“Ideology is often used to think about issues without actually using their brains”-The Badass Economist

As the economy enters its sixth year of what appears will continue to be sub-par growth, the suggestions coming from the political-economic sub-set of chattering class do not appear to have changed much from what they were 6 years ago. Indeed, despite facing generational economic challenges, it really doesn’t appear that either of the political parties, the current Administration, or their critics/defenders in the press have many new economic ideas from what they had 5, 10, 15, or even 20 years ago.  While politics is politics and one would expect the politicians to advocate programs & policies that benefit them politically, it is the dearth of new ideas from the commentators and observers that is most puzzling.

The reason for this is that the (partisan) commentators appear to have succumbed to economic ideology. From the commentators on the left, we are told that government programs are the solutions to all ills, and we are told from the right that tax cuts and less regulation will unleash economic growth. Whether these prescriptions will help what ails us at any given time is not the point. The point is that these are the same economic prescriptions that are offered in all circumstances by the various parties. When the economy is expanding, the right offers more tax cuts and less regulation. When the economy is contracting, the right offers more tax cuts and less regulation. When the economy is stagnant, the right offers more tax cuts and less regulation. The left’s prescription for all three of those scenarios is more government expenditures. However, when the promised policy doesn’t deliver the promised result (such as the Obama stimulus not allowing the unemployment rate to exceed 8%), there is no reexamining the underlying premise of the policy. Instead, while the attackers point out that the stimulus didn’t function as advertised and added more to the national debt, the defenders (aka Paul Krugman) repeatedly argue that the stimulus would have worked if it had only been larger.

What these discussions reveal is that our political-economic institutions (including the media) are stuck in the past. It is not that there are no longer appropriate times for more government spending or lower taxes/less regulation, it is that our institutions have calcified around a couple of solutions that did work well once upon a time under certain conditions. Reagan’s tax cuts helped to spur economic growth, it could be argued, for the better part of 15 to 20 years. And increasing government expenditures helped to mitigate some of the worst aspects of the Depression.

However, the economy today is structured completely differently than either of those economies were. The industrial economy of the Depression years was one in which the level of specialization needed was much less than today. For example, an industrial worker could switch from an auto assembly line, to a furniture making assembly line, to a washing machine assembly with minimal difficulty. A person with a strong back was employable in a variety of industries. Today, the economy is much more specialized and the skills in a certain job in a certain industry may not translate easily into another industry. Even from Reagan’s day, there are large numbers of jobs that existed when Reagan first became President that no longer exist today, and there are large numbers of jobs that do exist today that didn’t in the early 80’s.

The point is that with an economy that is structured differently from when the economic ideology was formed, we cannot expect that policy prescriptions that worked well at a certain place and time are appropriate today when facing what may appear, at first glance to be similar economic challenges. Much of what appears today to be an elite with little idea of what to do is likely the effects of economic ideology. Until the political-economic institutions come up with a new economic paradigm more suited to the economic structure that we have today, the U.S. economy is likely to struggle and will not achieve the full potential that it has.