Sunday, April 18, 2010

Policy Venn

With apologies to MasterCard, this is a Venn diagram of U.S. economic policy. On the left we have the left, and on the right, the right. Everyone on the right thinks the left is wrong, and everyone on the left thinks the right is wrong. But see the overlap area? In there are the points of agreement between left and right. I think the points of agreement are the problem.

Emmanuel Saez's graph here shows the results of the two policies. The Keynesian years (say 1948-1978) appear as a straight, flat trend. The Reaganomics years (1978-2008) appear as a straight but sharply rising trend.

For the first thirty years after World War II, we tried Keynesian economics. Things went well for a while but ended badly. Then, for the next thirty years, we tried Reaganomics. Again things went well for a while, but ended badly.

There is some problem with both approaches.

I think the problem is in the Venn overlap. The points of agreement are the problem. The points of agreement lead to the growth of debt. Both Keynesian economics and Reaganomics produced great increases in debt.

But the points of agreement are never disputed. The policies of the Venn overlap are part of the plan no matter who is in charge. And since those policies are the source of our problems, our problems never get solved.


Nima Mahdjour said...

The government is actually pretty good at solving their OWN problems. Their problems being the challenge of how to exploit the majority as quickly and as efficiently as possible.

OUR problems? Why in the world would they care about those?? =)

The Arthurian said...

Nima, people said nothing like that in the 1960s, when the economy was good... because the economy was good, I think. I think if the government could just make the economy decent again, most anti-government animosity would evaporate. Therefore, as I see it, it is in the government's interest to provide an economy that promotes the general welfare.

That said, I have to conclude the government does not know how to repair the economy. Obviously, they know what most people think needs to be done to fix it. So you can conclude I disagree with the solution most people think will work.