Wednesday, September 23, 2015
I don't read these things, so maybe I have it wrong. Looks to me like Nassim Taleb said "A good political system is one that allows the country to have an idiot, or a team of idiots at the top, without suffering from it." And Noah Smith replied "Yes, and a good coffee maker is one that doesn't break even when you hit it with a hammer."
Back after the end of World War Two, the government had a lot of debt and the private sector didn't. What with reduced output during the Depression and rationing during the war, after the war people were ready to spend some, even to go into debt.
And then, because people didn't already have a lot of debt, it wasn't a problem when they did accumulate a little debt. The economy wasn't dragged down by the cost of debt so much as it was buoyed by the spending of borrowed money.
The economic environment, in other words, was conducive to economic growth. And growth was good.
In that environment, you could put idiots in charge and the economy would still be good. But it has nothing to do with the political system being good, and everything to do with the economic environment being conducive to growth.
So, let me go back to Noah Smith and Nassim Taleb.
Taleb makes a statement worth thinking about. Noah Smith smashes it with a hammer. Noah Smith is an idiot.
Taleb says if the system is good, it can withstand idiots. I agree, but with caveats.
1. Politics is yap. Economics is money. It is the economic system that must be good, if it is to withstand idiots.
2. By encouraging the growth of private sector debt, the idiots of the 1960s eroded the conducive nature of the economic environment. They did harm to the economic system by increasing costs, financial costs. When the problem appeared, it appeared as inflation. Inflation was the economy's solution to the problem of increasing costs. (General inflation was the economy's solution to the problem of increasing financial costs.)
3. The idiots of the 1980s suppressed inflation by suppressing the thing that was good about the economy: economic growth. Sure, yes, inflation fell on their watch. But not because they reversed the increase of financial costs. Inflation fell because vigorous economic growth disappeared and never returned.
4. And like the idiots of the 1960s, the idiots of the 1980s encouraged the growth of private sector debt. This made the cost problem worse, which reduced growth more. Then these idiots tried to counteract the decline of growth with solutions to help the supply-side grow. But the part of the supply side that was willing and able to grow was the financial sector, so the cost problem continued to grow worse, right up to the moment of crisis.
Conclusions: Yes, the economic system can withstand idiots, but not forever. And the economic environment is the context that can make fools look like wise men, if the fools are lucky enough to get out before things go bad.
Posted by The Arthurian at 4:00 AM