Although my family did end its subscription last year due to the magazine’s increasingly visible slants, Newsweek still has some interesting articles. This piece discusses changing persona and economic positions of Obama’s top economic advisor, former Harvard President and Clinton Treasury Secretary Larry Summers. The article points out that Summers has moved out of his free market mold to support more interventionist policies because of the changing circumstances of the financial crisis; on the other hand, he may eventually move back towards the middle and endorse more moderate regulation policies.
I don’t buy any talk of economic revelations in light of the financial crisis. It seems apparent to me that there is little consensus among economists, both among free-marketers and those who are traditionally more supportive of government intervention, and that many Obama advisers and cabinet members are “going along with the flow” of the massive government stimulus. I certainly hope they guess right on this one.
It seems to me that the failure of economists has to do with the failure of any rational system to hedge in another one. That is, the economists seem as divorced from their economic creations as their economic creations have exceeded their models; after all this crisis is not the crisis of an event but the crisis of a system of debt and credit, of a mode of thought created by a set of scholarly thinkers of which the President of Harvard is a most influential one.
Now that the monster has been set loose; there is no economist to tie it down. As far as the crises is concerned, this means that Obama’s policies, which behave as if the system of credit no longer follows a particular economic school of thought, are the correct ones. This of course was all predicted back when we did think that these global debts were collectable by the late Jean Baudrillard (http://www.egs.edu/faculty/baudrillard/baudrillard-global-debt-and-parallel-universe.html):
Clearing the debt, settling the accounts, cancelling the payments by the Third World… Don’t even think about it! We only live because of this unbalance, of the proliferation and the promise of infinity created by the debt. The global or planetary debt has, of course, no meaning in the classical terms of stock or credit. But it acts as our true collective credit line, a symbolic credit system whereby people, corporations, nations are attached to one another by default. People are tied to each other (this goes for the banks too) by means of their virtual bankruptcy, just as accomplices are tied by their crime. Everyone is certain to exist for the other in the shadow of an unamendable and insolvable debt for, as of today, the total amount of the global debt is much larger than the total amount of available capital. Thus, the debt no longer has any meaning but to unite all civilized beings to a same destiny served on credit. A similar thing takes place with nuclear weapons whose global capacity is much bigger than what is needed to destroy the entire planet. Yet, it remains as a way of uniting all of humankind to a same destiny marked by threat and deterrence.
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Maybe economists should quit reading their models and pay attention to some philosophy for a change.
Jds
Very interesting. I’ll respond to two important points you made.
“As far as the crises is concerned, this means that Obama’s policies, which behave as if the system of credit no longer follows a particular economic school of thought, are the correct ones.”
– The system of credit implemented by Obama directly follows the Keynesian school of economic thought in which the government creates credit against its ability to tax citizens in the future (its only value is the fact that it can be paid back by future generations) in order to stimulate economic growth during a recessionary period. When economic activity returns to normal, the availability of credit will drive growth that will create the wealth to pay back government credit. Credit is the basis of the entire plan.
“Everyone is certain to exist for the other in the shadow of an unamendable and insolvable debt for, as of today, the total amount of the global debt is much larger than the total amount of available capital. Thus, the debt no longer has any meaning but to unite all civilized beings to a same destiny served on credit.”
– I agree that there is something philosophically unsettling about debt no longer having any real meaning or real connection to any sort of hard asset, but the creation of this debt system has had real consequences over the last century. The last four decades have seen hundreds of millions of people emerge from poverty and subsistence, and the extension of credit to the developing world has resulted in huge global gains. All of this growth and development has been driven by this “meaningless debt.” Now, if the global economy collapses within the next year, I will be the first to say that it was not worth it. But in the meantime, as the world economy recovers, bit is hard to overlook the benefits these ‘models’ have bestowed on human civilization.