Politics and Economics (1)

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Cullen Roche has a readable piece about the effect of mainstream economics on the presidential election in the US.

Of course, talking about mainstream economics as such is rather a mouthful. First, there is no such thing; and second, anything approximating a complete and absolute body of economics is likely to be of such high complexity as to be virtually intractable.

On the other hand, we need to talk about the economy and it is sensible to reflect on our notions of it (economics). 

Roche makes at least three points that pique my curiosity, for I think they are important, and while I have no settled opinion on them, I feel it is worth our while looking into the issues more attentively:

There’s little doubt, in my opinion, that orthodox economic ideas contributed to the post-crisis period of discontent. This can be summarized in two ideas:

1. Orthodox economics ignored the linkage between the real economy and the financial economy. This failure set the stage for the financial crisis and exacerbated its impact.
2. Orthodox economics, being dominated by monetarist influence, had (has?) an excessive faith in the influence of monetary policy. This distracted from other potential policies and resulted in a weaker economy than we would otherwise have.

The third point is this: 

The hyperglobalism of the last 30 years is primarily the result of technological changes that have made a big world a very small place as well as the way the US economy has shifted from a manufacturing economy to a services economy. These changes almost certainly would have occurred without or without free trade.

The source.

I am sympathetic to the first two points, and even to the third point, on which latter, however, I feel considerably less certain than on the first two.

Modern businessmen, bankers and economists do not understand money. Developments in the monetary areas are especially prone to bringing forth crises that are impossible for the economist to foresee and understand, because his guild has been systematically ignoring money almost as a trade mark.

As for the costs and benefits of free trade, nationally and internationally, I am less decided, but I suspect that one has to move away quite some stretch from either idealisations, the adulation of free international trade and its summary condemnation.

The fact that trade can be hugely advantageous must never be forgotten, but it is also necessary to be aware of the possibility that it may have harmful effects. Regrettably, people tend to emphasise one of the two extremes.

It may well be that intensified free trade (globalisation) will have positive long-term effects, while at the same time requiring attenuating interventions in the short- and medium term, to avoid excessive disruptions, not least in the countries that used to be economically unassailable by (former) third world countries that now quickly develop to be (soon) on a par with the leading economies of the West.

See also my Economics's Runaway Standstill. And Politics and Economics (2).