National Affairs: Bogeyman Economics
This is a very lengthy article that is well worth reading. I'm just presenting the opening and the conclusion here. In short, to quote a former US President from eighty years ago, "… let me assert my firm belief that the only thing we have to fear is fear itself—nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance." FDR
Whether or not you agree with all the author's analysis, I do think it is wise for us to reflect from time to time on our own characterization of things, on our tendency to manufacture bogeymen on which we can project our fear, on our temptation to use fear as a means of political gain.
In this moment of economic challenge, it can be difficult to keep our problems in perspective. The scale of the financial crisis and the subsequent recession, the weakness of the recovery, the persistence of high unemployment, and the possibility of yet another shock — this time originating in Europe — have left Americans feeling deeply insecure about their economic prospects.
Unfortunately, too many politicians, activists, analysts, and journalists (largely, but not exclusively, on the left) seem determined to feed that insecurity in order to advance an economic agenda badly suited to our actual circumstances. They argue not that a financial crisis pulled the rug out from under our enviably comfortable lives, but rather that our lives were not all that comfortable to begin with. A signal feature of our economy in recent decades, they contend, has been pervasive economic risk — a function not of the ups and downs of the business cycle, but of the very structure of our economic system. According to this view, no American is immune to dreadful economic calamities like income loss, chronic joblessness, unaffordable medical bills, inadequate retirement savings, or crippling debt. Most of us — "the 99%," to borrow the slogan of the Occupy Wall Street protestors — cannot escape the insecurity fomented by an economy geared to the needs of the wealthy few. Misery is not a marginal risk on the horizon: It is an ever-present danger, and was even before the recession.
But compelling though this narrative may be to headline writers, it is fundamentally wrong as a description of America's economy both before and after the recession. When analyzed correctly, the available data belie the notions that this degree of economic risk pervades American life and that our circumstances today are significantly more precarious than they were in the past. Even as we slog through what are likely to be years of lower-than-normal growth and higher-than-normal unemployment, most Americans will be only marginally worse off than they were in past downturns.
The story of pervasive and overwhelming risk is not just inaccurate, it is dangerous to our actual economic prospects. This systematic exaggeration of our economic insecurity saps the confidence of consumers, businesses, and investors — hindering an already sluggish recovery from the Great Recession. It also leads to misdirected policies that are too zealous and too broad, overextending our political and economic systems. The result is that it has become much more difficult to solve the specific problems that do cry out for resolution, and to help those Americans who really have fallen behind.
Only by moving beyond this misleading exaggeration, carefully reviewing the realities of economic risk in America, and restoring a sense of calm and perspective to our approach to economic policymaking can we find constructive solutions to our real economic problems. …
And the conclusion:
POLITICS BY HORROR STORY
Because we have yet to crawl out of the worst downturn since the Great Depression, many Americans are willing to believe every negative description of our economic circumstances, no matter how inflated. But it is important to remember that the economic doomsayers did not originate with the recession. They were active in the 1980s, claiming that de-industrialization would be the death knell of the middle class and that Germany and Japan were destined to leave us in the dust. Their claims were prevalent through most of the 1990s, when outsourcing was said to foreshadow disaster for American workers in the midst of a "white-collar recession" (which subsequent research showed had not hit professionals nearly as hard as popular accounts suggested). And the gloom was apparent in the pre-recession 2000s, in all the talk of jobless recoveries, "stagnating" living standards, and families running to stand still.
The unfortunate irony is that, in proclaiming economic doom, these Cassandras may do more to harm the truly disadvantaged than to help them. Economist Benjamin Friedman and sociologist William Julius Wilson have independently argued that societies are more generous to those in need when economic times are good. It is not clear why convincing the broad middle class that it is teetering on the brink should be more likely to inspire solidarity than to inspire tight-fistedness and hoarding.
The horror stories harm workers in other ways as well. In good times, scaring workers may make them less willing to demand more from their employers in the way of compensation or better working conditions. Former Federal Reserve chairman Alan Greenspan famously cited job insecurity as a primary reason for low inflation (and therefore low wage growth) in the late 1990s; on the left, former labor secretary and American Prospect co-founder Robert Reich concurred.
In bad times, meanwhile, scaring workers (as well as consumers, investors, and entrepreneurs) only delays recovery. Digging out of our current hole will require businesses to create jobs, which will happen only when consumers start feeling comfortable enough to spend money again and when investors start feeling comfortable enough to take risks again. We do not have to whitewash the seriousness of economic conditions to talk more hopefully (and accurately) about the enduring strengths of our economy.
Exaggerating economic problems has political costs, too. It is hard to read Confidence Men, journalist Ron Suskind's recent account of the first two years of economic policymaking in the Obama administration, without concluding that health-care reform distracted the president and his advisors from thinking about how to shore up the flagging economy. Even now, the huge political lift — and fiscal cost — of the Affordable Care Act has made it vastly more difficult to enact policies truly capable of fostering economic growth.
Such effective economic policies and reforms will need to build on our economy's strengths in order to address its weaknesses. By badly distorting our understanding of both, the bogeyman narrative adopted by too many analysts, activists, and politicians makes it more difficult to help those Americans who do face very real hardships and dangers. If we are to effectively confront the fiscal and economic challenges of the 21st century, we will need to begin by seeing things as they really are.
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