needed to do to stop it from happening? What if they had the time to stop it? And what if they chose to do nothing about it…because they thought it wasn’t good politics?
“What would you think of that person?”
These words of Budget Committee Chairman Paul Ryan are something we really need to take to heart.
John Maynard Keynes, the activist politician’s favorite economist, answered an objection to one of his policies with “in the long run we are all dead.” Mr. Keynes could not defend this particular policy in terms of the long run and shifted the debate to the short run. This conflict between short and long term embodies the conflict between politicians and economists. Good politicians are focused on the short-term which in their world extends out to the next election. Good economists are focused on the long-term effects of an action not what may be perceived in the short term. For whatever reasons, perceived economic effects in the short term tend to be just the opposite of their real long-term effects.
Keyne’s focused on the short run. Both his brand of economics and his participation in affairs of state showed him to be more politician than economist. His belief that government intervention was necessary for economic equilibrium at a satisfactory level enabled government to justify expanding control over economic matters. The need to manage the economy were just what the political class wanted to hear and provided the opportunity to greatly expand their spending and power.
History has shown Keynes to be a better politician than economist. To be fair, we don’t know that all the economic errors committed in his name would have been condoned by him had he lived long enough to see them.
People outside of Washington are beginning to recognize the seriousness of the problem. From American Elephants:
Last week Indiana’s Republican Governor Mitch Daniels said that the size of the U.S. national debt and the rate at which the debt is accumulating will lead the United States to “ruin” — and no other outcome is mathematically possible.
“Whether one believes in a large, very active government or something more limited, mathematically, the amount of debt we already have and the terrifying rate at which it is accumulating will lead to national ruin.”
For seven decades the Keynesian paradigm has been the paradigm of choice for the political class and for much of the economics profession. As a result of political abuse and misuse, we have the current economic crisis. Sadly, the political intervention in the economy which got us here cannot get us out. No politician is willing to admit the mistakes. Nor are they about to tell the American people that the best thing that can be done now is to take our medicine. It is virtually impossible for them to admit that the solution is to do nothing and let markets purge themselves of the distortions and misallocations that plague the economy.
Whether our political class understands this reality is irrelevant. There is no other way to escape the mess they have created other than a “hands-off” policy accompanied by massive cut-backs in the size of most government programs. To solve the problem requires the admission that most beliefs regarding government and its role in the economy were false. Implementation of benign neglect and cut-backs starts the healing process for the economy. Unfortunately, it diminishes the role of the political class. That is why it will never happen.
We live in times made much more interesting than necessary as a result of a government that is out of control and, for practical purposes, unaccountable to anyone.