What Passes for Economic "Wisdom" Today

Here is a post by Paul Krugman on his NY Times blog that lays out the facts as clearly as you could ever want. And of course the politicians and political pundits -- and Obama! -- ignore these facts and continue to guide US policy in the wrong direction:

Herbert Hoover Was Hooveresque

Brad DeLong leads us to Herbert Hoover opposing what was, in effect, a mild fiscal stimulus in the form of early payment of veterans’ bonuses.

It cannot be borrowed without impairment of the credit of the National Government and thus destroy that confidence upon which our whole system depends. It is unthinkable that the Government of the United States should resort to the printing press and the issuance of fiat currency as provided in the bill which passed the House at the last session of Congress under the leadership of the Democratic vice presidential candidate. Such an act of moral bankruptcy would depreciate and might ultimately destroy the value of every dollar in the United States.

This should (but won’t) dispel the myth that Hoover was some kind of proto-Keynesian. But look,also, at how closely Hoover’s line of argument follows that of Very Serious People today. Running up debt would cause a collapse of confidence — except that under FDR the US ran up vastly more debt, with no bond vigilantes ever making an appearance:

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And great fear of destroying the value of the dollar, in the midst of an epic deflation that had raised the purchasing power of a dollar almost 50 percent:

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Luckily, we’ve learned from all that, and nobody would fall into similar fallacies today — except, of course, everyone with actual influence on policy.

As a kid I always wondered how countries could make disastrous choices like Germany under Hitler trying to conquer the world or Paraguay trying to simultaneously defeat Brazil, Argentina, and Uruguay in the War of the Triple Alliance. From Wikipedia, the consequences of this political idiocy:

The specific numbers of casualties are hotly disputed. It has been estimated that 300,000 Paraguayans, mostly civilians, died. It has also been written that up to 90% of the male population may have been killed, though this figure is without support. According to one numerical estimate, the prewar population was approximately 525,000 Paraguayans (14 estimates went from 300,000 to 1,337,000... A 1871 census gave 221,079 inhabitants in 1871, of which 106,254 were female, 86,079 were children with no indication of sex or upper age limit and 28,746 were male. These figures, considering the local situation, cannot be more than a very rough estimate; many men and boys fled during the war to the countryside and forests. As such, accurate casualty numbers may never be determined.

Over my lifetime I've seen the insanity of the McCarthy era, watched the 1960s rise of crazy left wing "revolutionary" movements (Maoists, SDS, etc.), the hippie movement of the late 1960s, the insanity of the "self actualization" and "back to the earth" and doomsday "limits to growth" in the 1970s, the efflorescence of greed and idolization of the rich in the 1980s, the right wing militia groups and survivalists and global warming crowd of the 1990s, the get rich quick real estate schemes of the 2000s, and the full flowering of the Republican social conservatism and Tea Party peaking now. All of these claimed some sense of being "serious" movements but were fundamentally all crazy extremists. It is sad to see that Obama is part of today's "austerity mania" that fundamentally misunderstands the difference between a Fed rate tightening recession from a financial panic and credit contraction recession. Sadly, a generation will pay the price of this lunacy at the political top in the US.

The fundamental problem is that a ruling clique walls itself off from outside advice and opinion. They make disastrous choices without understanding the ramifications. That is the problem with Obama's economics.