In your head, in your head,
Zombie, zombie, zombie,
Hey, hey, hey. What’s in your head,
In your head,
Zombie, zombie, zombie?
— The Cranberries
Jared Bernstein thinks that America is saddled with the crippling burden of poor economic policy promulgated by radical right wing free marketeers and venerators of the efficient market hypothesis.
The story of where we are is a story of the destructive ideas that guided us here. Bad ideas about how capitalism works–ideas that fail to describe how economies actually function–have combined with conservative politics to promote policies that stifle growth, redistribute what growth there is upward, skew our fiscal outlook, and handcuff our policy process.
The intellectual actions of these extreme free marketeers do not take place in a vacuum. They interact with a political structure comprised of lobbies and pseudo think-tanks to promote policies that, while wrapped in the cloak of promoting free markets, ultimately serve to redistribute growth to the top of the wealth scale. “Efficient market hypotheses” and “rational expectations”–the idea that absent government interference, market participants will make optimally efficient decisions–leads directly to supply-side tax cuts, deregulation of financial markets, the formation of financial bubbles, the acceptance of income stagnation, and disinvestment in public goods.
Who are these people? Jared Bernstein doesn’t say. And frankly, I’m skeptical that they even exist in the position of power Bernstein thinks they have penetrated.
There is a very strong contingent of market-oriented think tanks — actual ones, not “pseudo” ones. They are legitimate. I’m not even going to go into how demeaning it is to selectively call them “pseudo” while evading accountability by not naming names.
Many such lobbies and think tanks advocate strongly for deregulation on the assumption that current levels of regulation are distorting and damaging — not necessarily because all regulation is necessarily so.
The efficient market hypothesis, based on the theory of rational expectations, says absolutely nothing as far as I have ever learned about the government’s role in the economy. It says that the price mechanism incorporates all available information. If that expectation includes, say, a government bailout for a financial institution, then EMH is still a functional theory.
Supply-side tax cuts do not emanate, as far as I can tell, from ideas about the perfection of markets. They emanate from other classical ideas about the sources of GDP growth. These ideas did not believe in an upward sloping aggregate supply curve — rather they believed in a vertical one. Thus, increasing aggregate demand simply inflated price. The only way to increase output was to increase supply. These ideas may very well be wrong, but they are not contingent on thinking markets never fail. It’s even worth noting that Keynes didn’t even dispute this conception for the long-run — just not the short run.
And, who at the Fed and in the White House actually believes markets never fail? Or that EMH is always true? Bernstein gives us a dearth of names methinks for a reason. Ben Bernanke is a student of the Great Depression. Did his thesis try to substantiate that it was in fact not a market failure? Who at the Fed believes that the Fed shouldn’t exist? Even Milton Friedman was a monetarist, which is to say that while one of the most purely libertarian individuals of the modern age, he believed in monetary technocrats running the financial system. And necessarily, if you believe that the Fed should exist, you can’t truly believe in a liberated market. Does QE and QE2 signal that our economic policy has been hijacked? Really?
Maybe Bernstein is referring to the far right in Congress. We can’t tell because he doesn’t say. And while I think there are some elected officials with suspect economic ideas, I think it’s up for debate whether they (Ron Paul) actually have more than marginal influence on policy.
Eugene Fama isn’t the President. And the Mises Institute doesn’t get play outside of being juxtaposed with Paul’s incessant gold ranting. Whoever these free market zombies apparently are, I would love to hear names. Because if they and their influence are real, I would love to contemplate what their authority means.