25/07/2011

Economic Hubris

Newspaper headlines are filled with dire warnings about the economic situation of much of the Western world. Greece, Ireland, Spain and Portugal are supposed to be on the verge of bankruptcy, threatening the very existence of the Euro, supposedly one of the great accomplishments of the post-World War II era. The United States' deficit and debt continue to spiral out of control, and the members of Congress cannot agree with the President on a plan to cut spending and raise revenue or to do something about recurring 9% official unemployment.

What is a non-economist to make of this situation? On the level of emotions, one is angry, sympathizing with the people in the streets in Athens and Madrid who are unemployed, with no financial future in sight, and asking why the people of the United States are not in the street as well. While the rich have gotten richer, the number of poor continues to grow and the middle class seems to be disappearing.

Intellectually, one is puzzled about how the dismal science of economics has gotten so far with such little results. At the same time more and more students flock to get PhDs in economics at MIT and Chicago, others are flooding MBA programs to learn the basics of an academic discipline that seems to be failing. If they are so smart, why are we getting poorer?

On a personal level, I have decided to try to put my own finances in order, seeing my remaining dollars are losing value as quickly as Republicans continue to want to lower taxes while maintaining spending for defense. Seeing that the "banks too big to fail" consider me "too small to care for," I have sought a financial advisor. My new financial advisor has a PhD in economics, but seems different from the other economics wizards. Her first question to me was: "How much do you earn and how much do you spend?"

This, to paraphrase the great line at the end of the movie Casablanca, could be the beginning of a beautiful relationship because I understand the concept. When she tells me that I shouldn't have Euros or dollars because what we are seeing is a subprime debacle on the state level, I can understand that as well based on the simple equilibrium of what goes out should equal what comes in. I was a true skeptic of voodoo economics in Reagan years, and still continue to wonder at how people and governments can spend more than they earn. Not to brag, but I have never been in debt, and shirk at the very concept of deficit spending; it doesn't make sense, and it doesn't seem to work.

Greece has been saved for the moment. The Euro continues to exist. But does anyone really believe that the debts will ever be paid back? Much literature today talks about the rise of China and its threat to the liberal post World War II American order. China, they tell us, is our enemy. I'm not so sure. It seems to me that we are our own worst enemies, and I will continue to ask simple questions of the economists until they start to give reasonable answers, or until they begin to show that they really do know more than I do. For the moment, my financial advisor makes more sense than Summers, Geithner and all the rest combined. I have seen their future, and it doesn't work.

 

July 25, 2011

 

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