It’s the Economy Stupid!

Bill Barnes

The mess in the U.S. economy is not an ordinary one. So, figuring out what is to be done is not ordinary either.

The difficulties go far beyond the policy processes in which all
interests agree that pain must be endured: by goring someone else’s ox.

Three other factors make matters worse: tattered frameworks; the long and short of it; and Goldberg’s rule.

Tattered Frameworks
Actual economic conditions don’t fit our conventional frameworks for economic thinking.
John Cassidy’s When Markets Fail traces the rise and fall, over the
past 40 years, of what he calls “utopian economics”: the
markets-work-and-they-should-be-left-alone model. That way of thinking
lost dominance as markets and the model failed to work and produced
disastrous results (think the dot.com and housing bubbles, financial
system collapse, stagnant wages.)

Similarly, the Wall Street
Journal, in a review of the 21st century’s first decade, described “The
Dimming of a Beacon” and headlined that “the Nation’s Economic Model Had
a Rocky Ride.” An important marker of this dimming light was Alan
Greenspan’s retrospective mea culpa regarding his tenure at the Federal
Reserve. The National Journal reports that “good economics is in short
supply.”

We’re also a long way from Richard Nixon declaring
that “we are all Keynesians now.” Two major “stimulus” packages, more or
less Keynesian, surely helped prevent things from getting even worse.
Huge makeshift efforts seem to have brought a still deeply
unsatisfactory financial system back from the brink. But “what might
have happened” isn’t tangible and what has happened is bad enough to
rivet people’s attention.

Something, for example, is amiss
with the concept of “recession.” Officially, it was more than two years
ago. But a very high unemployment rate persists, and we surely see that
as a key measure of what normal folks mean by recession. Now, it’s just
another drag on recovery; that seems unconscionably inappropriate.
Recovery seems to be mainly about growth in GDP; maybe growth is not the
answer to all questions.

The search is on for alternative
frames, but we’re nowhere near a new consensus. Cassidy recommends
“reality-based economics [that] affords the concept of market failure a
central place.” The Institute for New Economic Thinking, funded by
investor George Soros, has begun a search for fresh thinking and better
theories. The monetarists are still with us, and the field of behavioral
economics is developing rapidly. Others promote looking at the economy
from the bottom up, beginning with the city-centered economic regions.

The Long and Short
We’re amidst ruins created by both the business cycle and also by
deeply rooted trends of long duration; that is, both cyclical and
structural factors. Each exacerbates the other, so we cannot just wait
for a “recovery” to arrive naturally or by administering home remedies.

Public Agenda, the opinion research and public engagement organization,
reports that Americans worry at least as much about their longer-term
economic struggles (sending their kids to college, retirement) as
short-term ones.

Structural maladies have accumulated over
several decades. Extreme income and wealth inequality, for example,
continues, making it harder to solve other problems, and poisoning
politics. The percentage of Americans who are officially “poor” has been
stuck in the low-to-mid teens since 1970. Infrastructure and R&D
investments are inadequate. Americans have over-consumed and
under-saved. Governments borrowed too much. Regulatory capture –cozy
relationships twixt regulators and the supposedly regulated–produced
bad results in diverse fields from building codes to bank monitoring.

Goldberg’s Rule
Finally, we’re nowhere near agreement on the question of “what’s the
problem?” and so we’re in complete disarray about “what is to be done?”

In Thinking in Time, Richard E. Neustadt and Ernest R. May cite Avram
Goldberg, executive of a chain of grocery and department stores: “I
don’t ask ‘what’s the problem?’ I say ‘Tell me the story.’ That way, I
find out what the problem really is.”

Lots of people are
offering their favorite solutions. That’s the wrong place to start. The
Goldberg Rule suggests that we need to sort out–from the many tales of
greed, misjudgment, bad systems and worse–a convincing story about
what the problems are and how we got into them and how they fit
together. Lacking that, we have a Babel of options, each vaguely nested
in a different yet merely implicit framework of economic ideas.

Unfortunately, amidst all of these and other challenges, economic
policy discourses in Washington and in many states and localities have
narrowed down to governmental budget strategies.

Pundits and
the news media are treating the federal budget situation, for example,
as a horse race story between tax-and-spend versus shred-the-safety-net.
The biggest horse race story of them all, the 2012 elections, is well
underway already and is affecting all these debates.

Horse
race stories are not enough; they are easy but misleading. Tough
thinking–about frameworks and options and stories, by leaders
throughout governments and other sectors–is harder but necessary.

Bill Barnes is the director for
emerging issues at the National League of Cities. Comments about his
column, which is reprinted with permission from NLC’s “Nation’s Cities
Weekly,” can be sent to him at [email protected]. Previous columns are
collected at the Emerging Issues webpage at www.nlc.org.

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