Summary: A brief analysis of the latest doomster propaganda, using fear to promote the baseless recommendations of the Austerians. It’s another chapter of conservatives’ favorite story, Fear.
It’s fun to play with the minds of the American people, as we’ve become foolish and ignorant. Any nonsense will do; even economists can join the game. This example comes from Paul Craig Roberts, a bit of irony lost on most of its readers. Sometimes called the creator of Reaganomics, as Assistant Secretary of the Treasury he helped initiate the massive growth of US federal deficits (continued by the Bushes). The worst kind of deficits, during periods of economic growth — in which surpluses should pay down the debt.
Now, with the economy in recession, he realizes that deficits are bad. And like some deranged cultist, he warns us to expect doom really soon. No evidence, historical precedents, or explanation needed. This makes War of the Worlds and When Worlds Collide look like documentaries.
Here are a few highlights and rebuttals. Excerpts from “When Globalism Runs Its Course – The Year America Dissolved“, Paul Craig Roberts, Counterpunch, 26 July 2010 (hat tip to Zenpundit):
It was 2017. Clans were governing America. The first clans organized around local police forces. The conservatives’ war on crime during the late 20th century and the Bush/Obama war on terror during the first decade of the 21st century had resulted in the police becoming militarized and unaccountable.
As society broke down, the police became warlords. The state police broke apart, and the officers were subsumed into the local forces of their communities. The newly formed tribes expanded to encompass the relatives and friends of the police.
Roberts describes a near-complete collapse of US society in five years. What are the historical precedents for this in a developed nation? the past two centuries have seen every kind of social stress. This scenario exceeds anything seen during
- following the collapse of losing states during WWI and WWII,
- the German and Austerian bouts of hyperinflation,
- the decade-long Great Depression, and
- following the collapse of the Russian, Ottoman, and Russian Empires.
Even emerging nations have undergone economic collapse without massive social collapse. Such as the southeast Asian nations in 1997-98 or the many Latin America events (e.g., Argentina in 2001-02).
The dollar had collapsed as world reserve currency in 2012 when the worsening economic depression made it clear to Washington’s creditors that the federal budget deficit was too large to be financed except by the printing of money.
While possible, this is unlikely. Any large downturn in 2010-12 will be global. Currency movements are relative. So who goes up as the US dollar drops? The Japanese Yen? In its third decade of downturn, Japan’s regime might not survive a depression. The Euro? The European Monetary Union has lower odds of surviving a downturn than the Yen. The other currencies lack the necessary size; most of the world’s nations will go down with the G-3.
Most important, printing money is a commonplace, not the instant death described by conservatives. The collapse of Greece resulted from its inability to act like the US and China, with monetary and fiscal stimulus. Greece could not print money, any more than could New Jersey.
With the dollar’s demise, import prices skyrocketed. As Americans were unable to afford foreign-made goods, the transnational corporations that were producing offshore for US markets were bankrupted, further eroding the government’s revenue base.
This is wrong on several levels.
- The US trade sector is small. Imports are equivalent to only one-fifth of GDP. Too small for a US dollar decline to initiate hyperinflation — even in the unlikely event that the USD crashes vs. both the Euro and Yen.
- A dollar decline benefits US exporters. And the US does export; exports have increased as a fraction of GDP throughout the post-WWII era (see this graph; almost 13% of GDP in 2008).
- Inflation is difficult to get during a downturn, due to the massive excess capacity of both labor and capacity (to produce goods and services).
The remainder of Roberts’ essay is just black fantasy. I recommend it for anyone who likes this genre.
Other articles by Roberts
I agree with much of his work, but it’s mostly politics in disguise. Here are two examples of the folly that results from his abuse of economics.
- “The Profile of a Third World Country How Bush Destroyed the Dollar“, Counterpunch, 26 January 2008 — Too bizarre to discuss, except as an example of poor economic analysis. Nice example of the currency fetish that has damaged so many countries (e.g., Churchill’s overpricing of the Pound after WWI). The US dollar probably must come down in value.
- “Deficit Nonchalance – Why Obama’s Red Ink is Different From Reagan’s“, Counterpunch, 13 February 2009 — Economic malpractice, ignoring that Reagan’s were during a recession and Obama’s during a downturn. Also features the now-proved baseless worries about the US government’s ability to finance the deficits (interest rates are at generational lows).
My description of a dark scenario for the US economy
- Hidden truths about the state of the US economy
- What lies ahead for the US economy? the global economy?
- Some thoughts on the political implications of a long recession
Posts about economics
- The greatness of John Maynard Keynes, our only guide in this crisis, 4 December 2008
- About the state of economic science, and advice from a famous economist, 8 December 2008
- “A depression is for capitalism like a good, cold douche.”, 17 December 2008 — Austrian economics.
- Words of wisdom about the global recession, from the greatest economist of our era, 29 December 2008
- A very important article by an expert, discussing the necessary next step to solve the financial crisis, 17 February 2009
- Economic theory as a guiding light for government action in this crisis, 10 March 2009
- Fetters of the mind blind us so that we cannot see a solution to this crisis, 1 April 2009
- A look at Faux Economics, increasingly popular but bizarrely wrong, 15 June 2010
- Keynes comments on our new-found love of austerity, 21 June 2010
- Why have mainstream economists lost the arguement about the need for more economic stimulus?, 27 June 2010