Thursday, May 2, 2013

Summers v. Hubbard - And the result just isn't very suprising.

Adam Davidson in the New York Times Magazine writes about Larry Summers and Glenn Hubbard, interviews them and even brings them together for a talk.

The most striking thing about each of them is how early experience formed their attitudes towards their field of study. They, like most economists, are creatures of their time and place. In spite of how hard many economists have tried to present their field as one capable of disciplined mathematical analysis and rigor separate from social and psychological considerations Summers and Hubbard show how little that view has to do with reality.

I freely admit that I find Hubbard's worldview the less realistic of the two. Why? Because he's conservative? Well, if by conservative you mean everything comes down to a very basic and simple philosophy wherein the government is the primary bad actor in the economy then yes, it's because he's conservative. Consider this from the article:
His views all seemed to coalesce around a fairly simple idea: the U.S. economy is better off when the government gets out of the way. Cutting the entitle­ment programs was an extension of this. It could free up more capital to further enable virtually everyone to contribute to the economy.

This simple belief just doesn't seem to be supported by the facts. Is our current economic malaise related to a lack of capital? Somehow I don't think so. Try the internet, Mr. Hubbard. Google "corporate cash on hand 2012". There is plenty of capital available for large companies and not much credit for small businesses or individuals. Still. Cutting government programs so that taxes can be cut isn't going to do a thing to change things for the better. It's faith in the answers he thinks he found in Hayek's work that powers every thought Hubbard has about economics and Hayek and most economists of his time don't have answers capable of standing up to the drastic changes that have swept over the world in recent decades.

One thing I think this article shows is that in order to understand where anyone stands when it comes to opinions on economics you need to understand the most basic core belief they have about it and where it might lead them. My most basic belief about economics is "Things change". Many people might see that and have a "Well, duh!" reaction. But it leads me to question beliefs and attitudes in the field that seem to be based on an acceptance of inherited wisdom and things that many consider to have always been true and that always will be true.

Consider the concept of comparative advantage. There are people who still believe in it. It was put forward in the early 19th century. Even then, though, David Ricardo acknowledged that there were limitations to the idea when capital could flow freely between nations. Does it really benefit both parties in today's environment where capital can flow as fast as electrons, knowledge is both power and commodity and factories can migrate like laborers as their owners seek lower wages and "friendly" regulatory environments. The answer is not necessarily. Every individual situation has to be examined to determine the answer to that question and rather than freely admitting that basic truth the desire for some kind of truth that can be broadly applied still seems to rule and rule badly. That's where I stand. That's what you should consider when reading my viewpoint on economic issues.