As we all know President-Elect Obama spoke at GMU yesterday to lay out his plan for the economy. Alex actually got to go and was pleasantly surprised. Russ wonders about the long line of politicians with their hands out for funds that was on display.
Alex has argued that relative to the New Deal, Obama seemed sensible. I respect Alex tremendously and consider him one of the bright spots not only on our faculty, but in the world of economics. But I am not so sure that we were listening to the same speech.
I didn't attend, but instead sat at home and watched every word. I was struck by how in the name of pragmaticism, our President-Elect is going to engage in a wreckless fiscal policy and a renewed regulatory regime. Alex argued that there is no regime uncertainty looming with Obama, I agree only to the extent that uncertainty is eliminated because the regime we are headed toward without doubt is wreckless statism at unheard of levels. Obama was explicit about this.
1. The era of wait for market correction is OVER.
2. Supposedly we have already seen the failure of a wait and see approach.
3. While he will welcome open debate, we need to move swiftly to pursue his plan.
4. He will spend more federal money in the first 100 days of his administration than we have ever seen.
5. But somehow all this federal spending will be consistent with signaling to the world that we have gotten our fiscal house in order.
6. We need new regulations for the 21st century economy (against the old dogma of market self-correction must be rejected)
7. We need to make government better, not smaller.
8. We will spend all this money on worthy projects (namely public projects) that we (meaning me and my team) deem worthy --- education is one of those; infrastructure is another; health is another. (Please note the relevance of Russ's interpretation here)
9. Throwing money at the problem isn't the answer, investing is (but what the difference is, is not clear)
10. Finally, I am DEADLY serious about this and unless you listen to me and throw off the "old dogma" that got us here in the first place (by which he means the free market ideology that supposedly has dominated Washington for the past 8 years) our economy will sink into a crisis we will never be able to escape from. Every moment we wait, individuals are losing their jobs.
The speech was important for Obama because he is setting expectations. Don't blame his administration for the economic situation and don't even blame his administration for the economic situation 3 years from now because the situation is that dire caused by the "do nothingism" philosophy of old ideas on the economy and government. Government must be an active player in the economy, and seen as the corrective to our social ills. We have sunk into such a deep hole, in fact, that ONLY government can get us out. If our economic situation is anything other than grave in the coming years it will be because of the bold and pro-active steps his administration will have taken. All praise go to the articulate and intelligent leader. Who, let me remind you, is pragmatic and open to discussion, but you better get onboard quickly with these policy initiatives or we are going to be in a living hell.
I really don't see how as an economist in the tradition of Adam Smith, JB Say, L. Mises, F.A. Hayek, Milton Friedman, and James Buchanan can see ANYTHING positive in Obama's speech. That it was delivered at GMU is as ironic as it is disturbing.
But rather than wallow in despair, as economic educators lets take this as inspiration that our work is cut out for us. First, we have to remember what Knight argued --- "To say a situation is hopeless, is to say it is ideal." We are far from the ideal, so it is not hopeless. We can through our efforts as educators (to our students, to our peers, and to the general public) provide a different way of thinking about these issues yet again. We have to speak eloquently, write effectively, and be relentless in our pursuit of truth. If we do that, and do that everyday, we will be fighting the good fight against popular economic fallacies. These are dark days for economists, but certainly no darker than the times faced in the 1930s-1940s. Time to really go to work. Second, lets not be bashful in our perspective, but we have to avoid being silly with it. For the scholar/teacher, now is not the time to scream and stomp your feet. Instead, now is the time to produce even more logically rigorous and careful empirical argument to challenge each of the 10 points listed above. We have to be more sophisticated in our argument, not less. More dedicated as teachers of the economc way of thinking than we have been. Bastiat once said something along the lines of "Never fear a harsh critique, but always fear a weak defense of your position." The stakes are very high, and the urge is to scream and yell at the collective insanity. Resist this temptation for quick satisfaction and instead take a longer term perspective. Use Mises's critique of socialism in the 1920s as your inspiration. Mises didn't scoff at, nor did he scream at, the socialist policy proposals that were being debated around him not only among academics, but in practical public policy after WWI in Red Vienna. Instead, he analyzed them logically and dispassionately and demonstrated their fatal flaw. Or look at Hayek's The Road to Serfdom as the exemplarly work for dire times for the economist.* Hayek as the "endogenous public choice theorist" changed the course of human history in the second half of the 20th century. Ideas do have consequences, and economic scholar/teachers can, and do, make a difference.
Time to roll up the sleeves and get to work.
*BTW, economics means something other than what economists do. As Lord Acton once put it, it is those who sit in the seat of Adam Smith that deserve our attention.