Biden's statement reminded me of something Nancy Pelosi uttered before enactment of the unpopular Obamacare legislation affecting 1/6th of our national economy. Of course, Joe Biden and Nancy Pelosi are not trained economists, nor am I, but these people are running the country. This clip is only five seconds...
My timing to read the aforementioned Forbes piece was good since I'd just finished fighting my way through Nassim Taleb's best selling book, The Black Swan. (I use the verb "fight" because several technical aspects of the book are incomprehensible to me).
In their own ways, Messrs. Flax and Taleb fillet and roast the cadre of economists, public policy-makers and financial journalists who ascribe curative powers to the Keynesian path. Living within one's means and free market principles are concepts ignored, even ridiculed, by these economic intelligentsia (e.g. Paul Krugman) as they advocate for trillions in "stimulus".
Their voices usually (always?) clamor for more government spending. The reason QE2 failed, according to these experts, is that the sum wasn't large enough and all the fresh liquidity wasn't given enough time to work. On the other hand, economists like Nassim Taleb see the economic calamities we now face, through a very different lens. But first back to the Forbes, piece.
Mr. Flax says of the "science" of economics and its modern day application to fiscal policy, "The principal failing of macroeconomics is the intrusion it invites and the certainty it instills in politicians...no planner, no matter how wise, could possibly appreciate all the subjective nuances lurking behind these numbers. Such schemes are doomed to folly."
There also exists today, a notion that pols sparring over fiscal policy must "compromise" as if the key to solving our economic morass falls in the middle of some ideological bell curve. Compromise might produce added legislation, but it won't cure a deficit spending addiction. Consider Nassim Taleb's eighth principle for a Black-Swan-Robust Society,
"Do not give an addict drugs if he has withdrawal pains. Using leverage to cure the problems of too much leverage is not homeopathy, it's denial. We need rehab."
|1900 advertisement treatment for morphine addiction - Wikipedia|
The summary point is this -- one cannot compromise with a drug addict, they only come back for more, which is why we must focus on the spending. Tax increases and money printing are analogous to a government's morphine fix -- it feels good for a while, but it only makes the problem worse before the inexorable crash. We must go cold turkey and take the pain incrementally.