File under: “Every brilliant, original thought or formulation that you think you’ve come up with has probably been thought of before, and probably by a Nobel laureate.”
Nanute points us to:
15 Fatal Fallacies of Financial Fundamentalism. William Vickrey, 1996.
Here are the first three paragraphs. As they say in the trade, read the whole thing.
Much of the conventional economic wisdom prevailing in financial circles, largely subscribed to as a basis for governmental policy, and widely accepted by the media and the public, is based on incomplete analysis, contrafactual assumptions, and false analogy. For instance, encouragement to saving is advocated without attention to the fact that for most people encouraging saving is equivalent to discouraging consumption and reducing market demand, and a purchase by a consumer or a government is also income to vendors and suppliers, and government debt is also an asset. Equally fallacious are implications that what is possible or desirable for individuals one at a time will be equally possible or desirable for all who might wish to do so or for the economy as a whole.
And often analysis seems to be based on the assumption that future economic output is almost entirely determined by inexorable economic forces independently of government policy so that devoting more resources to one use inevitably detracts from availability for another. This might be justifiable in an economy at chock-full employment, or it might be validated in a sense by postulating that the Federal Reserve Board will pursue and succeed in a policy of holding unemployment strictly to a fixed “non-inflation-accelerating” or “natural” rate. But under current conditions such success is neither likely nor desirable.
Some of the fallacies that result from such modes of thought are as follows. Taken together their acceptance is leading to policies that at best are keeping us in the economic doldrums with overall unemployment rates stuck in the 5 to 6 percent range. This is bad enough merely in terms of the loss of 10 to 15 percent of our potential production, even if shared equitably, but when it translates into unemployment of 10, 20, and 40 percent among disadvantaged groups, the further damages in terms of poverty, family breakup, school truancy and dropout, illegitimacy, drug use, and crime become serious indeed. And should the implied policies be fully carried out in terms of a “balanced budget,” we could well be in for a serious depression.
Comments
5 responses to “15 Fatal Fallacies of Financial Fundamentalism”
Well, this is a pleasant surprise. Thank you. The thing that strikes me about Vickrey’s ” Five F’s”, is that they are no less relevant today, than when published in 96′. As you say, “read the whole thing.”
Bill Vickrey was a first round pick, a good man who wished to use his genius to improve the lives of others instead enriching a hedge fund (and himself).
“Making the Most of Real Resources Rather Than Conforming to Financial Rectitude
This then is the goal I lay before you. Real full employment, at levels higher than have been experienced in peace-time over at least the last century, is to be reached within two or three years and maintained thereafter, with magnificent results not only in increased output and income, but reduced poverty, iII-health, drug abuse, crime, and commitment to the maintenance of a useless military superfluity. But to do this we have to toss out our shibboleths of budget balancing, puritanical abstinence, maintaining the value of the almighty dollar and servicing a “favorable” balance of trade, and instead focus our attention on the real resources, human and material, that we have on hand and figure out how to use them effectively to produce real welfare…”
http://findarticles.com/p/articles/mi_qa5461/is_n2_v37/ai_n28633195/?tag=content;col1
@beowulf
Thanks for the link. I hadn’t seen this before. This seems to be the precursor to the Fifteen Fatal Fallacies….
What I find interesting about the fallacies, is that when they were pursued in full vigor during the Clinton years; the economy grew enormously and the unemployment sunk to a post war low. Go figure.
@Jardinero1
“the fallacies, is that when they were pursued in full vigor during the Clinton years; the economy grew enormously and the unemployment sunk to a post war low. ”
1. I’m not at all sure it’s accurate to say that they were pursued in full during the Clinton admin. Taxes were raised after all, and just for starters.
2. I’m always tempted to cherry-pick the Clinton years, with the tax increases and strong growth, and sneer nyah nyah nyah. And they do certainly give some evidence (among much other similar evidence) that tax increases do not lead to the end of the world as we know it, as today’s ‘pubs would have you believe.
But really, it’s just a short period, and short periods are subject to many winds of change. I don’t give Reagan all that much credit for the boom coming out of the ’82 recession, nor do I give Clinton much credit for the Internet boom.
I find it much more convincing when I look at analyses spanning many decades — since ’29, or postwar — and find that over those longer periods that allow the short-term swings to average out, periods when progressive policies were in effect — policies that adhere more to Vickrey’s philosophy — have been periods with considerably faster economic growth, by almost any measure.