Why Some Economists Can’t See the Truth

Paul KrugmanPaul Krugman claims to not understand why smart economists would make claims that they know to be wrong. It is too bad that Krugman doesn’t read me, because I am going to use my super-powers of cynicism to explain why these economists behave in this way. But first, we have to consider the question that the economists are grappling with.

As you may know, Japan has a huge amount of debt because of its very long recession. It is currently about 240% of the nation’s GDP. Compare this to the freak out we have among conservatives in the United States with our debt level being just over 100%. (Note: this is ridiculous; most homeowners owe a lot more than they make in any given year.) So some economists maintain that one day, people who buy Japanese bonds may just require a higher interest rate than they are now getting. This would cause the Japanese government to have to pay much more to support its debt. Thus catastrophe would ensue.

The problem is that it doesn’t work this way. What would happen instead is that the Japanese yen would simply go down in value. And here is the critical thing: this would be great for the Japanese economy! Suddenly, Japanese exports would be in greater demand and the Japanese people would be importing less. The only potential problem would be that the yen would fall so much that it would cause an inflation crisis. But as Krugman noted, this “seems unlikely and certainly isn’t the way the warnings are usually phrased…”

So why is it that economists would forget about this and claim that Japan must enact austerity policies like the ones that are working so badly in the United Kingdom and throughout Europe? That is such an easy question! And I don’t actually think that Krugman is ignorant of this. He just can’t be seen as questioning the integrity of such a huge figure as Ken Rogoff. So he pretends not to know that Rogoff is just an apologist for the power elite.

There is one group of people who would be harmed if investors lost faith in Japan: the people who already have a lot of Japanese yens. You know: the owning class. But the Ken Rogoffs of the world can’t say, “Japan really needs to get its fiscal house in order or a bunch millionaires and billionaires are likely to lose some serious money!” But I doubt that people making these arguments are even aware of what they are actually doing. I suspect that they are just so used to seeing the world through the eyes of this class that it just seems natural.

But imagine if we could get economists to think in terms of workers! Imagine if the unknown assumption was always, “How will this affect working men and women?”! That would be something. But it won’t happen. The economics profession is like a priesthood. It’s primary interest is in the purity of its models. And workers just pollute that purity. If there were truth in advertising for academia, economics would be renamed “oligarchic apologia.”

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About Frank Moraes

Frank Moraes is a freelance writer and editor online and in print. He is educated as a scientist with a PhD in Atmospheric Physics. He has worked in climate science, remote sensing, throughout the computer industry, and as a college physics instructor. Find out more at About Frank Moraes.

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