Professor Krugman highlights something we should probably start getting into:
Mark Thoma and Brad DeLong are right: this is a crime by the Washington Post against its readers. The understanding that Say’s Law doesn’t work in the short run — that a fall in consumption doesn’t automatically translate into a rise in investment, but can lead to a fall in output and employment instead — is the central insight of Keynes’s General Theory. (My introduction to the new edition is here.) And we’re having a serious debate about economic policy that hinges on that insight.
The propaganda in question can be found here.
Beyond the pathetic attempts to rehabilitate Says Law, this article is a part of a larger, coordinated effort to stave off the public making the obvious connection between efforts to deregulate financial markets and disable regulatory agencies by conservatives in the last 28 years and the financial mess we are in. An effort, as we can see, that has been largely successful.
David Brooks offers his contribution to this effort here:
There is roughly a 100 percent chance that we’re going to spend much of this year talking about the subprime mortgage crisis, the financial markets and the worsening economy. The only question is which narrative is going to prevail, the Greed Narrative or the Ecology Narrative.The Greed Narrative goes something like this: The financial markets are dominated by absurdly overpaid zillionaires. They invent complex financial instruments, like globally securitized subprime mortgages that few really understand. They dump these things onto the unsuspecting, sending destabilizing waves of money sloshing around the globe. Economies melt down. Regular people lose jobs and savings. Meanwhile, the financial insiders still get their obscene bonuses, rain or shine.The morality of the Greed Narrative is straightforward. A small number of predators destabilize the economy and reap big bonuses. The financial system is fundamentally broken. Government should step in and control the malefactors of great wealth.The Ecology Narrative is different. It starts with the premise that investors and borrowers cooperate and compete in a complex ecosystem. Everyone seeks wealth while minimizing risk. As Jim Manzi, a software entrepreneur who specializes in applied artificial intelligence, has noted, the chief tension in this ecosystem is between innovation and uncertainty. We could live in a safer world, but we’d have to forswear creativity.
Did you catch the logical fallacy? Are those REALLY our only options Mr. Brooks? Nice touch using the Software Engineer, that symbol of the "New Economy". So requiring actors in the financial markets to obey the law and not lie, cheat, and steal is "foreswearing creativity"? This is great news for the "entrepeneurs" in the heroion and cocaine distribution industries. They aren't criminals, they are creative elements increasing the wealth in a market free from the stifling influence of goverment regulation.
See what a fun game this is? We just lard up our sentences with words like "creativity", "innovation", "liberty", and then lob a phonecall to a libertarian nutwad in Silicon Valley or some other bastion of the free market,(We ALL KNOW of course that no Federal Dollars were involved in the founding of the industries in Silicon valley. NO sir.) Then WHAMMO! Capitalism is saved from the unemployed savages who just got their house foreclosed on.
This isn't just about pimping for the usual suspects in the GOP to save them some face. This is about defending an extreme ideology that brooks no interference from anyone in the looting and exploitation of American citizens. The loans and financial instruments causing the ruckus on the Street were for the most part beyond the scope of existing regulation, if not also the understanding of regulators and market players alike. The Federal Reserve had the authority to issue regulations and enforce them on the subprime market, but declined to do so. I suppose reasons for that may vary, but in the opinion of this Mojowire editor, it probably is due to the fact the previous Fed Chairman was barely disguised Randite who eagerly pushed this ideology of unrestrained markets on us while goosing the economy for a GOP President.
The ultimate fallacy here is that we are in some new finacial Utopia where the old problems identified by Keynes and addressed by the New Deal's financial reforms were magically wished away. If you allow finnacial markets to self regulate, you will end up with a morass of cheating and greed followed by a meltdown. And amusingly enough, while our Conservative friends despise the regulatory efforts of the old regime, the guarantor part of those reforms they still get a Hardon for. So you can bet they will be right behind efforts to bail out these companies, all the while smugly lecturing you and I about how those lowlifes don't deserve extended unemployment benefits and expanded food stamps. And they will get space in our newspapers and airtime on television to pimp this magical mystery tour to their hearts content.
I'm not arguing for a return of the New Deal. The economy is vastly different from those days. What I am arguing here is that the basic premise, that banking and finacial markets require some measure of regulation and enforcement by government to ensure a measure of crediblity and transparency. The level of that is negotiable, and it was in that spirit deregulation was supposed to occur. (Or maybe not) What the Brooks of the world want is the repudiation of that idea, and to resurrect the carcass of late 19th and early 20 century economics that we left behind for very good reasons. And they cannot allow that ideology to take the fall for this trainwreck unfolding before our eyes. So we get columns about Says Law and the ecology narrative.
I eagerly await the conservative argument that this is the fault of gay muslim illegal immigrants who all attended the Madrassas that infamous Muslim Barak Obama went to. Hillary Clinton probably passed out condoms at that school while Bill sold them coke and banged the school nurse. You know its coming to a viral email near you....