By Peter Walsh
“But the trouble continued to spread over the country, and there were reports of big concerns, and even banks, in trouble.” — Upton Sinclair, Oil! (1927)
No doubt there are still those who think economics is a dull, plodding technical field, akin to accounting, which pale men in green eyeshades practice somewhere in the back rooms of banks and business schools. They’re missing the best part of the story.
In the U.S., economics is a long-running mini-series, an Upstairs, Downstairs class epic, a battle of titans in which heroes and villains trade places and the plot is a constant series of unexpected twists and turns.
Like any good novel, American economics is all about narrative. It needs enough facts to make it credible but enough fiction to keep you turning the pages.
Take a look at the bookshelf. There’s genial Adam Smith, with his Panglossian tales of unregulated Capitalism as the Best of Possible Worlds. There, the free market’s “invisible hand” gently corrects fools and richly rewards the wise. In Wealth of Nations, Smith’s economic romance, the sin of greed is really a virtue, self-interest is enlightened, and even bankruptcy has a silver lining.
Then there is glowering Karl Marx. In his noir script, Capitalism is a monster, devouring its children. Das Kapital is his Götterdämmerung of wealth. Evil Capitalists, bolstered by a corrupt and tyrannical Bourgeois State, crush the burgeoning and increasingly destitute proletariat beneath them.
At the eleventh hour, the Blue Meanies grow too few and too bloated to escape the trap they’ve made for themselves. At the sound of the proletariat’s trumpet, the whole system comes crashing down, freeing the masses to a new dawn as the state withers away. And the workers live happily ever after.
In the 1930s, John Maynard Keynes took the stage as a numbers-crunching Mr. Spock, coolly and calmly smoothing away the ups and downs of industrial capitalism. His General Theory lays out a primrose path through the Sisyphean vale of boom and bust, carefully plotting a middle way between Smith’s Land of Laissez-Faire and Lenin’s Worker’s Paradise. In the Keynes’s Leave it to Beaver scenario, a contented Middle Class with all the latest consumer goods is watched over by a wise and benevolent bureaucracy, elected by a fully certified, democratic system. Ah, that series was fun while it lasted.
John Maynard Keynes came up with the Leave it to Beaver scenario
Around 1980, there was a new guy in town. Supply side economics guru Arthur Laffer (remember him?) took a meeting with Dick Cheney and Donald Rumsfeld and sketched out his famous “Laffer curve” on a napkin. In essence, the curve suggested that you could cut taxes to the point where the government actually had more money to play with than before. Meanwhile, the rich will not only get richer, they’ll hand out the keys to the club. Be nice to Donald Trump and he’ll let you be his Apprentice.
Laffer’s curve was a big crowd pleaser, though some suggested there was some free hand involved in how he drew it. He became the darling of tax revolts like California’s Proposition 13 and a neo-con icon.
Arthur Laffer all the way to the bank
Problem was, the Laffer curve never did pan out in the real world. Cut taxes without cutting spending and what you got was, well,—- mostly bigger and bigger deficits.
To balance the budget, you raised taxes or cut spending. That worked in the real world but, somehow, was the wrong ending for the neo-Con mis-en-scène. Besides, if you needed more cash for, say, a war or two, there was always the Chinese Visa card.
You may have thought the Duke of Delusion had faded foggily into the sunset with Ronald Reagan. Far from it. After all, his old drinking buddies from the 1980s turned into the new Bush Administration. Here is Laffer just three years ago, writing in the Wall Street Journal:
“Just because the United States has its largest trade deficit ever doesn’t mean that we’re living beyond our means. Far from it. In fact, the characterization of the U.S. as a land of chronic overspenders, hellbent on selling themselves into global servitude doesn’t make sense at all….”
“Our trade deficit is not a sign of a structural flaw in the fabric of the U.S. economy but is instead a stark reminder of our privileged status as the most pro-growth, free market, rule of law economy the world has ever known….”
“As far as I can tell, the decline in the dollar is about over; soon we will see the U.S. capital surplus falling back to more normal levels. When a global economic system works as well as ours does, we should just leave it alone.”
Yes, yes. It’s the same old story.
In his 2007 book, though, The Conscience of a Liberal, Princeton economist and New York Times columnist Paul Krugman introduced a new literary trope to the economic narrative: nostalgia. There had been a “golden age of economic equality” in America, he said. Now we are lost somewhere on a desert island of contention. Can we find a way back to the Cottage of Contentment? Tune in to the next episode of American Democracy.
Then, last summer, the economic epic morphed into something far less pleasant— a kind of a bad science fiction-horror flick filled with nauseating special effects. Some unseen conspiracy of alien beings sucks the blood out of things we know are really excellent, failsafe investments— houses, mortgage-backed securities, huge investment banks. Check on your familiar assets and, horrors, you find only papery husks left behind. What’s going on? Can they be stopped? Where will they strike next?
That old anti-romantic, Gustave Flaubert, was always warning against the dangers of novels, even as he wrote them. Truth to tell, though, his masterpiece, Madame Bovary, is no love story or rags-to-riches epic. It’s about a provincial, middle class woman who, besotted with fiction-induced delusions of grandeur, is seduced by a smooth-talking aristocrat, tries to buy love from a lawyer, deceives her husband, lives beyond her means, goes bankrupt, kills herself.
Too bad he wasn’t an economist.