Modern Magical Thinking

You have to be really powerful to cling to magical thinking and get away with it. Medieval doctors with their leeches succeeded for hundreds of years. Politicians and right wing economists have ignored all the evidence about economies since the Industrial Revolution began and use magical thinking about "confidence" and getting evils like "deficits" under control as the modern magic of economic growth.

Here is the opening bit of a NY Times op-ed in which Paul Krugman lays out the idiocy of modern magical thinking by politicians and self-appointed "experts" on the economy:

Doctors used to believe that by draining a patient’s blood they could purge the evil “humors” that were thought to cause disease. In reality, of course, all their bloodletting did was make the patient weaker, and more likely to succumb.

Fortunately, physicians no longer believe that bleeding the sick will make them healthy. Unfortunately, many of the makers of economic policy still do. And economic bloodletting isn’t just inflicting vast pain; it’s starting to undermine our long-run growth prospects.

Some background: For the past year and a half, policy discourse in both Europe and the United States has been dominated by calls for fiscal austerity. By slashing spending and reducing deficits, we were told, nations could restore confidence and drive economic revival.

And the austerity has been real. In Europe, troubled nations like Greece and Ireland have imposed savage cuts, even as stronger nations have imposed milder austerity programs of their own. In the United States, the modest federal stimulus of 2009 has faded out, while state and local governments have slashed their budgets, so that over all we’ve had a de facto move toward austerity not so different from Europe’s.

Strange to say, however, confidence hasn’t surged. Somehow, businesses and consumers seem much more concerned about the lack of customers and jobs, respectively, than they are reassured by the fiscal righteousness of their governments. And growth seems to be stalling, while unemployment remains disastrously high on both sides of the Atlantic.

Read the whole article and weep. These modern day Andrew W. Mellon's still howl for blood:

…liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate… it will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.

Here is Paul Krugman's summary of the current situation:

What we really need, however, is to convince a substantial number of people with political power or influence that they’ve spent the last year and a half going in exactly the wrong direction, and that they need to make a U-turn.

It’s not going to be easy. But until that U-turn happens, the bleeding — which is making our economy weaker now, and undermining its future at the same time — will continue.

Obama could start by firing Timothy Geithner and get busy filling the empty positions in the Federal Reserve with people who live in the 21st century and not in the 19th century.