In today’s column, Krugman raises the specter of the miraculous in his exploration of why Rick Perry’s Texas miracle is all smoke and mirrors. Its worth considering Krugman’s piece, not on the merits of the argument–which are excruciatingly simplistic [K's thesis: Perry's success in Texas in a function of demographics and low wages not repeatable on a national scale]–but rather on the absence of merit in his rhetoric.
Paul’s obvious disdain for miracles comes across loud and clear, perhaps most evidently at the end of today’s article when he states:
So when Mr. Perry presents himself as the candidate who knows how to create jobs, don’t believe him. His prescriptions for job creation would work about as well in practice as his prayer-based attempt to end Texas’s crippling drought.
From a logical perspective, Krugman’s argument concludes here with an analogy in which Perry’s potential as economic savior is equal to the efficacy of prayer in ending natural disasters.
Regardless of what any of us believe, it would seem, Krugman is invoking the one unifying conviction he shares with his own base, namely that miracles–let’s propose a definition of divine intervention in the natural world for simplicity’s sake–simply do not happen. With this given, according Perry’s potential with that ostensibly inexorable truth gives Krugman a rhetorical triumph. Perry fails and should be perceived as a future failure if he were to be president because, just like miracles, he is ineffective.
The only problem, Paul, is that even in the ‘dismal science’ of economics, miracles have and do continue to take place. Take for instance the Brazilian Miracle of the 1990s in which Brazil’s leading economists rehabilitated the national economy by simply asking people to believe that prices didn’t fluctuate in their new currency. For years, Brazil had been ravaged by massive hikes in inflation. Towards the end of this inflationary supercycle, shop keepers would change the price of food items on the hour, leading to hoarding which in turn produced even more demand–driving prices even higher. In response, the Brazilian central bank conceived of a bold plan in which the country would make a switch to a new currency. The only problem was that for the gambit to work, Brazilians from all walks of life had to believe that an otherwise worthless piece of paper had value–and not just transactional value, but that it could be a currency that would also act as a store of value. To make their plan work, they decided to start by having all the goods in the economy priced in both currencies. However, the key difference was that while the old one continued to wildly fluctuate throughout the day–the new one was kept constant. In the end, people believed in the currency and Brazil was reborn.
This of course, is simply a positive example. Consider the financial crisis we are in right now. More than anything, the crisis was started when counterparties to exotic risk ventures in derivatives began to doubt the creditworthiness of each other. Liquidity dried up which forced a snowball like effect throughout the economy and as loans to consumers stopped, cascading defaults were unleashed and it has only been through the production of otherwise fictitious currency by the Fed’s creative programs that has stood in the breach.
Of course, there could be no greater indication of faith based economics than Richard Nixon’s fateful decision to go off the gold standard, whose 40th anniversary we celebrate today curiously enough. Hinting upon the miraculous nature of Mr. Nixon’s decision, it was none other than the former ‘maestro’ himself, Alan Greenspan, who conceded in an interview that the US ‘cannot go bankrupt’ because we can, after all, just print the money. I don’t know about you, but if that isn’t miraculous, then I don’t know what is!
In the end, Paul, I find your lack of faith troubling. You and I both know that the economy is a faith based operation–after all, they do call it ‘investor confidence’ and ‘animal spirits’. I guess that your article, again from a rhetorical perspective, only serves to underline one clear truth, that writing ideological diatribes only serves to safeguard the mechanism of a given ideology’s means of reproduction. In your case, it would appear then that your worldview is financed upon incredulity of the facts. Disappointing. Very disappointing.
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