Liberalism Failed, Not Economic Policy

Gary Becker and the Economics Revolution That Wasn’t

Economics didn’t fail, liberalism did. The ‘Keynesian resurgence’ failed, predictably so. The left’s solution always boils down to blaming rich people for everything, whether it’s wealth inequality, recession, poverty, low SAT scores, etc.

The wealth spreading liberals are losing to the smarties as the Dow makes another record high. The class warfare you read about in San Francisco regarding the Google buses and Tom Perkins is an example of this friction between two diametrically opposing ideologies. Although we do have an entitlement spending problem, America is not becoming a 3rd world nation. Not too many third world nations have multi-billion dollar tech companies or the highest concentration of billionaires in the world. We’re not doomed, as much as the left wishes we were. In the words of Louis C.K., everything is amazing and nobody is happy. Or everything is amazing and left still finds reason to complain.

From the article:

In the making of economic policy, too, the changes have been incremental rather than revolutionary. Institutions such as the World Bank, the International Monetary Fund, and the Federal Reserve are more open to arguments questioning deregulation, capital mobility, and rising inequality than they used to be. But the theoretical models that these institutions rely on haven’t changed very much. If you read the minutes from Federal Open Market Committee meetings, you will find the discussion couched in terms of inflation targeting and interest-rate rules—the same framework that Fed policymakers were using when they failed to spot the housing and credit bubbles. The situation at the European Central Bank is even more stark. The institution still relies on a forecasting model that doesn’t explicitly include a financial sector.

The status quo is unshakable because that is what works. As we wrote earlier, we don’t need to reform the system; we only need effective policy in place to end crisis as soon as it arises, as was demonstrated with the super-successful bank bailouts. Liberals like Nicolas Nassim Taleb want anti-growth policy, but a bailout is much easier and, unlike regulation, has no lasting repercussions. Economists are better at resolving crisis than preventing them, but this is true of all professions. An engineer cannot predict when a plane will crash, but should a crash occur it doesn’t mean we ban flying or nationalize all the airlines; instead, we accept a baseline risk of flying, diagnose the problem and make some changes. Too big to fail policy is necessary if the economic consequences of refusing a bailout exceed the costs of the bailout. Very few companies meet this criteria, but the major financial institutions of 2008 did. Welfare liberals rebuke this idea, instead preferring to punish successful companies with regulation and letting too big to fail companies fail. It’s part of the left’s war on success and war on exceptionalism.