Humble Pie

by Wayne Spencer - October 25, 2008
Maybe you haven't noticed, but there was a counter-revolution in the economic world this week. This past Thursday we witnessed a number of people who had previously supported Reaganomics, supply-side economics, deregulation, the Chicago School, the Laffer Curve, trickle-down economics, flat tax, and a host of other economic mythological theories said they had been wrong. I have always argued that this mythology had only one purpose: to promote the preservation of the wealth of the wealthiest of the world at the expense of the poor and middle class. To that end it has been a huge success.

Supply-side economics was really a poorly disguised form of the old discredited laissez-fair economics of Adam Smith.

I have also always referred to supply-side economics as mythology because there was so little, if any, supporting scientific proof to support the theory, much like creationism. It was a leap of faith.

The well known purveyors of this mythology included such people and organizations as Ronald Reagan, Milton Friedman, Alan Greenspan, Arthur Laffer, Newt Gingrich, Henry Paulson, Bill Graham, the Republican Party in general, the U.S. Chamber of Commerce, the American Enterprise Institute, the KATO Institute, the University of Chicago School of Economics, Robert Mundell, Jack Kemp, and many others.

This past Thursday after hearing a repudiation of the Chicago School of Economics by many of its supporters we finally heard from the icon of supply-side economics. While never a student of the University of Chicago, he clearly acted as a supply-sider and as an advocate of laissez-fair economics. Greenspan was a strong advocate of self-regulation of the financial markets. Unfortunately, Alan Greenspan, unlike most of his other supply-side advocates, had the power to put his idealology into practice. As Chairman of the Federal Reserve, Greenspan was able to also inflict damage on the labor side of the economic equation.

The following is an excerpt from http://en.wikipedia.org/wiki/Alan_Greenspan :

While it was breath taking to hear supply-siders repenting, I must admit that I am also eating some humble pie myself. In recent commentaries I have referred to the serious effects that the bailout would have on the value of the U.S. dollar and on the acceptability of U.S. Treasury bonds. Well, so far, I have been proved very wrong. The U.S. dollar has increased sharply against all other currencies except the Japanese Yen. Meanwhile, U.S. Treasury bonds are the most sought after haven of security in the world. Remember this the next time an advocate for privatization of Social Security tells us about the worthless IOU's, called U.S. Treasury bonds, that are held by the Social Security Administration. In this case it is nice to be wrong. Humble pie can be tasty. Another surprise is that during this crisis gold has been losing value.

Now that it seems the adults are again in charge of the financial markets, we are still going to have to struggle to get the massive government spending on infrastructure, bailout of the State Governments and renegotiation of troubled home mortgages past the present administration. George Bush and many Republicans are still against government spending. McCain is still advocating a freeze on all government spending except the military. If we do not have massive government spending that boosts the American economy we could very well be headed for more than just a recession.

I still think that the game of Monopoly is a good way to visualize the economy. So far the Treasury and the Federal Reserve has essentially replenished the bank. Now think about this: In the game of Monopoly we are at the place where all of the players except one have sold or mortgaged all of the property that they had and are now totally broke. The one player has all of the money and nearly all of the assets on the board. How will the replenishment of the money in the "bank" without any other measures restart the game? Surely anyone who is familiar with the game knows the answer to that one.

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Copyright © 2008 by Wayne Spencer - This article may be freely distributed with this copyright notice attached.